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Illinois Home Repair and Remodeling Act – Requirements for Contractors on Residential Projects

home repair and remodeling act

Introduction

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.

What kind of construction work does the Home Repair and Remodeling Act govern?

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.

What should a written contract include under the HRRA?

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.

The Consumer Rights Brochure

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.

Other Statutory Requirements

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.

What if the Home Repair and Remodeling Act is violated?

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.

Forewarned is Forearmed

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.

New laws in Illinois for 2017

 

Introduction

Approximately 200 new laws go into effect in Illinois in the new year. Here is a link to a complete list of the new laws and changes for 2017.

http://abc7chicago.com/politics/new-laws-2017-illinois-laws-that-take-effect-january-1/1665227/

Of particular interest to Illinois small businesses as well as our firm’s clients are the following (excerpted from article above):

Illinois Public Construction Bond Act (HB 5660/PA 99-0673): Amendment provides that verified notice of claim from a subcontractor shall be deemed filed on the date personal services occurs or the date when the verified notice is mailed.

Employee Sick Leave Act (HB 6162/PA 99-0841): Allows employees to use personal sick leave benefits for absences due to an illness, injury, or medical appointment of an employee’s direct family members (including employee’s child, spouse, sibling, parent, mother-in-law, father-in-law, grandchild, grandparent, or stepparent) on the same terms as for the employee’s own illness or injury.

Illinois Freedom to Work Act (SB 3163/ PA 99-0860): New act prohibits employers from requiring non-compete clauses for low-wage employees. Under the act, “Low-wage employee” means an employee who earns the greater of (1) the hourly rate equal to the minimum wage required by the applicable federal, State, or local minimum wage law or (2) $13.00 per hour.

Illinois Plumbing License Law (HB 5913/PA 99-0504): Requires licensed plumbers to complete 4 hours of continuing education each year in order to renew their license.  Course might be supervised by an Illinois licensed plumber.

Illinois Criminal Code.  (SB 1120/PA 99-0534): New expands on theft to include failure to return equipment in excess of $500 within 3 days after the rental period has expired.

Illinois Condominium Property Act (SB 2359/PA 99-0849): Prevents a condominium instrument such as bylaws or a declaration of condominium from changing the ability of the board of managers to execute bank documents by a majority vote.

Illinois Wage Assignment Act (PA 99-0903): Allows employees to revoke a wage assignment at any time by submitting written notice to a creditor.

Please call us at 847-920-7286 or email us at mark@grzymalalaw.com should you have any questions or wish to discuss the impact of these changes on your business.

All the best to everyone in 2017!

Mark B. Grzymala, Attorney and Principal

mark@grzymalalaw.com

Determining the Last Date of Work or Furnishing on a Construction Project

New House Building

Introduction

Under Illinois law, a contractor’s last date of work on a project triggers deadlines for lien claimants to file and perfect their mechanics lien claims for their unpaid work. This is one of the most import dates for purposes of the Illinois Mechanics Lien Act, 770 ILCS 60/1 et seq. (the “Act”).

A subcontractor must provide a notice of claim to the owner within ninety days of when it completed its work. All contractors must record their lien claims with the county recorder within four months of their last date of furnishing and labor or materials. Any failure by a contractor to provide timely notice or to make a timely filing can be fatal to his or her mechanics lien claim and the contractor could be left without any lien rights whatsoever.

In order to determine the last date of furnishing, a contractor will normally review his or her timesheets, job log, or delivery tickets and use the most recent date. However, not all work on or delivery to a project will qualify as work that can be used to calculate notice and recording deadlines under the Act. The Act makes a distinction between work that is needed as maintenance or repair of a completed job and work that is needed for completion of the job itself. Determining the last date of furnishing labor or materials becomes especially complicated in instances where there are change orders, ongoing punch list work, warranty or repair work, or the contractor is asked to perform new work under a separate agreement at the same project.

