Contracts and Contractors

Would you give hard cash to a stranger?

MIKE HOLMES

From Friday's Globe and Mail

It's time to have a frank talk about renovation contracts - what they do and what they don't do.

The one thing I hear all the time is that a contract is for your protection, after the renovation goes "south." If we're talking about financial compensation for a badly finished reno, suing at the end of a project may not give you the results you want, even with an ironclad contract.

The truth is, your contract is worth only what you are willing and able to spend to defend it in court — possibly thousands of dollars. In the end, the contract could be a valuable tool in winning your legal case. But the hard part is collecting your settlement after the contractor has closed down his company and opened again the next day, under a new name and without any assets. I have a word for that . . . and it's not "protection."

So, why do you need a formal contract? Because it's the first step in determining if your contractor is legitimate and professional, even before one nail has been hammered.

An actual sample of what not to accept — a quick sketch and vague numbers leave you open to abuse.

Obviously, if a contractor gives you a handwritten contract on a cocktail napkin, you should kick him out on his butt. It sounds ridiculous, but homeowners show me variations of this almost every day.

Drafting a contract is the start of your relationship with a contractor. The process of working out its details will show you if this person is someone you can work with over the course of the project. If the contractor is difficult to deal with at this stage, just imagine what it will be like when he or she has your money.

Having your lawyer review a legal document before you sign it is always in your best interest. If a contract is worth tens of thousands of dollars, spending a few hundred more to have a lawyer take a look is money well spent. They will examine the fine print and advise you if they think important information is missing. (I will talk about this in more detail in an upcoming column.)

A contract should also give you key information about the contractor. With this, you can find out more about the company and possibly save yourself from a world of pain. For one thing, a proper contractor will provide proof of insurance, which will cover anyone who is injured while working on your house.

Otherwise, they will be coming after you with a big, fat lawsuit.

The other piece of information that must be on a contract is the contractor's business number and/or a GST number. You can simply call the government and ask them if this is a real number. We come across bogus numbers all the time, even on professional-looking contracts. So, this is a great way for homeowners to tell if they are dealing with a real company — or with a crook.

Speaking of crooks, let's talk about the "cold hard cash" payment scenario. Besides the obvious — that a contract is worthless if there is no proof of payment — the question is, "Would you give hard cash to a complete stranger?" There is an entire industry based on conmen posing as contractors. They request a large down payment in cash, in return for saving you the taxes — and then they're never seen again. Big surprise there.

One of my favourite sayings is, "a fool and his money are soon parted," and it was never truer than in the world of under-the-table renovation "deals."

Recently I was in California on the Ellen DeGeneres talk show, and I learned they have a law that limits the amount of a renovation down payment to 10 per cent, to a maximum of $1,000 (U.S.). This goes a long way toward stopping rip-off artists in their tracks — or it at least forces them to work a lot harder to make a dishonest living.

Beyond the "cash grab and run," you also have to consider that a contractor who is not paying taxes will also be trying to fly under the radar with all the other government services — which are there for your protection, by the way. That means they won't work with building permits, municipal inspectors and building safety codes. The key point here is that the homeowner is legally responsible for getting building permits — not the contractor. If the building department gets wind that you are doing a renovation without proper permits, it can force the homeowner to tear it down. Your contractor simply disappears — bye-bye, so long, bon voyage and good luck, sucker.

The bottom line: A contractor is not a contractor without a proper contract. Make sure you have one, and make it right.