Important Consumer Information

General Information on Contracts

By definition, and as contractors already know, contractors contract. It's an essential part of what contractors do. And the essential meaning of contract is "to agree upon." A contract is an agreement between two or more people that the law will enforce.

That's why the Contractors State License Board says that a home improvement contract is one of the most important tools a contractor uses. It's a tool to ensure that all parties to the contract agree. When contractors and consumers disagree, it's time-consuming and costly to all involved.

Home improvement contracts are a tool to make sure that contractors and consumers agree on the work to be performed: how it will be done, when it will be done, what materials will be used, and how much it will cost. A well-written contract is also a tool that helps ensure enforcement of the agreement, if necessary. Like most other tools, a contract should be top quality and well constructed, with all working parts.

A contract can be oral or written. Home improvement contracts over $500 must be written. In most cases, it's a good idea to put a contract in writing. It shows that there was a contract, and it proves what you and the other party agreed to do. The old axiom is true: "A verbal contract is as good as the paper it's not written on."

This document will describe what ALL home improvement contracts MUST have--all the pieces of the puzzle, so to speak--and then other information contractors should know. It also includes a "top ten" list of contract problems to watch out for, as well as a checklist of the essential elements of home improvement contracts. Finally, a resource list of where contractors can obtain standard contract forms is included.

What is Home Improvement?

Home improvement is the repairing, remodeling, altering, converting, modernizing or adding to residential property.

Examples of home improvement are the construction, erection, replacement or improvement of:

• driveways
• swimming pools, including spas and hot tubs
• terraces
• patios
• awnings
• gazebos
• storm windows
• landscaping
• fences
• kitchens
• baths
• porches
• garages
• basements
• other structural improvements on land adjacent to a dwelling

Here are some more specific example of what home improvement IS, and what it IS NOT.

(Business and Professions Code 7151)

What is a Home Improvement Contract?

A home improvement contract is an oral or written agreement BETWEEN a contractor or salesperson AND either a residential owner or a tenant for the performance of a home improvement.

If the total cost of the project exceeds $500, by law the contract MUST be in writing. The total cost includes labor, services, and materials.

A home improvement contract must include elements specified in Business and Professions Code Section 7159 and elsewhere. This document outlines those elements.

Business and Professions Code 7151.2

"Top Ten" Problems with Home Improvement Contracts

In no particular order, here are frequently seen problems with home improvement contracts:

• Notice regarding Registrar's address missing
  
   
• Excessive down payment requested
  
   
• Equipment to be used or installed not detailed, and materials to be used not described specifically enough
  
   
• Notice to owner regarding liens not included
  
   
• Job to be completed is not clearly stated and described
  
   
• Right to cancel notice missing
  
   
• Bid not figured out carefully and/or completely
  
   
• Change orders not included
  
   
• Old notices used with old addresses and noncompliant language
  
   
• Start and stop dates not included

Laundry list of items required by law in home improvement contracts

For a clean contract, here's a laundry list of each item that state law requires be in home improvement contracts. Contractors are also required to provide specified notice(s) to consumers PRIOR to entering contracts (s)

Describing

Business and Professions Code 7159

Before You Enter into a Home Improvement Contract

Consent

Both parties to a contract must give their consent, which must be true and freely given. If one party's consent was obtained through fraud (deception or trickery), the contract can be canceled by the other party.

A contract can also be canceled if it is signed under duress or undue influence. Examples of duress are threats of or actual physical harm. Undue influence occurs when a person does not freely exercise his or her own free will as a result of another person's influence.

Civil Code Sections 1550, 1567

Notice Required for Lien Contracts

The following notice, in 18-point boldface type, must accompany any home improvement contract offered by door-to-door sale that contains or is secured by a lien on real property.

"Warning to buyer: if you sign the contract which accompanies this notice, you will be putting up your home as security. This means that your home could be sold without your permission and without any court action if you miss any payment required by this contract."

Business and Professions Code 7159.1 & 7159.2

Notice on Commercial General Liability Insurance

The notice must accompany an estimate or contract for home improvement work.

Business and Professions Code 7159.3

Checklist for Homeowners: Home Improvement

The checklist for home improvement must accompany an estimate or contract for home improvement work.

