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Limiting Payment Risk in Subcontractor Agreements

In most instances where a subcontractor is hired to work on a construction project, a contract is formed between the parties. The requirements for a contract are simple: there only needs to be an offer, consideration, and acceptance. Contracts can be written or oral. However, difficulties arise when one of the parties breaches that contract or agreement and the other party needs to take steps to enforce the agreement. Often, the terms in a written contract are not clear or are simply non-existent when the contract is oral.

The most common contract issue that subcontractors face is non-payment. However, there are steps that subcontractors can take to protect themselves. In this post, we present some tips that every subcontractor should keep in mind when negotiating a contract to reduce the risk of non-payment.

1. Always have a written agreement.

Although oral agreements are enforceable, it is always better business practice to have a written agreement, even if working on a small project. A written agreement helps to clearly define the scope of work and the terms and conditions of the arrangement between the parties. The contract will lay out the parties’ respective obligations – what work the subcontractor is to perform and how much the general contractor will pay for it. Sometimes the subcontract will refer to plans and specification prepared by the owner or his or her architect. It is much easier to enforce a written contract when a dispute arises because the terms are in writing.

Furthermore, if the contract is in writing and signed by the parties, then so should any subsequent modifications to the contract or scope of work through a request for extras or change orders.

Subcontractors should also be aware that the Illinois Home Repair and Remodeling Act contains additional requirements for contracts for work on residential projects over $500.00.  Those specific issues are addressed in a separate article here: https://grzymalalaw.com/construction-law/illinois-home-repair-and-remodeling-act/

2. Set forth a definite payment schedule and payment terms.

As stated above, the scope of work and the cost for said work and materials should be clearly defined in the agreement.  In addition, subcontractors should include a payment schedule that clearly states when they are to be paid. One example is to require a certain percentage of the contract amount as a deposit and the rest to be paid after certain milestones are met. Another example is to require payment within a certain time after a subcontractor issues its invoices.   Whatever schedule the parties agree to, a payment schedule can be crucial when a non-payment issue arises.  If a contractor is late on payment, the subcontractor needs to make a demand for payment. If that fails, then the subcontractor needs to consider filing a mechanics lien claim against the project and a possible lawsuit.

Additionally, the subcontractor’s contract should include default provisions that state what happens when the contractor breaches the contract.  Common terms include interest on late payments, as well as payment of the costs of collection, including attorney’s fees and court costs, incurred in enforcing the agreement.

3. Do not agree to any pay-when-paid or pay-if-paid clauses.

Imagine working on a project, your work is almost finished and even admired by the contractor or the owner, but the contractor does not pay you because it has not been paid by the owner.  This happens often in the industry where there is a pay-when-paid or pay-if-paid provision in the agreement.

These two clauses sound similar, but there is a difference between them. Pay-when-paid clauses deal with the timing of payments. The general contractor must receive payment from the owner as a condition to payment to the subcontractor. Pay-if-paid clauses, on the other hand, deal with the entitlement to payment. If the general contractor is not paid by the owner, the subcontractor is not entitled to payment by the general contractor. It is clear that both provisions serve to protect the general contractor and may put the subcontractor who otherwise performs excellent work in a situation where it is not paid.  The subcontractor also assumes the risk if the owner becomes insolvent or payment on an unrelated issue arises between the owner and general contractor. However, even if either of these provisions are in a contract, a subcontractor who is not paid can still file a valid mechanics lien against the property where the work was performed. Section 21 of the Illinois Mechanics Lien Act provides protection for the subcontractor and states:

“Any provision in a contract, agreement, or understanding, when payment from a contractor to a subcontractor or supplier is conditioned upon receipt of the payment from any other party including a private or public owner, shall not be a defense by the party responsible for payment to a claim against the party”

As discussed below, it is important for subcontractors to be mindful of deadlines to perfect lien claims under the Illinois Mechanics Lien Act so they are adequately protected from non-payment.

