Working on construction projects can be challenging to ensure a smooth process from the negotiating of the terms and scope of work to managing the trades to completion. One of the best tools that a contractor can have is a well drafted contract that clearly lays out what the contractor is to do, the costs, and how and when the contractor will be paid. This is most important when working on residential projects which contracts are governed by the Illinois Home Repair and Remodeling Act (815 ILCS 513/1, et seq.) (the “HRRA”).
Enacted in 2000, the HRRA is an attempt by the Illinois legislature to promote fair and honest practices in the construction, remodeling and repair businesses. The HRRA contains numerous requirements which are specific to work on residential projects. These conditions affect all contractors whether they are remodeling a kitchen or rehabilitating an entire home and failure to follow them can be disastrous for the contractor’s bottom line. Contractors must be familiar with the HRRA requirements before entering into any such agreements.
The HRRA applies to any residential repair or remodeling work in excess of $500.00. The phrase “Repair and remodeling” is broadly defined and includes fixing, replacing, altering, converting, modernizing, improving or making of an addition to a real property primarily designed or used as a residence. Of particular importance, however, is the word “residence” which is defined as “a single-family home or dwelling or a multiple-family home or dwelling containing six or fewer apartments, condominiums, town houses, or dwelling units.” The HRRA governs contractors who have direct contracts with owners whether the contractor is an individual, partnership corporation or limited liability company.
In most cases, the Home Repair and Remodeling Act does not apply to subcontractors, or those that have contracts with a general contractor. However, if a party is typically a subcontractor on other projects, such as a masonry worker or plumber but has a contract with the homeowner, the HRRA will govern that agreement. Furthermore, the HRRA does not govern new construction of single family homes. The HRRA also does not apply to contracts for carpet cleaning or repair or installation of appliances such as refrigerators, washing machines or hot water heaters if the person performing the repair or installation is an agent of the party who sold said items to the consumer.
The Home Repair and Remodeling Act requires a written contract for all residential repair or remodeling work in excess of $1,000.00. The contract must be provided to the customer for signature prior to initiating the home repair or remodeling work at the residence. Two of the main contract provisions required by the HRRA are (1) the total cost of the project, including parts and materials as well as any charge for estimate; and (2) the business name and address of the person engaged in the business of home repair or remodeling. If the contractor uses a post office box for mailing, then it should provide the address of his or her residence. The contract should also include the start and completion dates along with a clause permitting the customer to terminate the contract within three business days and instructions on how to do so if the contract is entered at the residence. The HRRA also requires that the contractor maintain public damage and general liability insurance for the duration of the project.
Furthermore, if the contract contains provisions that require the consumer to either (a) submit all contract disputes to binding arbitration in place of hearing in court; or (b) waive consumer’s right to a trial by jury, then contractor must advise the consumer of such provisions before accepting and executing the contract. Otherwise, the binding arbitration clause or the jury trial waiver clause is void.
Although not required under the HRRA, a contractor can and should include terms to protect itself such as a payment schedule as well as default provisions that provide for interest or attorneys’ fees in the event the customer fails to pay. Changes are often requested on residential projects so it is also good practice to require all change order be written and signed by all parties to avoid confusion and aggravation later.
Illinois lawmakers recognize that most consumers have only a rudimentary understanding of construction agreements and construction work. Unfortunately, some contractors are also exploitative. In order to address these issues, the Home Repair and Remodeling Act also requires that, prior to the execution of any home repair and remodeling contract, the owner should be provided with a copy of a pamphlet entitled – “Home Repair: Know Your Consumer Rights”.
This short brochure, published by Illinois Attorney General’s office, contains basic information on what the contract should include and offers other tips for homeowners. This brochure must be provided to the customer before the contract is signed and the customer should also sign and return the acknowledgment of receipt in the pamphlet for the contractor to keep in its files. The HRRA only requires the receipt for contracts over $1,000 but it is good practice for contractors to make this a routine for all residential work.
The brochure is available for download here – Know Your Rights Brochure.
In addition to the HRRA, the Illinois Mechanics Lien Act (770 ILCS 60/1, et seq.) (the “Lien Act”), also contains protections for consumers where the subject project is a single-family owner-occupied home. Section 5 of the Lien Act requires that the contractor give the homeowner the following statement before the first payment is made:
“THE LAW REQUIRES THAT THE CONTRACTOR SHALL SUBMIT A SWORN STATEMENT OF PERSONS FURNISHING LABOR, SERVICES, MATERIAL, FIXTURES, APPARATUS OR MACHINERY, FORMS OR FORM WORK BEFORE ANY PAYMENTS ARE REQUIRED TO BE MADE TO THE CONTRACTOR.”
It is good business practice to include this provision in all residential construction agreements and to provide a sworn statement in exchange for the first payment.
An aggrieved homeowner can report the contractor to the Illinois Attorney General’s Office or State’s Attorney for violation of the HRRA and they may bring an action against the contractor in order to restrain and prevent any pattern or practice violation. The contractor could face fines or potentially a suspension of business.
Furthermore, the homeowner can also file a civil action against the contractor under the Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 et seq.) and seek money damages as well as attorney’s fees and court costs from the contractor. These types of claims are often asserted as a counterclaim against contractors who file lawsuits or mechanics lien foreclosure actions against non-paying customers.
However, even if the contractor did not completely follow the requirements of the HRRA, the owner still needs to prove actual damages as result of any alleged violations. In fact in interpreting the HRRA, Illinois courts have been reluctant to excuse an owner from paying its contractor on an otherwise successful project just because an agreement was not in writing. However, to avoid any possible exposure, contractors should take the necessary steps to comply with the HRRA.
Furthermore, contractors need to be especially careful in light of the fact that some municipalities have the ability to levy fines of their own against contractors who violate the HRRA, such as through Section 2-25-090 of the City of Chicago Municipal Code. A contractor who works on a small project and does not provide the brochure or a written contract could be fined and have its entire profit and possibly more wiped out.
In conclusion, contractors who work on residential projects need to be aware of the requirements of the HRRA and its pitfalls. Contractors should always have a written agreement for all of their projects, not only residential projects, so the parties are clear on what the terms are and what is expected from the other. However, a violation of the HRRA can be costly for a contractor (as well as a consumer who deals with an unscrupulous builder). It is always good practice to review your contracts and procedures on residential projects with an experienced Illinois construction law attorney to avoid headache and non-payment as you work on a project.
By: Mark B. Grzymala, Attorney and President and
Paulina Grunwald, Paralegal
Grzymala Law Offices, P.C.