You paid the contractor.
He seemed reliable when you first met him.
Now you're not so sure.
The work is not done.
What has been done is not acceptable.
The home repair project is taking much longer than you were originally promised.
The contract doesn't tell you when the work will be completed.
The contractor appears more interested in his next home repair project rather than in completing the work at your home.
He's talking about the project costing more. However, you never agreed to any changes and don't understand why it will cost more.
What can you do? Review Your Contract - You May Have The Right To Fire Your Contractor.
Contract Law - Problems For Homeowners: The balance of power favored the contractor.
In order to perform work at a home, a contractor has to enter into a contract with the homeowner - a contract that is referred to as either a home improvement contact or a home repair contract. Home improvements and home repairs include everything from substantial rebuilding after Hurricane Sandy to landscaping, renovating a bathroom, installing kitchen cabinets, carpeting and hardwood floors or installing a swimming pool in the backyard. It includes just about any work done to your home or property.
A contract is an exchange of promises. The contractor promises to make certain repairs / improvements. The homeowner agrees to pay the contractor a certain amount of money in exchange for those repairs / improvements. When one side or the other does not keep his or her promise, there is a "breach of contract". In law, breach of contract remedies are designed to put the non-breaching party in the same position as if the contract had been fully performed. A contractor might sue for lost profits or a balance owed under the contract. A homeowner might sue for the cost to complete the project or to repair defective work. Contract law does not provide for punitive damages and it does not provide for an award of attorney fees or court costs from the losing party. Thus, each party bears the cost of paying his or her own lawyer and court costs, which fees and costs effectively reduce the amount a party will net at the end of the process.
In theory, both parties had the same risks in a breach of contract lawsuit.
In practice, that was not always the case.
There were at least two problems with traditional contract law.
First, because contract law does not allow for the payment of a homeowner's legal costs, where a contractor is found to have breached the contract, the cost to sue the contractor was either too much for the average homeowner to afford or it simply did not make financial sense given the time and cost it would take to litigate (e.g., it may not make sense to spend $15,000 in legal fees to be awarded $18,000 at trial several years later). This problem would be exacerbated when there was an income disparity between the contractor and the homeowner. A large corporate builder could hire a high-powered law firm to "out-spend" the plaintiff and to drag-out the litigation - they could win by attrition.
Second, under contract law, a contractor typically had no personal liability when the contractor worked through an LLC or a corporation. Instead, the homeowner could only sue the company that the contractor worked for. To get to the owners and officers of a company, a homeowner was required to "pierce the corporate veil" - something that is disfavored at law and that is difficult to achieve. Further, a company may have no resources or money of its own - it may be an empty shell. If the contractor's company has no assets, then there is no way to collect a judgment against it. Suing a company might result in the homeowner throwing good money after bad.
Due to the cost of litigation and the chance that the contractor's company might be an empty shell, contractors had greater leverage than homeowners in disputes over home improvements and home repairs.
Consumer Protection Law - Problems for Contractors: The balance of power favors homeowners.
Illegal contracts cannot be enforced.
New Jersey has enacted several consumer protection laws meant to shift the power in the relationship from the contractor to the homeowner. Statutes, such as the Consumer Fraud Act, the Contractor Registration Act and the Door-to-Door Home Repair Sales Act, impose strict requirements upon contractors. If a home improvement contractor fails to follow those strict requirements, the home repair contract may be deemed illegal. An illegal contract is not enforceable - the contractor is not entitled to legal or equitable remedies (except in certain limited circumstances). That means that the homeowner can sue the contractor for violations of consumer protection laws - but the contractor cannot maintain an action against the homeowner for breach of contract.
Today, a lawsuit involving a home repair contract may not include any claim for breach of contract. Instead, a lawsuit over a home repair contract may rely solely on violations of consumer protection statutes and regulations.
Contractors May Be Required To Pay The Homeowner's Attorney Fees And Punitive Damages.
We noted above that one of the issues with traditional contract law was that a losing contractor did not have to pay the homeowner's attorney fees and could not be made to pay punitive damages. Therefore, lawsuits over home improvements were often cost-prohibitive for homeowners. That has changed. Under New Jersey's consumer protection laws, a contractor who has violated the law is now required to pay the homeowner's reasonable attorney fees. Further, if the homeowner has damages related to the violations of consumer protection laws, then the contractor must pay punitive damages - the contractor is required pay three times the damages suffered by the homeowner. For example, if a homeowner has $20,000 in repairs caused by an act of consumer fraud by the contractor, then the contractor will be required to pay the homeowner $60,000.
Contractors Have Personal Liability Even When They Work For An LLC Or A Corporation.
Another problem identified above is that contractors often work for a company and therefore have no personal liability - and the contractor's company may have no assets from which a homeowner may collect a judgment. Under consumer protection laws, the homeowner may sue both the company and the individuals from the company with whom they dealt. There is no need to "pierce the corporate veil". The home repair contractor now has personal liability regardless of how he has formed or operated his business. Thus, even if the company is an empty shell, the homeowner can look to the contractor's personal assets - his bank accounts and his home - to collect a judgment.
However, Homeowners Cannot Use Consumer Protection Laws As Both A Sword And A Shield.
Consumer protection laws are not a "gotcha" tool permitting a homeowner to take advantage of a contractor by receiving the benefit of all the work and then pointing to a minor, technical violation in the contract to avoid payment. Consumer protection laws are a shield, they are not a sword. This means that the law will protect a consumer, but it will not aid a consumer in taking advantage of a situation in which there are only "technical" violations and the consumer has received the benefit of work which otherwise has no issues.
Further, defective and/or incomplete work is not, in and of itself, a violation of a consumer protection law. The defective or incomplete work must be related to a violation of law - such as performing work without permits, substituting materials without the homeowner's consent, or changing plans without the homeowner's consent.
What Does This Mean For You?
This means that you, the homeowner, now have leverage when dealing with a home repair contractor. The balance of power has shifted in your favor. The prospect of personal liability, treble damages and an award of attorney fees means that taking a claim through trial is a big, big risk for a home repair contractor.
This does not mean that you should run out and fire your contractor. You could be in trouble if you do so without legal justification.
Instead, this means that you should have your contract reviewed by an experienced consumer protection attorney: (1) to determine if you have the legal right to cancel the transaction due to violations of New Jersey consumer protection laws, and (2) to determine if you have compensable damages.
That is how you fire your contractor.
Michael Millar, Esq.