4. Do not agree to assume the conditions of the project.

When defining the scope of work in a contract, it is important to be clear what the subcontractor’s obligations are.  Often when the work is started, other issues arise that need to be addressed before continuing the work which may not be within the original scope which gives rise to change orders.  Moreover, if the plans change, a subcontractor is entitled to extra compensation to the extent necessary to comply with the changes in the design. Generally, under Illinois law, if there is an error in the plans, the subcontractor is not responsible as long as the plans are followed.

However, some contracts require the subcontractor to acknowledge that they have completely inspected and reviewed the job or project, have made appropriate investigations, and have independently determined the accuracy of the facts upon which they are relying to enter the contract.

By agreeing to such a provision, the subcontractor assumes substantial risk. If an issue arises that is outside the scope of the agreement, the subcontractor may be obligated to address it at its own cost.

5. Be conscious of lien deadlines.

Subcontractors have a very powerful remedy provided by the Illinois Mechanics Lien Act. For privately owned projects, if a contractor fails to timely pay the subcontractor, the subcontractor can assert a mechanics lien against the property which acts as a cloud on title.  This can prevent the owner from selling or refinancing the property.  In order to perfect a mechanics lien claim, a subcontractor must serve notice of its lien claim within 90 days of its last date of work and record it with the office of the county recorder within 4 months of the last date of work or furnishing of materials. A mechanics lien is only enforceable for two years after the last date of work and a lawsuit to foreclose on the lien must be filed within that time.  A lien will provide excellent security to the subcontractor in the event the general contractor is insolvent and will provide leverage against a non-paying owner.   Subcontractors also have lien rights under the act with respect to publicly owned projects such as a park or public school.  The subcontractor can assert a lien against the funds due the general contractor from the government by sending a notice and then filing a lawsuit within 90 days of serving the notice to enforce the lien claim.  There is no deadline to assert such a lien, but it is only good as long as funds still remain in the possession of the governmental body or agency.

In addition to a lien against the real estate, a supplier of equipment (such as commercial kitchen products) may also be entitled to a lien against those goods.  It is best to include language in your agreement providing for a security interest under Article 9 of the Illinois Commercial Code until the goods are paid for in full.  If the contractor or owner defaults, then the supplier can proceed to enforce that interest by filing a UCC-1 statement and then a lawsuit for replevin for return of the goods.

6. Indemnification Provisions.

Indemnification provisions in contracts usually contain a lot of legalese and can be tricky to understand.  They often provide that a subcontractor indemnifies and hold harmless a contractor in the event of an issue with the subcontractor’s work or materials. These types of provisions are common and generally acceptable as long as they are so limited. However, contractors sometimes insert language in their subcontracts where the subcontractor agrees to indemnify the general contractor as a result of an act or omission of the general contractor where the subcontractor might not even be at fault.  This type of over-broad indemnification should never be agreed to by a subcontractor.

7. Personal Guarantees.

Construction contracts sometimes contain provisions requiring the principal or owner of the corporate subcontractor to personally guaranty all of the subcontractor’s obligations under the subcontract.  The individual signing the guaranty will then be liable even if his or her company becomes insolvent or goes out of business and places his or her personal assets at serious risks.  Sometimes the unpredictable happens, the subcontractor might make a mistake and be in breach of the subcontract.  There is no reason for the owner him or herself to assume personal liability.  After all, that is why most people choose the corporate or limited liability company forms of ownership – to limit their liability.  Owners should think twice before personally guaranteeing any corporate obligations.

8. Be careful when submitting lien waivers.

The final issue that may affect a subcontractor’s payment is lien waivers.  Often times, as payments are made, the owner or general contractor will require a partial lien waiver from the subcontractor in exchange for payment. A subcontractor has to be very cautious submitting a lien waiver and be sure that it is not over-waiving its lien rights, but only waiving lien rights for the work actually performed and amount paid.  Most general contractors will request a partial waiver of lien to date.  The problem with this is that if a general contractor, for instance, requests a waiver of lien to a certain date in exchange for payment of $20,000.00 but the subcontractor has actually performed $30,000.00 worth of work during that time, it is potentially and unnecessarily losing its lien rights as to that $10,000.00.  The best solution is to submit a partial waiver to the extent of payment so the amount being waived matches the amount being paid.