Warranty and Punch List Work

Generally, warranty work is considered remedial and does not extend mechanics lien notice and filing deadlines. For instance, if a contractor installs a new furnace and it later malfunctions or breaks down, the time spent repairing it does not extend the last furnishing date. Furthermore, punch list work or replacing defective materials – such as broken tiles or faulty shingles – usually does not extend the lien or filing deadlines. Similarly, maintenance work such as cleaning an HVAC system months after installation will also not extend mechanics lien deadlines. Furthermore, a contractor cannot extend the last date of furnishing by returning to a project after lien rights have expired with trivial or consequential touch up work or adjustments in hopes of extending lien and notice deadlines. The courts look very unfavorably upon this and will almost never extend lien and notice filing deadlines.

Change Orders

Work that is performed under approved change orders can extend the lien notice and filing deadlines under the Act. The change orders must be for additional substantive work and relate to the original contract. For example, if the contractor has installed a stair case, and the owner issues a change order stating an ornamental rail is to be installed and that rail is the last work the contractor performed, the last date of furnishing is then calculated from the date the railing is installed. Furthermore, if an electrician was originally hired to install 10 light fixtures for a project and after delivery the owner issues a change order for one more fixture, the last date of furnishing will most likely be the date of installation of the final single fixture even though most of the other work is already completed.

New contract at the same project

Sometimes an owner or general contractor will ask a contractor or subcontractor to perform new work that is not related to the original contract. In most cases this new work will not be a change order and will result in a new contract being formed. The work performed under the new contract does not affect or extend the last date of furnishing under the original contract. For example, a carpenter is asked by a homeowner to install kitchen cabinets at her home. Later, the same home owner asks the carpenter to build out a deck in her backyard. If the contractor is not paid for the kitchen cabinets wishes to file a lien claim, the last date of furnishing would be the date he completed the cabinet work and not the deck work. Incidentally if the contractor is not paid for either job he or she would need to assert a separate lien clam for each contract.

There is a fine line between whether additional work constitutes a change order or a new contract and the contractor should review his or her scopes of work, among other factors, to determine how the new work is classified.

Conclusion

In many cases it is never entirely clear whether additional work performed is trivial or not or related to the original contractor or creates a new one. Some work, such as warranty work, is a little more obvious. This is a very complicated issue that could result in a loss of your lien rights if your notice and filing deadlines are calculated by using an incorrect date. It is recommended that you consult an attorney for assistance if you do not know when your last date of work on project was or have any of the above situations.

About the Firm and Author

Grzymala Law Offices, P.C. is an Illinois construction law, mechanics lien, collection, and commercial litigation firm serving the entire Chicagoland area and surrounding counties including Cook, Lake, McHenry, Kane, and Will. The Firm addresses the needs of small businesses with a focus on construction and related industries.

We deliver quality customer service and aggressive representation of our clients while offering competitive hourly rates and alternative billing arrangements. The firm is conveniently located in Skokie near Old Orchard Shopping Center. The firm offers free initial consultations and always accommodates our clients’ busy schedules.

Attorney Mark B. Grzymala is the Firm’s president and founder.

New Illinois Laws for 2016

Introduction

Over 237 new laws go into effect in Illinois in the new year 2016.

We look forward to the new provision of the Illinois Mechanics Lien Act allowing a party to bond over a lien claim which we recently reviewed here:

Illinois adds bond substitution provision to the Mechanics Lien Act

The Changes

Of particular interest to Illinois small businesses as well as our firm’s clients are the following:

Duplicative or Burdensome Small Business Regulations (HB 3887/PA 99-0370): Requires state agencies to examine their rules, administrative regulations, and permitting processes as they pertain to small businesses in order to identify those rules, regulations, and processes that are unreasonable, unduly burdensome, duplicative, or onerous to small businesses.

Elevator Safety (SB 718/PA 99-0022): Provides that the Office of the State Fire Marshall shall authorize the issuance of elevator contractor’s licenses, elevator mechanic’s licenses, inspector’s licenses, and inspection company licenses. The Elevator Safety Review Board no longer has the power to establish fee schedules for inspections of conveyances. Requires that all injuries caused by a malfunctioning conveyance be reported to the Office of the State Fire Marshal within two business days.