Business and Professions Code 7159.3

Checklist for Homeowners: Swimming Pool

The checklist for swimming pools must accompany an estimate or contract to build a swimming pool.

Business and Professions Code 7159.3

Information About Commercial General Liability Insurance

Home Improvement

Pursuant to California Business & Professions Code §7159.3 (SB 2029), home improvement contractors must provide this notice and disclose whether or not they carry commercial general liability insurance.

Did your contractor tell you whether he or she carries Commercial General Liability Insurance?

Home improvement contractors are required by law to tell you whether or not they carry Commercial General Liability Insurance. This written statement must accompany the bid, if there is one, and the contract.

What does this insurance cover?

Commercial General Liability Insurance can protect against third-party bodily injury and accidental property damage. It is not intended to cover the work the contractor performs.

Is this insurance required?

No. But the Contractors State License Board strongly recommends that all contractors carry it. The Board cautions you to evaluate the risk to your family and property when you hire a contractor who is not insured. Ask yourself, if something went wrong, would this contractor be able to cover losses ordinarily covered by insurance?

How can you make sure the contractor is insured?

If he or she is insured, your contractor is required to provide you with the name and telephone number of the insurance company. Check with the insurance company to verify that the contractor’s insurance coverage will cover your project.

What about a contractor who is self-insured?

A self-insured contractor has made a business decision to be personally responsible for losses that would ordinarily be covered by insurance. Before contracting with a self-insured contractor, ask yourself, if something went wrong, would this contractor be able to cover losses ordinarily covered by insurance?

For more information about Commercial General Liability Insurance, contact the Contractors State License Board at http://www.cslb.ca.gov/laws/default.asp#sb2029 or call 800-321-CSLB (2752).

Checklist for Homeowners

Pursuant to California Business & Professions Code §7159.3 (SB 2029), home improvement contractors must provide this notice.

Checklist for Homeowners

Pursuant to California Business & Professions Code §7159.3 (SB 2029), home improvement contractors must provide this notice.

Plans and Specifications

Most jobs require plans and specifications which describe layout, sizes, locations, materials, allowances, etc. It is important that both the contractor and the homeowner critically review both the plans and the specifications to ensure a clear understanding of the home improvements and of each party's commitments and obligations. A review of preliminary plans and specifications should occur prior to the signing of any contract. (See Description of the work)

Hazardous Materials

Occasionally, a contractor starts a project without knowledge of the existence of hazardous materials and then discovers them during construction. When this occurs, the contractor must immediately notify the homeowner and stop the work in the affected area. The homeowner is then responsible for complying with local codes and ensuring the hazardous materials are properly abated. In some cases the contractor may be licensed to perform the abatement. It is important to know that the contractor cannot resume work in the affected area until the abatement is completed and the contractor is notified in writing.

Licensing Notices

State law requires that all contractors give the following information on licensing BEFORE a contract is signed.

License Information

At the time of making a bid, or before entering into a contract (whichever occurs first) to perform work on residential property with four or fewer units, the contractor must provide the following notice in capital letters in at least 10-point roman boldface type, or in contrasting red print in at least 8-point roman boldface type:

"State law requires anyone who contracts to do construction work to be licensed by the Contractors State License Board in the license category in which the contractor is going to be working-if the total price of the job is $500 or more (including labor and materials).

"Licensed contractors are regulated by laws designed to protect the public. If you contract with someone who does not have a license, the Contractors State License Board may be unable to assist you with a complaint. Your only remedy against an unlicensed contractor may be in civil court, and you may be liable for damages arising out of any injuries to the contractor or his or her employees.

"You may contact the Contractors State License Board to find out if this contractor has a valid license. The Board has complete information on the history of licensed contractors, including any possible suspensions, revocations, judgments, and citations. The Board has offices throughout California. Please check the government pages of the White Pages for the office nearest you or call 1-800-321-CSLB for more information."

Business and Professions Code Section 7030

Notice Required To Be Given by Disciplined Contractors

A contractor who has had his or her license suspended or revoked due to disciplinary action two or more times within an eight-year period must provide a notice to consumers prior to entering into home improvement contracts for residential property with four or fewer units. This notice is required whether or not the suspension or revocation was stayed.

The disclosure must be either in capital letters in 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type.