In conclusion, there are many pitfalls a subcontractor must be aware of when negotiating the terms of construction contract.  A subcontractor can never fully protect itself from a nonpaying customer, but there are many steps it can take to reduce the financial risk and focus on doing what they do best.

By: Mark B. Grzymala, Principal Attorney and
Paulina D. Grunwald, Paralegal
Grzymala Law Offices, P.C.

„Illinois Home Repair and Remodeling Act”- czego wymaga się od osób wykonujących prace remontowo-budowlane w domach jednorodzinnych?

home repair and remodeling act

Wprowadzenie

Praca nad projektem budowlanym i zapewnienie bezproblemowego procesu od samego etapu negocjacji warunków kontraktu, poprzez zarządzanie poszczególnymi etapami prac, aż po zakończenie budowy, może być dużym wyzwaniem. Jednym z najlepszych narzędzi, jakich może użyć właściciel firmy budowlano-remontowej jest dobrze skonstruowana umowa, która jasno i jednoznacznie określa zakres prac remontowo-budowlanych oraz terminy płatności za wykonaną pracę. Posiadanie takiej umowy jest szczególnie istotne, kiedy prace dotyczą domów jednorodzinnych i małych budynków mieszkalnych i są regulowane przez akt prawny Illinois Home Repair and Remodeling Act (815 ILCS 513/1, i następne) (“HRRA”).

Uchwała HRRA weszła w życie w 2000 roku i ma na celu promowanie przejrzystych i uczciwych praktyk w branży budowlanej i remontowej. HRRA zawiera liczne wymagania, które są specyficzne dla prac przy budynkach mieszkalnych i dotyczą one pracowników budowlanych bez względu na to, czy remontowi podlega jedynie kuchnia, czy tez cały dom, a nieprzestrzeganie tych zaleceń może przynieść katastrofalne skutki dla firmy remontowej. Pracownicy budowlani powinni zapoznać się z regulacjami zawartymi w HRRA zanim zawrą jakąkolwiek umowę podlegającą temu aktowi.

Jakie rodzaje prac budowlano-remontowych regulowane są przez HRRA?

Illinois Home Repair and Remodeling Act (815 ILCS 513/1, i następne) (“HRRA”) odnosi się prac naprawczych i remontowych, których wartość przekracza 500 dolarów oraz wykonywanych w małych budynkach mieszkalnych. Zwrot „naprawy i remonty” („repair and remodeling”) definiowany jest bardzo szeroko i obejmuje zarówno naprawianie, wymienianie, zmienianie, przekształcanie, unowocześnienie, ulepszanie, jak i dobudowywanie do nieruchomości będących małymi budynkami mieszkalnymi („residence”). Istotny jest również sam wyraz „rezydencja” („residence”), który zdefiniowany jest przez ustawodawcę jako dom jednorodzinny lub budynek mieszkalny składający się z sześciu lub mniej apartamentów lub mieszkań. Zapisy HRRA dotyczą pracowników remontowych zawierających umowy bezpośrednio z klientami, bez względu na to czy pracownicy ci są osobami fizycznymi, czy też prawnymi.

W większości przypadków HRRA nie dotyczy podwykonawców oraz innych podmiotów posiadających umowy z głównym wykonawcą. Jednakże, jeśli strona zazwyczaj występuje jako podwykonawca przy innych projektach (na przykład murarz lub hydraulik), ale posiada umowę z właścicielem domu, to umowa ta będzie podlegała regulacjom HRRA. Ponadto, HRRA nie obejmuje również nowych konstrukcji domów jednorodzinnych, jak również prac obejmujących czyszczenie dywanów lub naprawę oraz instalację urządzeń takich jak lodówki, pralki czy bojlery, jeśli osoba wykonująca takie naprawy bądź prace instalacyjne jest osobą zatrudnioną przez sprzedawcę tych produktów.

Jakie klauzule, zgodnie z HRRA, powinien zawierać pisemny kontrakt?

