Homeowners and Home Improvement Contractors: Know Your Rights and Obligations

Homeowners and Home Improvement Contractors: Know Your Rights and Obligations

Anyone who has hired a contractor knows there are rules that must be followed, whether obtaining permits, a certificate of occupancy or Planning Board approval. Did you know there are laws that specifically protect rights of homeowners by requiring that home improvement contractors abide by precise requirements? Homeowners, read on to learn about your rights; home improvement contractors, read on to learn about your obligations; ignorance of the law and failure to comply may jeopardize your rights.

How Are Home Improvement Contractors Regulated?

Although New Jersey law regulates all contractors, home improvement contractors have additional obligations. Those obligations are set forth in two statutes, two administrative regulations and case law. They include:

• The Consumer Fraud Act;
• The Contractor Registration Act; and
• The Home Improvement Practices Act.

The Consumer Fraud Act

Homeowners may sue home improvement contractors under the Consumer Fraud Act. Your home improvement contractor is liable for affirmative acts, omissions and technical violations of administrative regulations. That means you can sue them if they commit an unlawful practice, there is an ascertainable loss and there is a causal relationship between the unlawful practice and the loss. If you win, you could get damages – even up to triple damages – attorney’s fees and a refund.

Home improvement contractors who don’t abide by administrative regulations may have trouble enforcing a contract requiring a homeowner to pay for services rendered. Under certain circumstances, a court may require that the contractor pay a homeowner’s counsel fees for a technical violation, even when the home improvement contractor unknowingly perpetrated the “lowest conceivable level of violation,” e.g. failure to include a start and finish date.

The Contractor Registration Act

If you are a home improvement contractor who has not already registered, it is imperative that you do so. A contractor’s failure to abide by The Contractor Registration Act violates the Consumer Fraud Act and is a fourth degree crime. A municipality cannot issue a construction permit to an unregistered contractor. The home improvement contractor registration period beginning January 20, 2015 expires March 31, 2016. Thereafter, registration periods begin April 1 of each year and end on the following March 31.

The Contractor Registration Act mandates that contractors register annually and maintain minimum commercial general liability insurance of $500,000 per occurrence. A contractor includes retail merchants who charge for the installation of their products, e.g. a carpet store, an installer of shelving and flooring, etc. Home improvements include insulation installation, home elevation and the conversion of commercial structures to residential properties.

Registrants must display their registration numbers in their business, in advertisements, on business documents, on contracts and correspondence with consumers and on commercial vehicles. Their toll-free telephone number must appear on invoices, contracts and consumer correspondence and they must wear identification badges. Home improvement contracts costing more than $500 must be understandable, memorialized in a signed writing and include the precise information listed in the Act.

Registration may be revoked if the holder engaged in dishonesty, fraud, gross negligence, repeated negligence, misconduct or was convicted of a crime of moral turpitude, etc. However, home improvement contractors will not be disqualified solely because of a conviction if they demonstrate they were rehabilitated.

Home Improvement Practices Act

The Home Improvement Practices Act implements the Consumer Fraud Act by defining specific acts as “unlawful practices.” An “unlawful practice” violates the Consumer Fraud Act. Sellers of home improvements are precluded from engaging in specific identified acts, the violation of which can result in the refusal of a court to enforce the contract with the homeowner as well as an order mandating that the contractor pay the homeowner triple the damages and counsel fees. Similarly, sellers of home improvements are mandated to include specific information in their contracts; their failure to do so can result in an inability to enforce payment. It is critical that home improvement contractors have contracts that comply with this Act.

Penalties & Damages

An unregistered contractor who knowingly violates the Contractor Registration Act is guilty of a fourth degree crime and subject to a penalty up to $10,000 for the first offense and up to $20,000 for each subsequent one. A homeowner who proves a causal relationship between an unlawful practice and a loss may be entitled to triple the damages, attorney’s fees and a refund.

A principal or employee of a home improvement contractor also may be personally liable under the Consumer Fraud Act, even though the homeowner did not enter into the contract with the individual – but entered into it with a corporation or an L.L.C. Both the individual and the corporation or L.L.C. will be liable when the individual violated the Consumer Fraud Act. For example, the court found an individual liable because he, as a principal in a home improvement company, executed the home improvement contract that omitted provisions required by law. His wife, also a principal, was not liable, however, because there was no evidence of her direct participation.

What’s a Homeowner to Do?

Before retaining a home improvement contractor, here’s what you can do to protect yourself:

• Obtain the contractor’s state registration number, which will begin with “13VH.”
• Contact the State Division of Consumer Affairs at (973) 273-8090 to confirm the registration is valid and determine if complaints were filed.
• Ensure you understand the written contract and written warranties.
• Check your home improvement contractor’s references.
• Obtain a copy of the home improvement contractor’s commercial general liability insurance policy and call the insurance company to ensure it is valid.

Note, however, that although the liability insurance policy will protect parties who are injured by the contractor; it often does not protect the homeowner if the contractors’ work is shoddy. Finally, do not pay for the entire project in advance.

Should you be dissatisfied with the work, you can obtain relief relatively quickly by filing suit in Special Civil Part for damages not to exceed $15,000 in addition to attorney’s fees. Homeowners may file suit in the Law Division to recover more than $15,000, although it will take significantly longer to obtain relief from that court. Home improvement contractors that are incorporated or an L.L.C. will require an attorney to defend them in court; homeowners do not.

What’s a Contractor To Do?

The best defense is a good offense. Know the law and abide by the regulations. Ensure your contract complies with legal requirements.

If you, as the home improvement contractor, did not abide by the regulations, filing a lawsuit to enforce the contract may be futile. A court may not enforce a home improvement contract when the contractor violated the regulations and may, instead, require that you pay the homeowner’s legal fees and refund the deposit. Home improvement contractors may be successful, however, if they file suit under the theory of quantum meruit, which requires that the contractor establish the reasonable value of his services.

Rona Z. Kaplan is a partner at Cooper Levenson Attorneys at Law. Based in the firm’s Atlantic City office, she has significant experience in a wide array of litigation matters from broken contract cases to contractual disputes and employment law-related issues.