The notice must include information on any citation, license suspension, or license revocation during the last four years resulting from any violation of any provisions of this chapter by the contractor, or any complaint or legal action relating to conduct regulated under this chapter that resulted in an unfavorable judgment against the contractor.

Business and Professions Code Section 7030.1

Notice to Owner/Mechanics' Liens

State law also requires that contractors provide the Notice to Owner on page 16 regarding mechanics’ liens BEFORE a contract is signed. The contract must state that upon satisfactory payment being made for any portion of the work performed, the contractor shall furnish a full and unconditional release from any claim or mechanics’ lien for that portion of the work for which payment has been made. Failure to provide this notice can result in disciplinary action. You may duplicate the form in this booklet.

The Notice to Owner also states that the owner or tenant has the right to require the contractor to have a performance and payment bond.

Lien notice requirements for home improvement contracts do not apply if:

• the contractor furnishes a performance and payment bond, lien and completion bond, bond equivalent or joint control approved by the Registrar of Contractors, which covers full performance and completion of the contract and the bonds; or
  
   
• when parties agree for full payment to be made upon--or for a schedule of payments to commence after--satisfactory completion of the project.
  
   

For additional information on liens, consult the "Managing a Business" section in the California Contractors License Law and Reference Book. (See ordering information.)

Business and Professions Code Sections 7018.5, 7159

NOTICE TO OWNER

"Under the California Mechanics' Lien Law, any contractor, subcontractor, laborer, supplier, or other person or entity who helps to improve your property, but is not paid for his or her work or supplies, has a right to place a lien on your home, land, or property where the work was performed and to sue you in court to obtain payment.

This means that after a court hearing, your home, land, and property could be sold by a court officer and the proceeds of the sale used to satisfy what you owe. This can happen even if you have paid your contractor in full if the contractor's subcontractors, laborers, or suppliers remain unpaid.

To preserve their rights to file a claim or lien against your property, certain claimants such as subcontractors or material suppliers are each required to provide you with a document called a "Preliminary Notice." Contractors and laborers who contract with owners directly do not have to provide such notice since you are aware of their existence as an owner. A preliminary notice is not a lien against your property. Its purpose is to notify you of persons or entities that may have a right to file a lien against your property if they are not paid. In order to perfect their lien rights, a contractor, subcontractor, supplier, or laborer must file a mechanics' lien with the county recorder which then becomes a recorded lien against your property. Generally, the maximum time allowed for filing a mechanics' lien against your property is 90 days after substantial completion of your project.

(1) Require that your contractor supply you with a payment and performance bond (not a license bond), which provides that the bonding company will either complete the project or pay damages up to the amount of the bond. This payment and performance bond as well as a copy of the construction contract should be filed with the county recorder for your further protection. The payment and performance bond will usually cost from 1 to 5 percent of the contract amount depending on the contractor's bonding ability. If a contractor cannot obtain such bonding, it may indicate his or her financial incapacity.

(2) Require that payments be made directly to subcontractors and material suppliers through a joint control. Funding services may be available, for a fee, in your area which will establish voucher or other means of payment to your contractor. These services may also provide you with lien waivers and other forms of protection. Any joint control agreement should include the addendum approved by the registrar.

(3) Issue joint checks for payment, made out to both your contractor and subcontractors or material suppliers involved in the project. The joint checks should be made payable to the persons or entities which send preliminary notices to you. Those persons or entities have indicated that they may have lien rights on your property, therefore you need to protect yourself. This will help to insure that all persons due payment are actually paid.

(4) Upon making payment on any completed phase of the project, and before making any further payments, require your contractor to provide you with unconditional "Waiver and Release" forms signed by each material supplier, subcontractor, and laborer involved in that portion of the work for which payment was made. The statutory lien releases are set forth in exact language in Section 3262 of the Civil Code. Most stationery stores will sell the "Waiver and Release" forms if your contractor does not have them. The material suppliers, subcontractors, and laborers that you obtain releases from are those persons or entities who have filed preliminary notices with you. If you are not certain of the material suppliers, subcontractors, and laborers working on your project, you may obtain a list from your contractor. On projects involving improvements to a single-family residence or a duplex owned by the individuals, the persons signing these releases lose the right to file a mechanics' lien claim against your property. In other types of construction, this protection may still be important, but may not be as complete.

