Why YOU Should Have a Written Contract
Are you planning some home improvement projects for your short-term vacation rental property? If you are, we have one key piece of advice. Be sure you have a written home improvement contract before beginning work! Except for emergencies when you have a clearly defined scope of work and need something taken care of immediately, you should always insist on a written contract for any work – big or small – you’ll be having done on your vacation rental home.
While it may be tempting to skip this step for a small job, having a written contract can save you from major troubles down the road. You’ve probably heard the horror stories (or worse, experienced them for yourself) of a project going awry because an owner had a verbal contract instead of a written legal agreement. Without a written contract, there is a lot of room for misunderstandings, language barriers, moving timelines, and more.
What type of contract do I need?
While you don’t need a lawyer to set out a written contract, there are a few guidelines to follow to ensure you and your contractors or workers are on the same page. Ensure your contract clearly outlines:
- Your expectations for the scope of work/timeline, etc.
- How the contractor will fulfill your expectations
- Payment – including amount, timeframe, and form of payment
Follow these guidelines whether you’re dealing with a brand-new contractor you may have found on the internet, a contractor referred by a friend or colleague, a contractor that you happen to be friends with, or even someone you have worked with in the past. In fact, sometimes having a written contract that clearly outlines your home improvement project is even more important when you have a personal relationship with the contractor. Friendship and work can easily become blurred, and you don’t want to put your friendship or the work in jeopardy!
A good rule of thumb is, if it’s not in writing, it didn’t happen!
The Contract Process
Once you agree on the scope of work, the price, and the timeline (during the design and bidding phase), you (the homeowner) or the contractor will write up a contract to outline the details. If the scope of work is large, or the contractor you’re working with does a lot of improvement projects, they may already have their own form to fill out. If they don’t, you may want to write up your own or find a template online to help guide you.
Whether the project is large or small, any good contractor will allow you at least a day or two (a week is preferred for a big project) to review the contract, have an attorney review it (if necessary), ask any questions you may have, and adjust with any changes you see fit. Before either party signs, both parties should agree on all items on the contract.
If your contractor proposes working without a contract or rushes or pressures you in any way to sign the contract before reviewing it, consider working with someone else. Your contractor relationship should be built on trust and honesty from the get-go.
What Your Contract Should Include
Scope of Work
Your contract should explicitly state all work to be completed during your home improvement project. Each aspect of the work should be detailed, from electrical, plumbing, and sheathing to siding, roofing, and finish work. If there are blueprints or other design plans, the contract should reference them. If you don’t understand anything, ask questions.
The scope of work section should also include any known problems at the start, including things like a cracked sidewalk, broken window, etc, as part of the agreed-upon price. If your contractor does not include this, be sure you add it to the contract.
Scope of work should cover:
- Which existing materials will be salvaged and reused
- Which areas you will supply labor for (if any)
- Anything that will incur additional charges
- How payment will be handled for any additional charges (repairs for broken items, leaks, faulty outlets, etc.)
Most contractors will happily complete additional small items (for a fee), and using the current contractor for these extras will often save you money since the workers, tools, and materials are already on site. Just be sure to have a clear description of the work for both the homeowner and contractor.
Any home improvement projects will need to follow local codes, and this includes lumber, electrical components, sheathing, and more. If you want materials above the minimum code requirements, make that clear in the contract. Be specific about the model number, brand name, color, grade, and anything else that would help ensure your contractor knows exactly what you expect.
If there are certain items not specified when the contract is written, be sure it at least has clearly defined spending allowances. For example, you might set a $4,000 budget for appliances or a $200 budget for lighting in the powder room. Talk to your contractor about the quality you expect, and have a conversation about whether or not your allowances for items are appropriate and sufficient.
Timeframe | Duration of Job
We all know that almost no home improvement project stays 100% on schedule, but a good contractor will stick to your target end date as closely as possible. Clearly outline the starting date for the work (an easy determination) and set a target end date with clear expectations of meeting it as best as possible. Most contractors will not agree to an exact end date for bigger projects, especially if you insist on a financial penalty if it isn’t met.
One way to incentivize the contractor to meet deadlines is by withholding the final payment until project completion. It’s likely they will have outstanding bills to pay with the final payment, so they will be more likely to finish and move forward. This final amount could be as much as ⅓ of the final project price.
If you are insistent on an iron-clad completion date, you could be pushing your contractor to cut corners in order to complete the project on time – ensuring a lack of quality you are likely trying to avoid. A small delay on the project probably won’t hurt you in the long run, but a rushed job may result in quality issues for years to come.
Work Practices: Building Techniques, Applications, and Cleanup
Clearly outline in the contract any applications or techniques you expect, especially if they deviate from standard industry practices. This could be clarifying that you want old items taken to the curb via a wheelbarrow instead of a dumpster left on the property or that you want your paint brushed and not sprayed. Be specific about your cleanup expectations, including how you want things cleaned, where rubbish should be deposited, and who is responsible for getting rid of items.
Any authorization for work beyond the scope of work outlined in the contract is considered a change order. For example, once the work has started, you may decide on a pocket door instead of a swinging door, a new window in the kitchen, or a tree removal you were previously not sure about. The contractor should never make changes without your approval, which will ultimately be billed on a “cost-plus” basis. This billing includes labor + materials + markup.
Your contract terms should specify change order rates for labor and markup, along with how any change orders will be billed. Make it clear (written in the contract) that you will only pay for any pre-approved work and will need written notice for any changes.
Clearly write in the contract how payment will be handled. Contractors typically bid a firm contract price, with money to be released in “stage draws.” Payments are due at specific project milestones. If your contractor insists on getting all the project money at the start instead of setting up a payment schedule or getting a down payment, get a new contractor. Make it clear in the contract that you will only release the final payment once everything has been inspected, change orders are completed, and all items have been finished. And remember to always have a copy of the contract for the home improvement work.
Any contractor you use should be licensed and insured. This should cover liability, workers’ compensation for their workers, and proof of insurance for any subcontractors. You should also look into any possible warranties your home improvement contractor may offer, as this can help ensure work down the line. If your contractor can’t share their license number – or doesn’t have liability insurance – get a new contractor.
If you have a working bathroom, a phone, or other areas workers may use, clearly outline what – if anything – they may have access to. If you don’t want workers using your bathrooms, you will need to bring a portable toilet for use on-site. You will also want to outline who will be responsible for any damages to walkways, driveways, yards, and more. Never assume that contractors will repair/pay for damages to your lawn. Their assumption may be that you knew heavy equipment could damage your yard.
While a good contractor will do a good job, homeowners can always find some type of mistake in the work. If you don’t have an objective person to inspect the final job, you may find yourself in an escalated dispute with the contractor. You can include an arbitration clause in the contract to avoid court issues in the future, with both parties agreeing on a 3rd party who will be trusted to make a final decision.
Starting and hiring someone for a home improvement project at your vacation rental property can be challenging and daunting. If you’re going to do all the work of researching, vetting, checking references, and paying for a project, be sure you do it the right way! Email us or give us a call, and we can provide a blank, generic contractor agreement to help you get started!