What Residential Contractors Need to Know

In Pennsylvania, contractors working on residential projects need to be aware of the Pennsylvania Home Improvement Consumer Protection Act. This Act has a fair amount of rules and requirements that must be followed on home improvement projects, specifically when it comes to the terms of their contracts. Here’s a breakdown of the contract requirements for residential and restoration contractors in Pennsylvania, to ensure that their contracts are complaint and valid, so they can get paid what they’ve earned.

Pennsylvania Home Improvement Consumer Protection Act

There are a few provisions that every construction contract should have. However, when it comes to residential projects, many states like Pennsylvania provide additional requirements and protections for homeowners.

Why? The rationale is that homeowners aren’t as sophisticated and/or construction savvy as commercial owners. Hence, Pennsylvania Home Improvement Consumer Protection Act (HICPA) was enacted in 2008. The Act establishes a registration program for home improvement contractors, along with required contract provisions, minimum insurance coverage, and more.

Before we dive into all the specific requirements, what types of project are actually covered under the Act? Well, the term home improvement is defined in the Act:

“[Home improvement] includes all of the following done in connection with land or a portion of the land adjacent to a private residence or a building or a portion of the building which is used or designed to be used as a private residence for which the total cash price of all work agreed upon between the contractor and the owner is more than $500:

(i) Repair, replacement, remodeling, demolition, removal, renovation, installation, alteration, conversion, modernization, improvement, rehabilitation or sandblasting.

(ii) Construction, replacement, installation or improvement of driveways, swimming pools, pool houses, porches, garages, roofs, siding, insulation, solar energy systems, security systems, flooring, patios, fences, gazebos, sheds, cabanas, landscaping of a type that is not excluded under paragraph (2)(vi), painting, doors and windows and waterproofing.

(iii) Without regard to affixation, the installation of central heating, air conditioning, storm windows or awnings.”

Lastly, a “private residence” includes single and multi-family dwellings of no more than two units, and single units located in buildings like condos or co-ops.

So, if you are performing any of the work described above on property deemed a “private residence,” then read on to learn all the essential provisions in your home improvement contracts.

PA home improvement contracts: What’s required?

First and foremost, the contract must be in writing — signed and dated by the owner (or their agent) and the contractor.

The contract should constitute the entire agreement between the parties, including attached copies of any required notices. It should include the contractor’s name, address, phone number, and their PA home improvement contractor registration number.

If there are subcontractors that are going to be working on the project, and are known at the time the contract is executed, their names, addresses, and phone numbers should be included as well.

The toll-free phone number of the Home Improvement Contractor Consumer Helpline (1-888-520-6680) needs to be in there as well. Lastly, once executed (signed), a copy of the contract should be provided to the owner.

Project details

Beyond the identifying information discussed above, there are some project specific details that need to be included also. These details essentially make up the scope of work. The contract must include:

• The approximate starting date and completion date
• Description of the work to be performed
• List of the materials to be used
• Detailed set of specifications

Also, the contract should state that none of the work, materials, or specs can be changed or altered without a written change order signed by both parties.

Contract price

Here’s an obvious one: The contract needs a price! The total price of the contract must be listed. If there is a down payment or any amount advanced for the purchase of special order materials, those amount must also be included, and listed separately.

Note that the downpayment can’t exceed one-third of the contract price, or one-third of the contract price and special order materials.

If, however, the agreement is a time and materials contract, a further breakdown is required. Contractors must list:

• An initial cost estimate
• A statement that the cost will not exceed 10% of the initial cost estimate
• Total potential cost (initial estimate + 10%)
• A statement that the cost will not exceed the “total potential cost” unless a written change order is signed by both parties

Insurance coverage

The Act also requires a minimum amount of insurance coverage when working on home improvement projects. The contractor should carry, and the contract should reflect that the contractor has liability insurance covering personal injury of at least $50K and property damage coverage in the same amount.

Learn more: Contractor Insurance: 17 Types of Insurance for Construction Businesses

Notice of right of rescission

Another protection for homeowners comes in the form of a right of rescission. “Rescission” is just a fancy way to say “let’s act like this never happened.” It’s a way to cancel the agreement with no harm and or penalties to either party.

In Pennsylvania, homeowners have three business days from the date the contract was signed to rescind it — and a notice of these rights must be stated in the contract. The only exception to this right to rescind are contracts executed under the emergency provisions of Section 7 of the Unfair Trade Practices and Consumer Protection Law.

In other words, contracts for repairs are needed to remedy a bona fide emergency on a residential property.

Arbitration clause

This one is not actually required. However, if you do decide to include an arbitration clause in your contract, it must meet the following criteria:

• Must be capitalized and in 12pt bold font
• Included on a separate page from the rest of the contract
• Have a separate line for each party to sign and date, the same date as the contract is executed
• State whether the decision of the arbitrator is binding on the parties, or appealable to the court of common pleas
• State whether the facts of the dispute, related documents, and the decision are confidential

That’s pretty much everything that must be included in a home improvement contract in Pennsylvania. But that’s not everything you need to know. There are specific provisions that cannot be included in the contract.

What cannot be included?

The following provisions, if included, shall be voidable by the property owner. If one of the clauses are included in the contract, it doesn’t necessarily render the entire agreement void. Just that specific provision.

Here’s a list of the “voidable clauses”:

• Hold harmless clauses
• Waivers of certain rights and requirements, including the waiver of any
  • Federal, State, or local health, life, safety, or building code requirements
  • Rights under the Home Improvement Consumer Protection Act
  • Right to a trial by jury
• Confession of judgment clause — which means that the owner is accepting liability and damages agreed upon in the contract
• Assignment of or order for payment for wages or other compensation for services
• Provision by which owner agrees not to assert any claim or defense arising out of the contract
• Provision that contractor shall be awarded attorney fees & costs
• Clauses the relieve the contractor from liability for acts committed by the contractor in the collection of any payments or in the repossession of any goods
• Automatic renewal provisions — an automatic or recurring renewal of any portion of the agreement is voidable by the owner — unless the provision specifically:
  • Establishes a procedure by which the owner can choose not to renew by providing to contractor to choose not to renew by written notice via first class mail postmarked no later than 3 business days prior to any renewal
  • Such procedure is clearly and conspicuously disclosed in the agreement
  • Includes a provision requiring notice to the owner of any automatic or recurring renewal, and the owner’s option to cancel, no earlier than 20 days and no later than 10 days prior to the date of any such renewal

Penalties for non-compliance

The PA HICPA is meant to protect homeowners from unscrupulous contractors by requiring registration, and clearly specifies what must and can’t be included in such contracts.

Residential and restoration contractors in Pennsylvania should ensure that their contracts meet all of these requirements. Failure to comply with these requirements could lead the contractor to liability under home improvement fraud.

This could result in the contractor’s certification being revoked or suspended up to 5 years — but that’s not all. Depending on the type of violation and the amount involved, the criminal penalties could range from a 1st degree misdemeanor (which can include fines up to $10,000 and/or imprisonment for up to 5 years) to a 2nd degree felony (punishable with fines up to $25,000 and/or imprisonment of up to 10 years).

Visit the PA Home Improvement Contractor Registration website for more details.