To protect yourself under this option, you must be certain that all material suppliers, subcontractors, and laborers have signed the "Waiver and Release" form. If a mechanics' lien has been filed against your property, it can only be voluntarily released by a recorded "Release of Mechanics' Lien" signed by the person or entity that filed the mechanics' lien against your property unless the lawsuit to enforce the lien was not timely filed. You should not make any final payments until any and all such liens are removed. You should consult an attorney if a lien is filed against your property."

(Rev. 4/99)

Required Notice(s) PRIOR to Contracting

Remember, BEFORE entering into a contract, contractors must provide the notice(s) described in the section Before Signing Contracts.

Contract in Writing

Home improvement contracts of $500 or more must be in writing. Since both contractors and consumers are bound by everything set down in the contract, contracts should be read carefully before signing. A judge will usually assume that all agreements, both oral and written, are included in the written contract.

Name and Registration Number of Salesperson (if applicable)

Contracts must include this information. A home improvement salesperson is employed by a licensed contractor to solicit and execute contracts outside the contractor's normal place of business. A salesperson may work for more than one contractor but must have a separate home improvement salesperson registration for each contractor.

Statement Regarding Where To File a Complaint

Every contract must include the following statement on all written contracts. The statement must be in at least 10-point type:

"Contractors are required by law to be licensed and regulated by the Contractors State License Board, which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four years of the date of the alleged violation. A complaint regarding a latent act or omission pertaining to structural defects must be filed within 10 years of the date of the alleged violation. Any questions concerning the contractor may be referred to the Registrar, Contractors State License Board, Post Office Box 26000, Sacramento, California 95826."

Business and Professions Code Section 7030

Warranties

Contractors should be advised of the following information on CSLB complaint law should they wish to include an express, written warranty as part of their contract.

For patent or readily observable defects, California law limits the period within which a complaint may be filed against a contractor to four years from the date when the act or omission occurred. This statute of limitations may be extended if there is an express, written warranty issued by the contractor. If such a warranty has been breached by the contractor, the CSLB has authority to act on a complaint during the entire duration of the warranty. However, the CSLB has no authority to enforce a warranty given by a manufacturer or material supplier. A ten year statute of limitations exists for certain latent structural defects in construction.

CSLB Arbitration Programs

If contractors want potential disputes to be solved via private arbitration, the arbitration notice must be used. However, if the parties to the contract agree to such a notice, they will not be allowed access to CSLB's arbitration program (unless both parties later sign a waiver of the contractual arbitration clause).

The CSLB offers two arbitration programs: a mandatory program for disputes involving alleged damages of less than $7,500, and a voluntary program for disputes involving damage allegations of between $7,500 and $50,000.

Disputes must comply with certain criteria in order to qualify for a CSLB arbitration program:

• the contractor's license must be in good standing at the time of the alleged violation;
  
   
• the contractor cannot have a record of prior violations; and
  
   
• the parties cannot have previously agreed to private arbitration in the contract or elsewhere.

CSLB arbitration is fast (about 120 days)and all decisions are binding and enforceable in court. The Board provides the arbitrator (who is an expert in construction matters) and one expert witness free of charge. It also pays all administrative fees.

For more information on arbitration, visit the CLSB Web site at www.cslb.ca.gov, or call 1 (800) 321-CSLB (2752) and order the free publications,Mandatory Arbitration Program Guide and Voluntary Arbitration Program Guide.

Business and Professions Code Section 7085

Private Arbitration Notice

If a contractor wishes to include a provision for private arbitration in a printed contract, it must be printed in at least 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type. If the provision is included in a typed contract, it must be typed in capital letters.

Immediately before the line or space provided for the parties to indicate their assent or nonassent to the arbitration provision, the following shall appear:

"NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE ‘ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE BUSINESS AND PROFESSIONS CODE OR OTHER APPLICABLE LAWS. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE ‘ARBITRATION OF DISPUTES' PROVISION TO NEUTRAL ARBITRATION."

An arbitration provision that does not comply with Business and Professions Code Section 7191 may not be enforceable against any person other than the licensee.

