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| Contractor Requirements- Staying Legal |
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| Written Contracts & Contract Requirements |
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When contracts are required
FOR RESIDENTIAL CONTRACTS:
All residential contracts with a property owner that exceeds $2,000 must be committed to writing. If the original contract price is less than $2,000 and during the course of the project exceeds $2,000, the contractor must provide the owner a written contract within five days.
(ORS 701.305)
Beginning January 1, 2008 contractors that fail to commit to writing a contract with a property owner when required are prohibited from claiming a lien. (ORS 87.037)
Specific terms that are required in a written contract
FOR RESIDENTIAL CONTRACTS:
Beginning January 1, 2008, contractors working on residential construction projects are required to include the following in the written contract, when a written contract is required:
- A statement that the contractor is licensed by the CCB.
- The contractor’s name, address, phone number, and CCB license number that is shown on CCB records.
- The customer’s name, address where the work will be performed, a description of the work to be performed, the price, and the payment terms.
- A summary of the notices required (Consumer Protection Notice, Notice of Procedure, and Information Notice to Owner about Construction Liens).
- An explanation of the property owner’s rights under the contract including but not limited to, the ability to file a complaint with the board, and the existence of any mediation and arbitration provision in the contract.
Contracts are also required to be legible and in dark ink.
Beginning July 1, 2008:
- Contractors that complete the building of a new residential construction must include in their contract an acknowledgment of property owner’s receipt of maintenance information.
- Contractors building a new residential structure must include in the contract an acknowledgment of a written offer of warranty including the acceptance or rejection of the offer.
The CCB has developed two tools (checklist and addendum) to help contractors comply with the new contract term provisions.
- Contractors may download a checklist that will help them recognize problems in their current contracts.Click here for the contract checklist.
- Contractors may download and incorporate the addendum or verbiage from the addendum into their contracts. Click here for a copy of the addendum.
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| Required notices for residential construction |
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Contractors performing construction work on residential structures are required to provide and retain proof of the property owner receipt’s of the following consumer notices:
These three notices are required to be given to the property owner at the time of the contract, when the contract price is more than $2,000.
Contractors may retain proof of the property owner’s receipt of the notices by including the notices fully within the written contract.
Contractors may also show proof by getting and keeping signed copies of the notices.
Contractors could provide the property owner with the notices, and include an unambiguous phrase in the written contract that acknowledges receipt by having the property owner initial the phrase in the contract.
SPECIAL NOTE IF THE CONTRACT PRICE IS UNDER $2,000:
If the contract price is less than $2,000, the Consumer Protection Notice and the Notice of Procedure are not required to be given.
Contractors are still required to provide the property owner the Information to Owner About Construction Liens when the contract price is more than $1,000.
Because contractors are not required to have a written contract if the contract price is less than $2,000, contractors may have a verbal agreement for the work. If contractors have a verbal agreement and the contract price is more than $1,000, the contractor must deliver the notice within five days of the verbal agreement. The contractor must deliver the notice:
- In person
- By registered or certified mail, or
- By first class mail with a certificate of mailing.
Contractors must maintain proof that they delivered the notices, for two years after the contract is entered into.
Copies of the notices are available to download from the above links. Contractors may also request to have a copy of the notice mailed to them by calling the CCB at 503-378-4621.
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| Warranties on new residential structures |
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Who must offer a warranty
Contractors that enter into a contract to build a new residential structure on or after July 1, 2008, must make a written offer to the owner or first purchaser, a warranty to provide against defects in materials and workmanship for the structure. (ORS 701.320)
This law does not apply to manufactured dwellings.
Below are common questions and answers that highlight a contractor’s obligation under the new law. You may wish to consult an attorney for advice on how this applies to your construction business.
What is a warranty
A warranty is an obligation by the seller that the seller’s product (here, a new home) is free from defective materials or workmanship, together with a promise to repair or replace the defective items and faulty work. A warranty is not a guarantee. Repair or replacement is satisfied by meeting building industry standards. There does not need to be complete customer satisfaction. Generally, a warranty does not cover items that arise from customer neglect.
What does a typical new home warranty cover
A new home warranty typically covers:
- Structural defects: Warrants against failure of structural components such as the load-bearing elements of the home.
- Major home system failures: Warrants against failure of plumbing, electrical, heating and air-conditioning systems. Also warrants against failure of major appliances, such as refrigerators, dishwashers, ovens and stove-tops.
- Workmanship: Promises to repair defects in the work performed, such as installation.
All warranties are contracts. The terms of the contracts will vary. Some warranties, for example, cover only major home systems. Others provide limited coverage for all of the listed items. Still others exempt certain products or installations. Some warranties allow for the purchase of optional, additional coverage. Any warranty contract satisfies the new law.
Who must supply the warranty
Although the contractor must offer a warranty, the contractor decides whether to supply the warranty directly or through a company that sells warranties. A direct warranty is a contract between the contractor and the owner or purchaser. A purchased warranty is a contract between a company that sells warranties and the owner or purchaser. Either warranty satisfies the new law.
What period of time must the warranty cover
The law does not require a specific time for warranty protection. A typical new home warranty protects against structural defects for five to ten years and promises to repair or replace major systems for one to two years.
The contractor may select the time period the contractor feels is appropriate for the warranty.
How much may the contractor charge for the warranty
The law does not set any limit on the amount that a contractor may charge for the warranty. Typically, new home warranties purchased from warranty companies run around $250 - $500. There may also be a service fee, like a deductible, which the homeowner pays when requesting service. A typical service fee is $50.