Zgodnie z HRRA, pisemna umowa wymagana jest dla wszystkich prac naprawczych i remontowych przekraczających wartość 1000 dolarów i wykonywanych na terenie „rezydencji”. Kontrakt powinien być przedłożony do podpisu klientowi jeszcze przed rozpoczęciem prac remontowych. Dwie z najważniejszych klauzul, jakie powinien zawierać kontrakt to: (1) całkowity koszt projektu, przy uwzględnieniu części i materiałów oraz kosztu wyceny, oraz (2) nazwa i adres firmy budowlanej oraz osoby zaangażowanej w prace remontowe. Jeśli firma remontowa używa skrytki pocztowej dla przychodzącej korespondencji, to właściciel powinien zawrzeć także swój adres. Umowa powinna ponadto określać daty rozpoczęcia i zakończenia prac remontowych oraz klauzulę zezwalającą właścicielowi nieruchomości na rozwiązanie umowy w ciągu trzech dni roboczych oraz instrukcje w jaki sposób to uczynić. HRRA wymaga także, by firma remontowa posiadała ubezpieczenie na czas trwania prac.

Co więcej, jeśli kontrakt zawiera przepisy, które wymagają od klienta albo (a) poddania wszelkich sporów kontraktowych pod wiążący arbitraż, zamiast pod przewód sądowy, albo (b) zrzeczenia się praw do rozprawy z udziałem ławy przysięgłych, to w takiej sytuacji firma budowlana musi uprzedzić klienta o takich zapisach jeszcze przed egzekucją umowy. W innym wypadku klauzula wiążącego arbitrażu lub zrzeczenia się prawa do rozprawy z udziałem ławy przysięgłych zostaje unieważniona.

Pomimo że nie jest to wymagane przez HRRA, to jednak firma remontowa może i powinna zawrzeć również zapisy służące do ochrony samej siebie, takie jak harmonogram płatności czy też uregulowania dotyczące możliwości dochodzenia odsetek oraz kosztów adwokackich w przypadku zwłoki klienta z płatnościami. Zmiany są często wymagane w przypadku prac prowadzonych w domach jednorodzinnych, więc aby uniknąć nieporozumień i późniejszych konfliktów jest zalecaną praktyką, by wymagać zlecania wszystkich zmian na piśmie oraz przedkładania ich do podpisu wszystkim stronom.

Broszura Praw Konsumenta

Legislatura Stanu Illinois zdaje sobie sprawę, że konsumenci posiadają jedynie bardzo podstawowe zrozumienie umów i prac budowlanych. Niestety, również pracownicy remontowi niekiedy wyzyskują swoich klientów. W związku z tym HRRA wymaga, aby przed egzekucją jakiegokolwiek kontraktu o prace naprawcze czy remontowe, właściciel nieruchomości otrzymał kopię broszury o prawach konsumenta nazwanej “Home Repair: Know Your Consumer Rights”.

Ta krótka publikacja, wydana przez Biuro Prokuratora Generalnego Stanu Illinois, zawiera podstawowe informacje na temat wymaganych w kontrakcie zapisów oraz zestaw porad dla właścicieli budynków mieszkalnych jak uniknąć oszustw budowlanych. Broszura musi zostać wręczona klientowi przed podpisaniem kontraktu, a klient powinien podpisać pokwitowanie jej otrzymania, które z kolei firma remontowa powinna zachować w swoich dokumentach. Wprawdzie HRRA wymaga pokwitowania otrzymania broszury jedynie w przypadku umów na prace o wartości powyżej 1000 dolarów, ale jest zalecaną praktyką dla wykonawców, by przestrzegać tych przepisów przy wszystkich umowach dotyczących prac remontowych przy budynkach mieszkalnych.

Broszurę można znaleźć pod tym adresem: Know Your Rights Brochure.

Przepisy z innych aktów prawnych

Innym aktem prawnym, który także zawiera przepisy chroniące konsumentów, gdy przedmiotem prac budowlanych jest dom jednorodzinny, jest Illinois Mechanics Lien Act (770 ILCS 60/1, i następne) (“Lien Act”). Sekcja 5 tej uchwały wymaga, by wykonawca jeszcze przed otrzymaniem pierwszej płatności, wręczył właścicielowi nieruchomości następujące oświadczenie:

“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.”