Business and Professions Code Section 7191

A violation of Business and Professions Code section 7159, which specifies home improvement contract requirements, is a misdemeanor and punishable by a fine of not less than $100 or more than $5,000, up to one year in the county jail, or both.

Commencement of Work--Starting the Job

All home improvement contracts must include:

• the approximate date on which construction is to begin;
  
   
• the approximate date on which all construction is to be completed (not number of working days);
  
   
• what constitutes substantial commencement of the work; and
  
   
• a notice that failure of the contractor without lawful excuse to substantially commence work within 20 days from the approximate date specified in the contract when work will begin is a violation of the Contractors License Law.

The dates need to be approximate only, since external factors such as the weather, or the availability of supplies might cause delays.

Business and Professions Code Section 7159

Description of the Work

The contract must include a description of the work to be done; the materials to be used, and the equipment to be used or installed. For a swimming pool, a plan and scale drawing showing the shape, size dimensions, and construction and equipment specifications must also be included as part of the contract. Make sure the contract includes everything that is agreed to, up to and including complete cleanup and removal of debris and materials, and special requests like saving lumber for firewood or saving certain materials or appliances.

Remember, the word "contract" means "to agree." The more effort that is spent in spelling out in as much detail as possible what will be done on the job, the less the chance that there will be a misunderstanding.

Therefore, the contract should be as specific as possible regarding all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply.

For example, the contract should say "install oak kitchen cabinets, manufactured by Company XYZ, model 01381A, as per the plan," not just "install kitchen cabinets."

Change Orders

Disputes frequently arise over "changes" or "extras." First of all, in order to determine if something is an extra or outside the scope of the original agreement, contractors must be able to accurately determine what the original agreement says. If the original agreement is well defined and in writing, it will be much easier to determine if something is an extra.

Change orders are required to perform extra or changed work. Change order forms become a part of the contract and must clearly set forth the scope of the work and the price to be charged. They must be in writing and must include:

• the contractor's name, address, and license number;
  
   
• signatures of both parties to the contract;
  
   
• approximate dates when the work will begin and be completed;
  
   
• a legal description of the location where the work will be done; and
  
   
• include the Notice to Owner mechanics' lien statement

Business and Professions Code Section 7159(h), 7164

Agreed Price

All contracts must include the price agreed upon for the work. Remember that $500 is the threshold at which the requirements for home improvement contracts must be met.

By law, the job must be completed for the agreed upon contract price.

If the contract price is to be changed, that MUST be accomplished via written change orders, which become a part of the contract. Not completing the job for the contract price is a violation of Business and Professions Code Section 7113, and constitutes a cause for disciplinary action. In fact, most license revocation actions include a reference to a violation of this code section.

Down Payment

If the payment schedule contained in the contract provides for a down payment to be paid to the contractor by the owner or the tenant before the commencement of work, the down payment shall not exceed one thousand dollars ($1,000) or 10 percent of the contract price for home improvements, excluding finance charges, whichever is less. There are no exceptions for special order materials.

The maximum down payment for swimming pools is two hundred dollars ($200) or 2 percent of the contract price, whichever is less. With respect to a swimming pool contract, the final payment may be made at the completion of the final plastering phase of construction, provided that any installation or construction of equipment, decking, or fencing required by the contract is also completed.

Schedule of Payments

A home improvement contract must include the schedule of payments showing the amount of each payment as a sum in dollars and cents. It should be specifically referenced to the amount of work or services to be performed and to any materials and equipment to be supplied for that payment.

Payments to the contractor cannot exceed the value of the work performed, except for the initial down payment.

If the contractor has not begun the work within 20 days of the contract start date, the payment schedule specified in the contract shall be postponed for the period of time equivalent to the time between when substantial commencement was to have occurred and when it actually occurred.

Sales Commission

If the contract provides for a payment of a salesperson's commission out of the contract price, that payment shall be made on a pro rata basis in proportion to the schedule of payments made to the contractor.

Cancellation Provisions

There are three cancellation provisions that contractors should be familiar with:

1. The Home Solicitation Sales Act (California Civil Code)
   
    
2. The Federal Truth in Lending Act (U S Government Code)
   
    
3. Business and Professions Code Section 7163

Home Solicitation Sales Act

Home improvement contracts can be canceled by the buyer within three business days after signing the contract, if the transaction:

• involves $25 or more; and
  
   
• takes place in the buyer’s home or away from the seller’s place of business.