Equal Pay Act Changes (HB 3619/PA 99-0418): Provides that the Act applies to all employers (currently only employers with four or more employees). Provides that any violation of the Act will subject employers to a civil penalties. Sets different penalty structures for employees with fewer than four employees and those with four or more employees. Committing public policy violations will subject the employer to a civil penalty not to exceed $5,000.

Equity Crowdfunding (HB 3429/PA 99-0182): Allows companies, particularly start-ups, to build capital by soliciting small amounts of money from many investors over the internet for the purchase and sale of securities. Investors may be accredited or non-accredited. The Secretary of State is allowed to establish rules pertaining to issuance of securities, fees, and notice requirements.

Residential Mortgage License Act Changes (HB 3369/PA 99-0015 ): Amends the Illinois Residential Mortgage License Act 205 ILCS 635/1-1 et seq. to improve the efficiency and include modern best practices in the regulation of the Act.

Consumer Ticket Purchase Protections (HB 3103/PA 99-0431): Attempts to strengthen protection for consumers who purchase tickets from brokers or resellers. Requires ticket brokers and resellers to disclose the registered name and city of the event venue; that the brokers is not the box or office or a licensed agent; that lost and stolen tickets may only be reissued by the brokers or resellers; whether it is registered under this act; it’s refund policy, name and contact information. Additionally, the broker or reseller must guarantee a full refund if the ticket does not grant admission or if the event is canceled and not rescheduled.

Landlords Accumulated Interest (HB 1319/PA 99-0253): Provides that the lessor shall, within 30 days after the end of each 12-month rental period, pay to the lessee any interest that has accumulated to an amount of $5 or more, unless the lessee is in default under the terms of the lease. All accumulated interest that remains unpaid, regardless of the amount, must be paid over to the lessee upon termination of the tenancy.

Mechanics Liens: Substitution of Bond (HB 2635/PA 99-0178): Amends the Mechanic’s Lien Act to establish a process for a property owner to substitute a surety bond for a mechanic’s lien on the property, thus enabling the property owner to sell or refinance the property.

Property Tax Fraud Alert (HB 3672/PA 99-0075): Standardizes the process for property owners to sign up for Cook County’s property fraud alert system. Requires real estate professionals to register with the recorder’s office before filing on behalf of property owners. Preempts home rule.

Power of Attorney (SB 159/PA 99-0328): Makes technical changes to the Illinois Power of Attorney Act relative to health-care powers of attorney.

Property Tax Complaints (HB 2554/PA 99-0098): Amends the Property Tax Code to provide more detailed instruction for all parties involved during the Property Tax Board of Review complaint procedure, outside of Cook County.

Reverse Mortgage Act (SB 1440/PA 99-0331): Creates the Reverse Mortgage Act by rewriting the entire reverse mortgage law. Consolidates duplicative and sometime conflicting state laws regarding reverse mortgages.

Here is a link to more new laws and changes for 2016.

http://www.fox32chicago.com/news/local/59636451-story

All the best to everyone in 2016!

Mark B. Grzymala, President

mark@grzymalalaw.com

Illinois adds bond substitution provision to the Mechanics Lien Act

project of construction and renovation houseIntroduction

On July 30, 2015, Illinois Governor Bruce Rauner signed H.B. 2635 into law. This bill amends the Illinois Mechanics Lien Act  (770 ILCS 60/1 et seq.) and significantly changes Illinois construction law by adding section 38.1 which allows substitution of a bond for an Illinois mechanics lien claim.

Illinois is the last state in the United States to enact such a provision.

Before this amendment, owners or general contractors had the ability to purchase bonds to cover disputed lien claims at a title company.  The title company would then litigate the lien claim if a claimant tried to enforce it. However, the lien claim remained as a cloud on title and there still was a risk of foreclosure. HB 2635 sets forth a formal process for substituting a bond and removes the cloud on title. The amendment does not eliminate mechanics lien rights and a lien will still be a cloud on title until a bond is furnished.

