In the current economic climate, many people are repairing or remodeling their own homes rather than buying a new one.
That means getting estimates, interviewing contractors and trying to get a clear understanding of what you are buying and what it will cost. When things go smoothly, there is no need to consult a construction law attorney. But when things don’t go as planned, it may be helpful to consult an attorney with experience in construction law. Having practiced construction law for over 30 years, below are some of the most frequently asked questions I get when things don’t go as planned.
Do I need a written contract?
The law does not require it but it is a good idea. For large remodeling projects, you should employ a lawyer familiar with construction contracts. For smaller projects a written and signed contract, or at least a signed proposal, is usually enough. However, the contract should state everything the contractor is to do and how he is to be paid. If the contractor is to be paid incrementally, that should be clear as well.
I thought I was hiring a company but his first bill says to pay him directly. Is that okay?
This question comes up frequently when things go bad. At the outset, the contract should be clear as to who you are in contract with. If he is incorporated, the contract should be with his corporation. You can check the status of his corporation online. The Secretary of State has a user friendly website. It is okay, and in some cases preferable, to contract directly with an individual. However, that should also be clear and you should have good contact information for him including both his office and home addresses.
My contractor did part of the work and cannot or will not finish. What can I do?
Hopefully, you have not paid him in full. But whether you have or not, the law allows you to hire a new contractor to complete the job and sue the defaulting contractor for any additional money you had to pay over the original contract price.
My contractor and I are in a dispute and he says if I don’t pay, he will file a lien against my house. Can he do that?
The short answer is yes. North Carolina law allows a person or company who “improves real estate” to file a lien against the owner of the property if the owner will not or cannot pay for the work. The lien must be filed within 120 days from the last furnishing of labor or material to the property. The lien expires if the contractor does not file suit against the homeowner within 180 days from the last furnishing of labor or material to the property. However, the lien doesn’t automatically mean you owe the money. The law is designed to give the contractor more leverage in collecting the money if the court ultimately decides you do owe the contractor. If you do not owe the contractor, and prove it in court, the lien is dissolved.
So the lien really has no effect unless I lose in court, correct?
It does have some effect until the case is decided in court or until you settle the dispute with the contractor. In this interim time period, which can be several months or even years, you will not be able to refinance or sell your home unless you deposit enough money with the Clerk of Court to “bond off” your lien. You do not actually lose the money by paying it into the Clerk’s office. It simply takes the place of the lien on your property. Therefore, at the end of the case, if the contractor wins, the Clerk will pay the money you deposited to the contractor. If you win, you get your money back from the Clerk. I have over simplified a bit, but that is generally how it works.
I hired a landscape company to do some work at my house, and they apparently subcontracted some of the work to other parties. Apparently the company I hired didn’t pay the subcontractors and now they are threatening to file liens. Does that type of lien work the same way as the one described above? No. What the subcontractor is threatening to file is a “first tier subcontractor lien.” That lien is served on you by the subcontractor and puts you on notice that they have not been paid by your contractor. Once you receive that notice, it is your responsibility to withhold enough money from any payment you owe to the contractor, to pay the amount of the subcontractor’s lien. You do not actually pay the subcontractor at that point, but you do have to withhold the money claimed by the subcontractor. If you don’t, you may have to pay the subcontractor directly even if you have no contract with the subcontractor. Often, homeowners have already paid the contractor in full when they receive notice of these subcontractor liens. Assuming you have already paid in full, the subcontractor lien should have no effect. There are some exceptions to this rule but that’s generally how it works.
Does my contractor need a contractor’s license?
He doesn’t if the total price of the contracting job is under $30,000.00. If it is $30,000.00 or more, he does need a license from the North Carolina Licensing Board for General Contractors. The Licensing Board has an office in Raleigh and maintains a list of properly (and disciplined) licensed contractors.
My contract was for $33,000.00. I have paid some but I am not satisfied with the work. The contractor has now finished and submitted his final bill of $20,000.00. I have now found out he is not properly licensed. Do I have to pay this bill? No. North Carolina law is clear that you do not have to pay an unlicensed contractor if a license was required for the job. This is true even if you knew the company was not licensed. It’s the rule even if the work was performed properly. The State wants people who should have licenses to get them, and the penalties for not doing so can produce harsh results for the contractor.
My contractor is insured. That protects me from bad work, correct?
Not really. Insurance companies exclude workmanship and warranty issues from these types of insurance policies. The insurance covers you if the contractor’s negligent work damages another part of your house. It would also likely provide coverage if the contractor, or one of his workers, negligently caused an injury to one of your family members or a guest. Also, some contractors say they are insured when what they mean is they carry workers compensation insurance for their employees. That type of insurance pays the medical bills and lost wages of workers injured on the job.
These are some basic rules of North Carolina construction law. I have over simplified in some instances and there are some exceptions I did not get into. However, this gives you the basics.