To cancel, the buyer need only give the contractor written notice of his or her intent not to be bound by the contract--there is no penalty or obligation on the part of the buyer.

If the contractor has not complied with certain notice requirements, the cancellation period begins when the contractor has complied (see below).

The cancellation provisions are most commonly applied to sales made in the buyer’s home, but the test is whether the contract or offer is made somewhere other than the seller’s place of business.

These provisions apply whether the buyer initiated contact with the contractor or vice versa. They apply where there is no financing involved, or in the fairly rare case where the financing is through a retail installment contract.

Exceptions are noted below, under "Transactions Not Covered by the Home Solicitation Sales Act."

Contract and Notice Must Be in Writing

The cancellation period extends beyond three business days if the contract does not meet the following requirements.

The buyer’s contract or offer to purchase:

• must be in writing;
  
   
• must be in the same language as is principally used in the oral sales presentation (for example, if the presentation is in Spanish, the contract must also be in Spanish);
  
   
• must be dated and signed by the buyer;
  
   
• must state on the first page the name and address of the contractor to which the notice of cancellation is to be sent;
  
   
• must state the date on which the buyer signed the contract or offer;
  
   
• must contain a conspicuous, statutorily-prescribed notice of the buyer’s right to cancel, which must be located near the space for the buyer’s signature. This notice must state:
  
  "You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right."

The contractor must give the buyer a copy of the contract or offer and the required Notice of Cancellation forms described below.

Notice of Cancellation Form

The contractor must give the buyer duplicate completed Notice of Cancellation forms (in the same language as used in the contract) which contain a statutorily-prescribed notice of cancellation.

These forms:

• must be attached to the contract or offer; and
  
   
• must be easily detachable, so that the buyer can use the form itself to give the contractor notice of his or her decision to cancel.

At the time the contract or offer is executed, the contractor also must orally inform the buyer of his or her right to cancel.

Notice of Cancellation and Cancellation Period

The buyer may cancel a home solicitation contract or offer until midnight of the third business day after the day on which he or she signed the agreement. ("Business day" means any calendar day except Sundays and specified holidays.)

However, if the contractor has not complied with the foregoing requirements, the buyer may cancel the contract or offer at any time until the contractor has complied with those requirements.

A buyer who wants to cancel does not have to use the form provided by the contractor--the notice of cancellation need only be in writing, and need only express the buyer’s intent not to be bound by the contract or offer.

The buyer’s notice of cancellation must be sent to the contractor at the address specified in the agreement or offer. If sent by mail, the notice is effective when it is deposited in the mail, properly addressed, with postage prepaid.

Transactions Not Covered by the Home Solicitation Sales Act

The following are the most important exceptions to the Act:

1. Contracts with a licensed contractor for repair services, if:
   
    
   • the contract price is less than $100; and
     
      
   • the contract contains a written and dated statement, signed by the buyer, that he or she initiated the negotiations.
     
      
2. Contracts for emergency repairs or services which are necessary for the immediate protection of people or property, if:
   
    
   • where the buyer initiates the contract; and
     
      
   • the buyer gives the contractor a separate signed and dated personal statement which describes the situation, and which expressly acknowledges and waives the buyer's right to cancel.
     
      
3. Any transaction which is subject to rescission by the buyer under the federal Truth-in-Lending Act because it involves a security interest in the buyer's principal dwelling (discussed below).

Truth in Lending Act

The Truth in Lending (TIL) Act's three-business-day right of rescission (cancellation) probably applies if the home improvement:

• is to be financed; and
  
   
• involves a security interest in the buyer's home.

Transactions Covered

The TIL right of rescission applies in a consumer credit transaction when:

• a lien or security interest is taken in the consumer's principal dwelling that is not related to its purchase; or
  
   
• a security interest in the dwelling may arise by operation of law (e.g., a mechanics' or materialman's lien).

The credit must be extended to a natural person for personal, family or household purposes by a contractor or a lender who regularly extends consumer credit.

Transactions Not Covered

Major exceptions to the TIL rescission provisions include:

• loans to finance the construction or purchase of a home; and
  
   
• refinancing of the same property by the same creditor with no new advance of funds.