Bond Petition

Generally, this new section (sometimes referred to as a “bonding over” provision) provides that an owner or anyone else with an interest in real estate (such as a lender, other lien claimant or even a condominium association) may file a verified petition with the clerk of the court in the county where the property is located requesting that a surety bond be substituted for a lien claim. The surety bond must be from an insurance company that is rated A or higher by AM Best and be size IX or larger, be in an amount equal to 175% of the lien claim, and must require that the surety and principal BOTH be jointly liable to the lien claimant. Upon granting the petition, the lien would be discharged and the parties would proceed with a lawsuit against the bond as well as any other causes of action such as for breach of contract, fraud, deceptive practices, account stated, conspiracy, enforcement of security interest, replevin, or quantum meruit, as applicable. These other causes of action are not covered by the bond and litigation as those counts would proceed as they normally do.

A petition for bond substitution can also be filed in a pending foreclosure action but must be done so within five months of the suit commencement.

However, the bill is unclear as to what happens when there multiple claimants in a single law suit and if some claims are bonded over and others are not. It also unclear as to what happens with blanket liens or liens against multiple parcels such as condominiums if one unit or lot owner bonds over his portion of the lien claim and another unit or lot owner does not.  If some parcels or some liens are protected by a bond and others are not in a foreclosure action, this could result in even more complicated and expensive litigation because property owners would then have to defend against both lien claims as well as any bond claims.

Advantages and Disadvantages

On the plus side, Section 38.1 will streamline litigation. There will be less parties which will save on court costs, service fees, and attorneys fees. Normally, in an action to enforce a mechanics lien claim, the lien claimant is required to name and serve all of the parties in the chain of contract between him or her and the owner plus anyone else with an interest in the property such as a lender, unknown owners and non-record claimants. With a bond in place, the only parties would be the principal and surety on the bond as well as the party the contractor had its agreement with.

This new provision also provides for an award of mandatory attorneys fees which adds liability to the general contractor or owner which did not previously exist.  If a lien claimant recovers at least 75% of its lien claim, it is gentled to recover its attorneys fees incurred. On the other hand, the owner is entitled to its attorneys fees if the claimant recovers less than 25% of its lien claim. This is a big change from Section 17 of the Illinois Mechanics Lien Act (770 ILCs 60/17) which provides for attorneys fees against the original owner (and no one else!) who fails to pay “without any just cause or right”. Section 17 also requires privity between the owner and contractor; Section 38.1 does not.  This change is a huge benefit for subcontractors and material suppliers.

Another major advantage is that there will be money to pay the claim.  Sometimes contractors go out of business or real estate ends up over-encumbered or “under water” by other loans leaving nothing to pay a subcontractor for his or her hard work. With a bond in place, the lien claimant should generally not have to worry about a judgment not being collectible.

A major disadvantage of this new provision is that it can reduce leverage for subcontractors and material suppliers because the threat and pressure of foreclosure would be diminished. However, filing a petition and purchasing a bond has its costs and some owners might still not bother to proceed.   Some owners or developers may also not want to automatically accept liability for any attorneys’ fees incurred by the lien claimant especially if the defenses for non-payment are weak.

The Illinois Mechanics Lien Act still provides a valuable method of recovery for unpaid subcontractors and material suppliers and should still be an important part of an overall collection plan and strategy. A bond still has its advantages as described above. However, in order for an owner to even consider a bond, the claimant still needs to have a valid and enforceable mechanics lien claim against the real estate at issue.

Public Projects

Section 38.1 only applies to private construction projects such as homes, office buildings, stores, condominiums, apartments, factories, etc. This amendment does not apply to public construction projects such as public schools, airports, city parts and municipal buildings.  Section 23 of the Illinois Mechanics Lien Act (770 ILCs 60/23) as well as the Illinois Public Construction Bond Act (30 ILCS 550/1 et seq.) remain unaffected by this new section.

Conclusion

This law goes into effect January 1, 2016 and it remains to be seen if property owners and developers will take immediately advantage of it and how the courts will eventually interpret it. In future articles, we will review the actual procedure on how to file the petition (and objection) to substitute a bond for an Illinois mechanics lien claim.

A complete copy of the new law can be found here:

http://www.ilga.gov/legislation/publicacts/fulltext.asp?Name=099-0178

I welcome any thoughts or discussion on it.

By:  Mark B. Grzymala, President and Founder

Grzymala Law Offices, P.C. 

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