A construction contract is a binding agreement that specifies the terms and conditions for service and payment of the renovation or remodel. Both the homeowner and the builder have specific interests in the remodel that need to be protected, so make sure your contract contains the following important provisions.
What should the builder include in the construction contract?
The greatest hit that builders take when working on a project is unanticipated building costs. Sometimes there's a boulder where the basement was meant to be; sometimes there's termite damage in the old studs you planned to attach materials to: whatever the situation, if you are not careful, you will end up paying for these costs yourself. To make sure this does not happen, place a section in the construction contract that specifies all unanticipated building costs are to be paid by the homeowner.
Another issue many builders encounter are homeowner changes that are not architecturally possible. Unfortunately, many homeowners will not take no for an answer and will occasionally refuse payment to a builder should they be unable to make the changes. Protect yourself from this by placing a section in the construction contract stating that changes to the original design will only be permitted if they are architecturally possible.
What should the homeowner include in the construction contract?
As the homeowner, you are in an especially fragile position in a construction contract. Should you turn out to be dissatisfied with the work and refuse to pay, the contractor can place a lien on your home, causing damage to the home’s overall value. Prevent this from happening by placing a section in the contract that specifies that if any renovations are not done completely or correctly, you have the right to withhold payment.
The second most common issue for homeowners is liens placed by subcontractors or materials suppliers. In some states, subcontractors and materials suppliers are allowed by law to place what is called a "mechanic's lien" on your property before they begin work or deliver materials. The lien will remain in place until work is completed and the subcontractor or supplier is paid. In states where the law does not provide for "mechanics liens" your contract should include two parts to protect your interest. First, draft a section specifying that you may withhold payment if a subcontractor or materials supplier places a lien on your property. This is usually enough negotiating to prevent contractors from refusing to pay their subcontractors. Second, state that subcontractors and materials suppliers may not place liens on your property if you have already paid the contractor in full. This forces the subcontractors and materials suppliers to sue the contractor instead of collecting the debt from you.