Basics of Deposit and Cancellation Fees
Before construction contractors start any projects, they typically have their new customers pay them a deposit as consideration for starting the work they are getting paid for. The amount of these deposits can vary from contractor to contractor, it is not unusual for the deposit to equal up to one-half of the job’s total cost. All of us who have had construction work done in the past know that these deposits are not typically utilized by the contractor to buy materials or hire subcontractors to perform the work. Rather, it is common practice for contractors to keep a portion of these deposits in case the owner cancels the construction before it is completed .
Although it is customary practice for a contractor to be paid a deposit and for that deposit to be retained by the Contractor if the customer cancels the construction work, this does not mean the contractor has a legal right to keep that deposit if the owner cancels the construction. Here, we will examine how a Construction Contract could take away your right to recover a deposit from a construction contractor when you cancel the construction and the circumstances under which a construction contractor may have the right to keep your deposit.
Lawful Reasons to Withhold a Deposit
In the event a dispute arises, contractors may have legal grounds for keeping a deposit even after a contract is canceled. The most common ground is that the homeowner has breached the contract, either in spirit or letter. If this occurs and the contractor has suffered a measurable detriment as a result, then the contractor may be entitled to keep the deposit. For example, if a contract is signed for $5,000 and the homeowner cancels the day before the work is to begin, the contractor’s likely answer will be to keep the deposit because he now cannot use that time for other jobs and has thus lost the benefit of the contract. If there are delays on the homeowner’s side, the contractor will undoubtedly keep the deposit to make up lost time at a later date. In some cases, the contractor will state that he has already purchased materials or paid subcontractors to begin work, thus preventing any return of the deposit. In addition to these arguments, the contractor may have a case for keeping the deposit based on the terms of the contract. Many contracts will state that under certain circumstances the homeowner is not entitled to recover a deposit, and will state conditions under which the contractor can retain the deposit. If the contract is signed, the contractor may take one of these actions.
Contract Terms and Relevant Provisions
Written contracts are important because they are actual agreements signed by both parties. Any contract that is not written may be difficult to use against the contractor (or the homeowner) if the other party decides to breach the agreement. The language of the written contract may have clauses or provisions which hold the homeowner to certain provisions regardless of the timing, such as the forfeiture of a deposit. Therefore, once the agreement is signed, the homeowner should follow its terms for the duration of the work.
Many written contracts include cancellation or modification provisions and may require any changes to be in writing. A common clause is titled "Incorporation of Understanding." This clause states that all prior negotiations, understandings and representations between the parties are merged into the contract. It serves to limit the scope of what responsibilities each party has to the other and incorporates into the written contract any earlier understanding the parties had, even if oral. If you did not read the agreement carefully and went by what the contractor told you instead of what was in the contract, the behavior of the contractor would be legally satisfactory for the homeowner if the contractor can show that it is in writing.
A cancellation clause states what happens if either party wants to terminate the agreement before completion of the work… مدة انگليس. Some contracts call for termination with five or ten days notice. Again, contracts can have provisions which are unreasonable against the homeowner and that will be enforceable. When this happens, the contract must be strictly adhered to. If the conditions in the contract turn out to be unreasonable, the homeowner can try to seek some type of remedy.
Many contracts have clauses which call for a forfeiture of all or part of a deposit as a penalty for terminating the contract. These clauses are only enforceable where the amount of the deposit is proportionate to the probable damages for breach. As a general rule, the penalty cannot be out of proportion to the harm resulting from any breach. The concerns are that the contractor will artificially inflate the deposit to retain the money as a penalty or that the parties will not accurately calculate what damages could result from a breach and then create an estimate for that amount. If such an artificial number is chosen, it will not be enforceable.
The Home Improvement Act provides the framework for the enforcement of home improvement contracts. In order for a contract to be enforceable if the contractor tries to withhold the deposit, it must comply with the following provisions set forth in the Home Improvement Act, Connecticut General Statutes Section 20-429:
(b) No home improvement contract shall be valid or enforceable against an owner unless it is in writing and signed by the contractor and the owner… a copy of the contract be delivered to the homeowner at the time it is entered into by the contractor and owner. Additional provisions of the statute set forth other requirements which must be met for the contract to be enforceable. If any of the provisions are not followed, the home improvement contract is void.
Consumer Protections with Deposits
The starting point for a deposit issue/dispute is to know if you are legally entitled to a refund of your deposit. In other words, what does the contract (written or oral) provide and what does the law provide? If the contract fails to address this issue, the law will provide the measure of damages that can be recovered. As an illustration, if the contract provides that "in any event, the Builder will retain the Owner’s deposit until the performance portion of the work is completed", unless that condition is met, the Builder will not be allowed to legally hold the deposit as a condition to the contract. There is a specific time and place that may be classified as performance, and as a result, the Builder cannot electronically deduct the sum of money it intends to retain from the Owner’s deposit as a simple matter of right.