“Prawo wymaga, żeby główny wykonawca przedłożył oświadczenie pod przysięga osób zapewniających pracę, usługi, materiały, osprzęty, aparaty lub maszyny, formy lub formę pracy, zanim jakiekolwiek płatności będą wymagane przez kontraktora.”

Jest dobrym zwyczajem, aby zawrzeć tę klauzulę w każdym kontrakcie dotyczącym prac budowlano-remontowych przy budynkach mieszkalnych, a także by zapewnić oświadczenia pod przysięgą w zamian za pierwsza płatność.

Co jeśli przepisy HRRA zostaną naruszone?

Pokrzywdzony właściciel domu może zgłosić firmę budowlaną naruszającą przepisy HRRA do Biura Prokuratora Generalnego Stanu Illinois albo do prokuratorów poszczególnych hrabstw, a następnie te organy mogą pozwać wykonawców do sądu w celu powstrzymania i zapobiegania dalszym naruszeniom. Firma budowlana może zostać ukarana karami finansowymi lub nawet zawieszeniem działalności gospodarczej.

Co więcej, właściciel domu może również wytoczyć cywilny proces sądowy powołując się na akt prawny Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1 i następne) oraz domagać się odszkodowania finansowego oraz zwrotu kosztów sądowych od firmy budowlanej. Tego typu roszczenia są często podnoszone jako roszczenie wzajemne wobec firm budowlanych, które składają pozwy lub zakładają zastawy przeciwko klientom uchylającym się od uiszczenia zapłaty za wykonaną pracę.

Jednakże, nawet jeśli firma budowlana w pełni nie wypełniła warunków zawartych w HRRA, właściciel domu w dalszym ciągu musi udowodnić, że doznał szkód wskutek domniemanych naruszeń. W rzeczywistości, sądy Stanu Illinois są bardzo niechętne do usprawiedliwiania właścicieli domów przed niepłaceniem ich należności za poprawnie wykonane prace budowalne tylko dlatego, że umowa nie została sporządzona na piśmie. Jednak aby uniknąć ryzyka, wykonawcy powinni stosować się do przepisów HRRA.
Ponadto, wykonawcy powinni mieć na uwadze, że sądy różnych jurysdykcji mogą nakładać inne kary finansowe na wykonawców łamiących przepisy HRRA, na przykład powołując się na przepis 2-25-090 City of Chicago Municipal Code. Wykonawca, który pracował przy małym projekcie i nie zapewnił Broszury Praw Konsumenta albo nie sporządził pisemnej umowy, może zostać ukarany przez sąd i być może utracić nawet cały swój dochód z tego projektu.

Przezorny zawsze ubezpieczony

Podsumowując, wykonawcy, którzy pracują przy domach jednorodzinnych i małych budynkach mieszkalnych powinni być świadomi regulacji zawartych w HRRA oraz możliwych pułapek. Firmy budowlane powinny zawsze posiadać pisemne umowy na wszystkie ich projekty, nie tylko te dotyczące domów jednorodzinnych, tak aby wszystkie strony kontraktu były świadome warunków umowy oraz czego mogą oczekiwać od drugiej strony. Ponadto, naruszenia HRRA mogą być bardzo kosztowne dla wykonawców (jak również dla konsumentów, którzy zatrudnili nieuczciwych wykonawców). Aby uniknąć kłopotów i problemów z płatnościami, jest zawsze zalecane, by skonsultować kontrakt i procedury dotyczące projektów budowlanych z doświadczonym adwokatem specjalizującym się w prawie budowlanym Stanu Illinois.

Jeśli masz pytania, już teraz zadzwoń do doświadczonego w prawie budowlanym adwokata Marka Grzymaly pod numer telefonu: 847-920-7286.

 

By:  Mark B. Grzymala, Attorney and President and

Paulina Grunwald, Paralegal

Grzymala Law Offices, P.C.

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.

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