Cancellation Right

A consumer whose ownership interest is or will be subject to the security interest has the right to rescind the transaction until midnight of the third business day after:

• consummation (signing) of the contract;
  
   
• the creditor's delivery of the required Notice of the Right to Cancel; or
  
   
• the creditor's delivery of all material disclosures, whichever occurs last. ("Material disclosures" include the annual percentage rate, the finance charge, the amount financed, and other key loan terms.)

If the required notice or material disclosures are not delivered, the right to rescind generally expires three years after consummation.

Business and Professions (B&P) Code Section 7163

When it Applies

B&P Section 7163 complements the TIL rescission provisions described above. It applies in any of the following situations if:

• obtaining a loan for all or a portion of the contract price for a home improvement contract is a condition to the contract;
  
   
• the contractor provides financing or helps the buyer obtain a loan; or
  
   
• the contractor refers the buyer to a lender or to any other person to arrang a loan.

If one of the above conditions is present, the contract is not enforceable against the buyer unless all of the following requirements are satisfied:

• the third party, if any, agrees to make the loan;
  
   
• the buyer agrees to accept the loan or financing; and
  
   
• the buyer does not rescind the loan or financing transaction as permitted by the TIL, when its provisions are applicable.

Exceptions to B&P Section 7163

In general, the buyer's waiver of any rights under B&P Section 7163 is void and unenforceable.

A waiver is permitted, however, to the extent that the contract is for emergency repairs or services which are necessary for the immediate protection of people or property.

In this situation, the buyer must give the contractor a signed and dated personal statement which:

• describes the emergency;
  
   
• states that the contractor has informed the buyer of the buyer's right to cancel under B&P Section 7163;
  
   
• states that the buyer waives those rights; and
  
   
• is signed by each owner of the property.

Waivers on printed forms are void and unenforceable.

Swimming Pool Contracts

B&P Section 7165 allows use of substitute provisions in the case of a swimming pool contract financed by a third-party lender.

NOTICE OF RIGHT TO CANCEL

You may cancel this transaction, without any penalty or obligation, within three business days from the above date.

If you cancel, any property traded in, any payments made by you under the contract or sale, and any negotiable instrument executed by you will be returned within 10 days following receipt by the seller of your cancellation notice, and any security interest arising out of the transaction will be canceled.

If you cancel, you must make available to the seller at your residence, in substantially as good condition as when received, any goods delivered to you under this contract or sale, or you may, if you wish, comply with the instructions of the seller regarding the return shipment of the goods at the seller's expense and risk.

If you do make the goods available to the seller and the seller does not pick them up within 20 days of the date of your notice of cancellation, you may retain or dispose of the goods without any further obligation.

If you fail to make the goods available to the seller, or if you agree to return the goods to the seller and fail to do so, then you remain liable for performance of all obligations under the contract.

To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to:

CSLB Headquarters Contact Information

Mailing Address: P.O. Box 26000, Sacramento CA 95826-0026
Street Address: 9821 Business Park Drive, Sacramento CA 95827-1703
Licensing Fax: (916) 366-9130

Trade Associations

Printed standard forms of agreements used in the industry are available from Contractor associations (i.e., Associated General Contractors), Associations for specialized trades (i.e., California Landscape Contractors Association); and Builders’ Exchanges.

Stationery & Book Stores

Printed standard forms are also available from various stationery and contractors’ book stores. When purchasing or obtaining a standard form, you should carefully check it to make sure it contains all the current legal requirements.
 

Legal Assistance

A continuing relationship with an attorney familiar with the construction business is helpful. It is a good idea to have an attorney check arrangements for individual jobs which might not quite fit a standard form.

The CSLB cannot and does not give legal advice as to how the courts or an arbitrator would regard a specific matter. CSLB staff can only provide information about how the CSLB interprets the law for its own purposes. For example, the CSLB staff can give an interpretation on whether a particular action by a contractor would constitute a violation that might lead to action by the CSLB. Any other questions should be researched through other sources.

Automated Phone Response System (APRS)

The Automated Phone Response System (APRS) is an automated, toll-free number, 1 (800) 321-CSLB(2752), for obtaining information, forms, publications and other valuable assistance pertaining to contracting and the Contractors State

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