When an unexpected conflict arises regarding the deposit, a simple negotiation can go a long way toward amicably resolving the issue and saving time and money on litigation. If, for example, the Builder has not completed the work it is contractually obligated to do and refuses to pay the subcontractors that completed their portion of the work, a release/consent order should be prepared (and filed with the Office of the County Clerk) to address the dispute and the timing for returning the funds in question. This simple acting allows the funds in question to remain in the court control while under the dual protection of the court and the owner that deposited the funds.
Attempting to Negotiate a Partial Refund
If your contractor cannot return your deposit in full, there may still be room for discussion. For example, you might be able to negotiate that he only keeps part of the deposit. It is best not to approach your contractor with an ultimatum: "I want my entire deposit back, or I will sue." Instead, explain your reasoning and give them a chance to explain their side of the story as well.
It is also wise to have another payment method in mind. For instance, if your contractor made a good faith effort to show up on time but the appointment just didn’t work out, consider offering him half of the original deposit and negotiating that he puts in writing that he will do his best to show up for the next appointment. You can ask him to include in writing all the efforts he made to get to the appointment, texting you to confirm the meeting, attempting to find your address, and so forth.
Perhaps you were unable to get the funds together for a $400 deposit when your contractor expected that you would pay him. If that is the case , explain to him that it was difficult for you to come up with the funds for the deposit and you hope he will help you out.
A compromise is often possible. The contractor may keep just part of your deposit, and you may get flexibility in writing that he will avoid charging you a contractor’s fee for your next project. If you were unhappy with the first project, you may ask for money off the contractor fee in the next job or ask your contractor to simply renegotiate that fee. Your contractor may agree to give you a good price on the project that made you unhappy. A contractor’s fee is not typically fixed and can always be rewritten.
If you are trying to negotiate a partial refund, make it clear to your contractor that you are not out to ruin his livelihood. Instead, you are curious about the reasons why he has refused to refund your deposit and you are asking for your money back for the following reasons, which are detailed above. Be succinct and kind, and you may have a good outcome involving a new agreement.
Actions to Prevent Disputes in Future Contracts
The first step to avoiding a negative experience with a contractor is to conduct a thorough research of the contractor prior to agreeing to any performance. This should be done by checking with the Better Business Bureau, your local building department, and online sources such as Angie’s List or Yelp. When reviewing a contractor online, you should disregard any reviews that have only one extreme opinion either in favor of or against the contractor, as this is an indicator that an employee or a competitor is attempting to either increase or lower the contractor’s standing online. Similarly, clients should request specific contract terms from the contractor prior to entering into an agreement. For example, if you plan on moving to a new home at any time in the near future, request a clause in the contract that would void the agreement in the event you were to move. Likewise, if your budget depends on financing that is dependent upon appraisals or other factors outside of your control, such as the sale of your current home, request a clause that would allow for your decision to be voided in the event the appraisal of your new home does not meet your expectations. Clients should consider having a review of their contract terms by an experienced attorney prior to entering into any agreement. An experienced attorney will not only advise you on the enforceability of the terms, but will also point out any potential red flags that may indicate a disreputable contractor.
Getting Legal Assistance
Evaluating the Need for Legal Intervention
If you suspect a contractor is not entitled to retain your deposit under the terms of the contract, contacting a legal professional may be necessary to determine your rights and relieve you of the burden of directly negotiating with the contractor. An attorney will often be able to effectively negotiate on your behalf to ensure that you receive the appropriate compensation for any incomplete work.
Alternatively, if you believe you have otherwise not received proper compensation for or credit against your deposit, an attorney will likely be able to forcefully but appropriately clarify your requests and your rights. This may include filing appropriate claims or lawsuits to ensure that you are adequately compensated by the contractor.
Depending on the legal claims that justify your demand for the return of your deposit, your attorney may be able to obtain credit against the contractor’s deposit for work necessary to complete performance of the contract or other damages which may include the amount of your deposit.
In some instances, such as where the contractor files a lawsuit against you in a contractor-friendly state, an attorney may be necessary to prevent the entry of a judgment against you that may be more appropriate to the contractor.
Conclusion: Informing Your Own Choices
In conclusion, the smart homeowner will carefully consider these and other questions before signing a contract with a contractor to perform construction work or doing anything else pursuant to that contract. The same general principle also applies to contractors as well if they wish to avoid and minimize disputes with their customers. The bottom line is that knowing your rights and obligations under a proposed contractor will help you avoid problems now and later if you want to cancel the contract. It is important to read the contract and to perform research regarding the contractor before signing it. By doing this , the homeowner can have a better idea of whether a contractor might be dishonest enough to try and keep the deposit after it breaches the contract. By performing a little due diligence, the homeowner can create a much better chance of getting back the deposit and making sure that the contractor performs as required under the contract.