Article

Home Improvement Contractors and Contracts: Know Your Rights and Obligations
by Dana M. Lane

New Jersey views the rights of its consumers to be paramount. For this reason, New Jersey consumer statutes and administrative regulations aim to protect consumers when they enter into contracts for various goods and services. In particular, home improve- ments are a heavily regulated area of consumer contracting. Home improvements encompass a wide array of services and products, including residential remodeling, painting and repairing, and all of the products and materials necessary to complete these types of projects. Home improvement contracts can be for the labor or services and/or for the materials necessary to complete home improvements. Contractors and sellers of home improvements must comply with many specific and detailed require- ments when entering into these contracts.

Constructing A Compliant Home Improvement Contract

Every consumer contract must comply with a basic set of require- ments. If a contract is required to be in writing, the original terms and conditions of the consumer contract and any changes subsequently made to the contract must be in writing and signed by the parties. Specifically, if a home improvement contract is for a purchase price of $500.00 or more, the contract and any subsequent changes must be in writing and signed by the parties.

All written home improvement contracts must include the contractor’s legal name, business address and registration number. Additionally, it is important to include a detailed description of the work to be done and of the products and materials to be used. The Division of Consumer Affairs requires products and materials to be described by model, make, size, type, grade, quality and quantity. The more detailed the contract is in this regard, the more capable all parties will be to adequately and timely complete the project.

The start date for the project must be stated in the contract as either a firm date or a time period, such as “within 6 weeks of the date of the contract.” If the project fails to begin on time, the contractor must provide the customer with a written explan- ation of why the work is delayed. A home improvement contract must also include the financing, warranty and guarantee information, the Consumer Affairs toll-free telephone number, a copy of the contractor’s commercial general liability insurance certificate with a minimum coverage amount of $500,000.00 per occurrence and the insurance company’s telephone number. If someone other than the seller/contractor will serve as general contractor for the project, that person’s name, business address and contractor registration number must also be specified in the contract.

The 3-Day Right To Rescind Upon execution of the home improvement contract, the consumer has the right to cancel the contract for any reason before midnight of the third business day. To do so, the consumer must either cancel in writing by certified mail or hand deliver the cancellation to the contractor’s business address. Specific language must be included in every home improvement contract to alert the consumer of the 3-day right to rescind, which can be found in the New Jersey Contractors’ Registration Act.

Once a proper cancellation occurs, the contractor must refund any payments previously made by the consumer. If a financing agreement was executed in connection with the home improvement contract, that agreement must also be cancelled without any penalty to the consumer. The contractor must then mail both the refunded payment(s) and written notice of the cancelled financing to the consumer within 30 days of the cancellation.

Illegal Acts and Practices

Pursuant to various New Jersey statutes and regulations, there are specific acts and practices that home improvement sellers and contractors must avoid. For instance, a contractor cannot tell a consumer that his or her property will serve as a “model home” or “advertising job” once the home improvement is completed. A price reduction for a home improvement in exchange for use of a home as a model or advertisement is also prohibited. Other banned acts and practices include bait selling, misrepresenting payment or the signing of a completion slip before a project is completed or before copies of all necessary inspection certificates are given to the consumer.

These examples highlight the strong public policy of protecting consumers in New Jersey. A more expansive explanation of the various illegal acts and practices can be found in the Division of Consumer Affairs Administrative Rules governing Home Improvement Practices.

Home Improvement Contractor Registration

Home improvement sellers and contractors must register with the New Jersey Division of Consumer Affairs in order to lawfully advertise and conduct a home improvement business. However, there are limited exemptions to this registration requirement outlined within the New Jersey Contractors’ Registration Act. If no exemption to the registration requirement applies, the seller or contractor must complete a registration application with the Division of Consumer Affairs, provide proof of commercial general liability insurance with a minimum of $500,000.00 coverage per occurrence, disclose particular criminal background information in a required disclosure statement and pay the appropriate registration fee.

Once registered, the contractor’s assigned registration number must be included on all home improvement contracts, sales documents and advertisements. The registration number must also be displayed at all business locations and on all commercial vehicles registered in New Jersey that are leased or owned by the contractor and used for completing home improvements, except that the number need not be displayed on vehicles leased or rented to customers.

Contractors must update any changes in information included in a registration application within 20 days of the change and update any changes in information included in the mandatory disclosure statement within 30 days of the change. Insurance policy changes must also be promptly submitted to the Division of Consumer Affairs.

A home improvement contractor’s registration can be suspended or revoked if it is found to have been obtained through fraud or misrepresentation. Negligent and/or criminal acts may also form a basis for registration suspension or revocation.

If a contractor knowingly fails to register or follow registration renewal procedures, it is subject to a fourth degree crime. Furthermore, municipalities in the State of New Jersey cannot issue construction permits to unregistered home improvement contractors.

To ensure that the registration system is working properly, the Division of Consumer Affairs provides all registered home improvement contractors with a toll-free telephone number that must be included on all home improvement contracts. The purpose of the toll-free hotline is to provide consumers and contractors with information about registered contractors and the registration process. Interested parties may also access an informative link on the New Jersey Division of Consumer Affairs website at www.nj.gov/oag/ca/home.htm.

Practical Implications

These rules and regulations exist to protect consumers and to regulate a large area of consumer contracting. In reality, these statutes and regulations protect both consumers and contractors, as these types of contracts can be complex and can potentially lead to a variety of problems when home improvement projects are not satisfactorily completed. The failure to heed the requirements can expose the offending contractor to awards of treble damages and attorneys’ fees, as well as potential class action lawsuits for nonconforming contracts.

The attorneys of the Administrative Law/Government Procurement Practice Group of Hill Wallack LLP stand ready to assist retailers and contractors in the areas of consumer contracting and consumer fraud, including contract review and on-site training for your sales force.

Dana M. Lane is an associate in the Administrative Law/Government Procurement Practice Group of Hill Wallack LLP. She concentrates her practice in Administrative Law and Corporate Litigation including Public Procurement and Environmental Litigation with a particular emphasis on administrative and regulatory compliance.