Understand a home renovation contract before you sign

    Your home renovation contract should clearly list out the details of the project. Simply stating “replace roof” or “build an addition” is too vague and isn’t enough for a contract.

    A contract is more than just a few pieces of paper stapled together. When you sign a contract with a renovator or homebuilder, it’s your guarantee that things will be done the way you want. That is, provided that the wording of the contract says what you expect. Here are my tips on how to properly understand a renovation contract, and some of the things to watch out for.

    No contract, no deal

    Of course, there are still guys out there who’ll come give you an estimate, jot down a price on the back of a business card or torn off piece of a cigarette pack and consider that good enough. It’s not. I’ve written before about why cash deals are bad for homeowners, contractors and society at large, ranging from fly-by-nighters who do shoddy and sometimes dangerous work to the fact that cash deals make it harder for legitimate businesspeople to compete.

    As a homeowner, if you ever need to make a warranty claim, you’ll need to have proper documentation of the job. Plus, if you’re hoping to participate in one of the various government, utility or manufacturer rebate programs out there, you’ll need to have a legitimate signed contract to qualify.

    The basics

    A standard contract contains a number of basic details about the company and the project. The company name, address, contact info, business license(s) and HST number should be prominently displayed. The project address and owners name(s) should also appear. It is a legal document after all, that should be signed and dated by all parties.

    The contract should spell out the timeline for start and completion dates, including clauses allowing leeway for delays beyond the contractor’s control (such as obtaining the building permit) and indicate any penalties for unreasonable delays.

    And, of course, the fee should be included on the contract, including HST, and a payment schedule. With larger projects, the homeowner is usually expected to pay a portion of total bill at the completion of various stages of the job.

    Money matters

    In addition to the price, there are couple other key financial details included in a contract. One is the deposit. Most contractors will ask for a small upfront deposit, around 5 or 10 per cent of the final bill, to secure the job. Once we agree to work with you, we’ll be turning down other work. If you decide to walk away from the job just before it starts, you’re also walking away from that deposit. But if someone asks for a more substantial deposit to buy materials, say 20 per cent or more, ask for a receipt from the supplier showing that that’s what it’s really for.

    The contract will also include certain “allowances.” The contractor may have budgeted $5 per square foot for tiles. But if you go out and pick tile that’s $10 a square foot, the final price will go up. For larger renovation projects, you’ll want to make sure you have a clear understanding of what the allowances are for various fixtures and finishes on the project.

    Finally, there’s a 45-day holdback period where homeowners are allowed to keep 10 per cent of the final payment. This money is intended to insure all subcontractors on the job have been paid and no liens are on the house. It is not a fee you can hold onto until the contractor fixes minor deficiencies.

    The scope

    The contract should clearly spell out the details of the project. Simply saying “replace roof” or “build an addition” isn’t enough. The Canadian Homebuilders’ Association recommends a broad outline upfront — something like, “This project consists of refurbishing the four-piece bathroom on the second floor,” followed by wording to the effect of, “The Contractor will supply all materials, labour and supervision to perform the work, as outlined below.”

    For a relatively simple project such as adding a bay or bow window, the detailed task list could look something like this:

    • Measure opening to order custom windows.
    • Remove existing window(s) and prepare opening for installation.
    • Frame opening.
    • Install new windows.
    • Insulate, caulk and cap exterior.
    • Remove all construction debris.

    For a larger project, such as an addition, the contract should also spell out who’s responsible for obtaining the required architectural drawings, engineers’ reports and building permits.

    Ensure they’re insured

    Building or renovating a house can be a risky business, with many potential things that can go wrong. Included in the contract should be complete details about what sort of insurance policies the contractor has in place for themselves and any subcontractors working for them. They’ll need to have liability insurance to cover any injuries or damage caused during construction, and all the workers on-site will need to be covered by Workers’ Comp. The contractor will show current insurance documents if you ask. If they don’t, that’s a huge red flag.

    Be wary of warranties

    Many companies will boast about decades-long or even lifetime warranties on their products and services. But not all warranties are the same.

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