Explaining contract essentials

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Contracts come in many shapes and formats, but there are a few essentials you should consider including. These can go a long way to stopping a problem before it starts and preventing a small problem from becoming a big nightmare.

  • Explain the product. Tell customers ahead of time what they should expect from their purchase. For example, if you’re selling windows, explain in the contract what ambient temperature is and that condensation on or within a window is not a “defect.” Explain color variations in siding runs and roof tile lots, etc.
  • Interest and legal fees. If your contract doesn’t say you’re going to be able to recover interest on past due balances or your legal fees if you have to sue the consumer, then don’t expect to be able to.
  • Late cancellation fees. Make sure your contract says you can allow a late cancellation request (after the rescission period has already run) in exchange for a reasonable fee, 10% to 20% of the purchase price, for example. If the fee isn’t reasonable, it will be considered a penalty against the consumer and unenforceable in many courts. (Not that you should be suing on this type of issue anyway; the fee should come out of the deposit you took at closing.)
  • Punch list. Make sure your contract calls for payment of the entire balance on substantial completion and define what that means. Then allow for a 5% to 10% hold-back on a punch list if there are disagreements on the walkthrough after the final installation.
  • Force majeure. Force majeure clauses let you off the hook if you run into an event beyond your control that prevents performance of the job — natural disasters or other “Acts of God,” weather problems, or the failure of third parties, such as suppliers and subcontractors, to perform their obligations.
  • Clear and full acknowledgement. Make sure that above the buyer’s signature line you have a clear, bold statement confirming that the buyer has read the entire contract, has no questions, understands the terms, and is not relying on any oral agreements. —D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.johansonberenson.com), a national law firm specializing in the home improvement industry. Contact him at 703.759.1055 or [email protected]. This article is for informational purposes only and should not be construed as legal advice.

    • About the Author

    D.S. Berenson

    D.S. Berenson is the Washington, D.C., managing partner of Berenson LLP, a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at 703.759.1055 or [email protected].

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