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Service and Repair Contracts in California are construction contracts between a homeowner or tenant and a contractor. These contracts are used to establish the details of home improvement work. Residents of California who want to hire professionals to do work on their home, from repairs to conversions or updates, may use a Service and Repair Contract to outline the specifics of the deal and work to be done.
For example, a Service and Repair Contract may be used to hire a plumber to fix a pipe issue, or a contractor to convert a garage to an additional living space.
When To Use a California Service and Repair Contract
California Service and Repair Contracts are only for home improvement projects that meet these specific requirements:
- Cost for the work shall not exceed $750.
- The homeowner or tenant initiated contact with the contractor to request the work.
- The contractor does not sell any services or perform any repairs or alterations beyond the scope of the work the homeowner or tenant specifically hired them for.
- No payments are made until after the work has been completed.
In other words, Service and Repair Contracts in California are intended for use only on relatively small jobs. Projects in excess of $750 are not applicable (keep reading for a workaround).
Additionally, California Service and Repair Contracts prevent contractors from up-selling the prospective buyer. The contractor is prohibited from touching or altering any part of the home outside of the specific, agreed-upon work established in the contract. Any repair work beyond that equates to a breach of contract, and can render the agreement null and void.
Contract Formatting and Language Required
The California Contractors State License Board (or “CSLB”) requires the inclusion of specific language and formatting for a California Service and Repair Contracts to be valid. These requirements protect the buyer, and failure to comply on the part of the contractor may render the agreement null.
The following requirements are to be included by law.
The contract must:
- Be in writing. A Service and Repair Contract cannot be a strictly verbal agreement.
- Be signed by both (a) the owner or tenant of the property, or the buyer, and (b) the contractor.
- Contain the contractor’s name, phone number, address, and license number.
- Include the date the contract was signed.
- Be written in 10-point or larger text. All headings should be in bold.
- Include the price beneath the heading “Contract Price.”
- Indicate the buyer’s rights and circumstances which may result in the voiding of the contract:
- The price must not exceed $750
- The buyer must have initiated contact with the contractor to request the work
- The contractor must not sell the buyer goods or services beyond the scope of the contract
- No payment is due or should be accepted until all work is completed
- Contain the estimated time the project will take to complete, as well as the estimated cost of any necessary materials.
- Include a finance charge in the contract (if applicable), and indicate the amount of the charge.
- Include any service charges, with the amount of the charge indicated
- Describe the project, the materials to be used, and/or equipment to be used
- Contain specific language for the following topics:
- Extra Work and Change Orders
- Commercial General Liability Insurance
- Workers’ Compensation Insurance
- The buyer’s right to cancel before work begins
How to Use a Service & Repair Contract Effectively
California Service and Repair Contracts are fairly strict in how they can be used. As a contractor, it is important to adhere to the legal requirements of these types of contracts, to ensure that you remain in compliance with the law and get paid.
The $750 cap on how much can be charged for work can cause a problem for some contractors. After all, even the best estimates can sometimes go out the window once the work begins.
Let’s say, for instance, you’re redoing a roof. You thought it would be a simple re-shingling job, but once you get in there you find that part of the roof has taken significant water damage and will require a lot more work than you initially quoted.
Use Change Orders
A change order is typically the means to avoid this type of problem. This is an extension of the contract that is designed to protect the contractor should unforeseen circumstances, expenses, or work arise once the job has begun. A change order must be approved by both parties for it to be rendered valid. However, even with change orders, Service and Repair Contracts still must adhere to the limitations mentioned above.
Use Multiple Contracts
If you suspect that the work may end up exceeding the $750 cap, you can break the project into multiple Service and Repair Contracts. However, to ensure you comply with the strict requirements, ensure that each contract is specific in its scope and timing. For example, you might break a $1200 roof repair into two Service and Repair Contracts; one for framing work ($700), and another for shingle replacement ($500).
This method provides a creative workaround for the limitations of the contract, and helps protect the contractor and ensure they get paid fully and fairly.
What If I’m Not Paid?
California Service and Repair Contracts only allow for payment to the contractor once the whole job has been completed. But what if the work has been completed and the buyer has not remitted payment?
In cases such as this, contractors can use a mechanics lien to claim any unpaid monies for completed work. The mechanics lien is a powerful tool to protect a contractor’s payment. However, keep in mind that a mechanics lien can only be used to claim an overdue balance on completed work and materials. It cannot be used to recover money that was loaned or invested.
Additionally, unlicensed contractors in California do not have the right to recover payment for unpaid work.
Ensure Payment With a California Service and Repair Contract
It is important to ensure that all of your construction contracts are airtight and in compliance with the law. This helps you deal with any unforeseen circumstances that may arise during the course of the job, and protect your business and profit.
Failure to understand the specific requirements and limitations of this type of contract can cause trouble down the line. That’s why it’s so important to make sure your document is right from the outset.
Alternatively, some contractors may prefer to use a California Home Improvement Contract instead, which is not so rigid in terms of contractual obligations.