“I just can’t believe this!” said the frustrated contractor. “I did a beautiful $100,000 home addition, and the court just voided my contract. I can’t collect a dime because I didn’t put in a toll free number and list my subcontractors!”
How is this possible? Under the new Pennsylvania Home Improvement Consumer Protection Act (HICPA), there are very strict rules on entering into contracts. HICPA provides that if a contractor does not comply, the agreement entered into with a homeowner cannot be enforced by the contractor. In July 2009, HICPA became law. Designed to protect consumers, HICPA imposes significant burdens on anyone in Pennsylvania who does work on private residences. If you think you’re not affected, you’d better think again!
The Act requires ALL contractors who’ve done more than $5,000 of home improvement work in the prior year to register with Bureau of Consumer Protection. HICPA applies not just to home improvement companies, but also to electricians, plumbers, alarm companies, carpenters. hvac contractors, landscapers and others. Once you’re registered your obligations don’t stop there. Your contracts with your customers must contain all the provisions that HICPA requires or the contracts are not valid.
“Okay, I get it now,” said the plumber who couldn’t collect $5,000 from his customer. “So, exactly what do I have to do?”
HICPA requires registering with the Bureau of Consumer Protection by written application or on the website. Registration costs $50 and is good for two years. Once the contractor has received the registration certificate, the registration number MUST be in advertisements, contracts, estimates, and proposals. The term “Advertisements” is very broad and includes even trucks which bear the company name.
What Must the Home Improvement Contract Contain?
At the time the contractor executes the contract, the owner must be given a complete copy which MUST contain all required notices and provisions. No home improvement contract is valid or enforceable against an owner unless it is signed, dated and contains the contractor registration number. The agreement must also have the toll free number for the Bureau of Consumer Protection as well as identifying information not just for the contractor but for all subcontractors. Other required information includes approximate starting and completion dates, total price, down payment (which cannot exceed 1/3), a full description of the specifications/work to be done, insurance coverage (which cannot be less than $50,000) and a notice of the right of rescission. Failing to include any one of these requirements into the contract will destroy the contractor’s effort to enforce the contract.
There are also certain clauses that are not permitted. Inclusion of even one of the prohibited provisions will render the entire agreement voidable: hold harmless, confession of judgment clause, waiver of the right to a jury trial, an aware of attorneys’ fees and costs to the contractor.
What Penalties Can Be Imposed?
In addition to a contractor not being able to enforce its contract against a homeowner, it can be held criminally responsible for violations of HICPA which, under certain circumstances, can be felonies. A court may also revoke or suspend the contractor’s certificate. Finally, the failure to comply with any provision of HICPA constitutes a violation of the Pennsylvania Unfair Trade Practices Act which may expose a contractor to triple the damages and attorneys’ fees.
While HICPA will have its desired effect on unscrupulous outfits, anyone who is reputable and complies will not have a problem. Compliance is very technical. Getting advice from an experienced attorney now can save a lot of hardship and money for a contractor down the road.
Jeffrey S. Batoff (firstname.lastname@example.org) and Nicholas Poduslenko (email@example.com), partners with Obermayer Rebmann Maxwell & Hippel LLP (www.obermayer.com) advise contractors on how to comply with the HICP Act as well as on all other matters of concern to contractors. Obermayer is a full service law firm with Pennsylvania offices in Philadelphia, Berwyn, Pittsburgh, Harrisburg and Altoona. The foregoing does not constitute legal advice nor are the ideas and opinions expressed necessarily those of the Business Journal.