The owner may refuse the warranty and, as long as the two parties haven’t signed the contract, the contractor may withdraw the offer to construct the residential structure.
When must the contractor offer the warranty
The contractor must, in writing, offer the warranty either before or at the time the contractor and owner (or purchaser) sign a contract for the construction of the home.
What must the contractor do to prove that the contractor offered the warranty
The contractor must include statements in the contract that: (1) the contractor made a written offer of warranty, and (2) the owner or purchaser accepted or rejected the offer.
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| Maintenance Schedules on new residential structures |
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Contractors completing a new residential structure on or after July 1, 2008 will be required to provide the owner or first purchaser with a recommended maintenance schedule. (ORS 701.335)
The Construction Contractors Board (CCB) is required to adopt rules that specify the minimum information that the maintenance schedule must include. By law it must include the following:
(a) Definitions and descriptions of moisture intrusion and water damage.
(b) An explanation of how moisture intrusion and water damage can occur.
(c) A description and recommended schedule for maintenance to prevent moisture intrusion.
(d) Advice on how to recognize the signs of water damage.
(e) Appropriate steps to take when water damage is discovered.
With the help of contractors and industry representatives, the CCB drafted rules and developed a Moisture Intrusion & Water Damage information sheet and a recommended maintenance schedule that contractors would be able to use.
Contractors developing their own maintenance schedule or contractors that currently have a maintenance schedule may use their own as long as it contains the information required by OAR 812-001-0240.
Contractors can download a copy of the maintenance schedule information. Contractors can review those rules by clicking here.
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| Homebuyer Protection Act |
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The Homebuyers Protection Act (HPA) is designed to protect home buyers from construction liens when the buyer has already paid for the construction work. Construction work performed before the sale of a home may result in a lien after the sale. This law offers various ways to protect a buyer against such liens.(ORS 87.007)
The law applies to the following:
- A new single family residence, condominium unit, or residential building.
- An existing single family residence, condominium unit, or residential building that had at least $50,000 worth of improvements, additions or remodeling within three months before the sale.
“Residential building” is not defined. However, “residential structure” means a building with one or more dwelling units, less than four stories tall.
A contractor selling a new home (or condominium unit or residential building) must protect the purchaser from liens. To comply with the law, the contractor-seller may:
(1) purchase title insurance that does not exclude filed or unfiled claims of lien;
(2) retain at least 25% of the sales price in escrow;
(3) maintain a bond or letter of credit for at least 25% of the sales price;
(4) obtain lien waivers or releases;
(5) wait to complete the sale after the deadline for filing liens (usually 75 days); or
(6) obtain a signed, written waiver from the buyer.
The contractor must complete a form that indicates the protection selected. The form, “Notice of Compliance with the Homebuyer Protection Act (HPA) of 2003,” is available to download or contractors can request a copy to mailed to them by calling the CCB at 503-378-4621.
If the contractor selects the bond, the bond must comply with OAR 812-001-0305. The contractor’s regular surety bond will not satisfy this requirement. If the contractor selects the letter of credit, the letter of credit must comply with OAR 812-001-0310. If the contractor selects lien waivers or releases from subcontractors, the contractor should consult an attorney for the appropriate forms. If the contractor selects the signed, written waiver from the buyer, the waiver is set forth at ORS 87.091. This waiver form is also available at by clicking here.
Failing to provide the Notice of Compliance is a Class A violation. The penalty is a $720 fine. If the buyer has to take legal action to remove the lien, the contractor may have to pay up to twice the buyer’s damages plus the buyer’s costs and attorney fees.
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| Homeowner's right to cancel |
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Three-day Right to Cancel:
Oregon law contains a mandatory, three-day right of a buyer to cancel a home solicitation contract when the contract is solicited at any place that is not the seller’s permanent place of business.
This law applies to construction contracts as well as most other types of contracts.
A construction contract is subject to this law if there is a personal solicitation made by the contractor or the contractor’s agent and the contractor’s offer is accepted anywhere other than the contractor’s permanent place of business.
Regardless of who initiates the contact, in every such situation, the property owner must be given notice of his or her right to rescind the contract. The form of notice is specified by statute in ORS 83.730.
One-Day Right to Cancel
Beginning January 1, 2008, Oregon law permits a property owner to cancel any initial contract for construction, improvement, or repair of a residential structure by giving the contractor a written notice of cancellation prior to midnight of the next business day. Some exceptions apply such as work already substantially begun.
The buyer is required to provide the contractor a written notice of cancellation. The contractor does not have any notice requirements. (ORS 701.310)
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| Notification Requirements for Court Judgments |
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Contractors are required to send to the Construction Contractors Board (CCB) a copy of a final judgment that is issued in a court action or confirms an arbitration award arising from breach of contract or from negligent or improper work relating to the construction of a residential structure.
This must be delivered to the CCB within 45 days from the date the final judgment is recorded.
A contractor is not required to send a copy of the final judgment if the contractor has paid the judgment and any other amount payable under the judgment within 30 days from the date in which the judgment was recorded, or the contractor is appealing the judgment and has filed any undertaking for the appeal process.
Contractors must send the copy of the final judgment to:
Construction Contractors Board
Attention: Licensing
PO Box 14140
Salem OR 97132
Contractors attempting to satisfy the court judgment are given due consideration in determining if disciplinary sanctions are imposed.
Sanctions for failing to comply with the law as required may be up to $5,000 civil penalty and suspension or revocation of a contractors CCB license.
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