How to avoid costly lawsuit during major home improvement project

There has been uptick in suits against contractors under N.J. Consumer Fraud Act and corresponding Home Improvement Practice Regulations

The housing market has led to an increased number of New Jersey homeowners who, because of the lack of inventory and high interest rates for mortgages, are investing in their current homes, hiring contractors and embarking on significant home renovations. Business has been booming for many builders and contractors.

Unfortunately, prosperity can sometimes come with some risks. The increasing number of renovation projects has seemed to coincide with an apparent uptick in lawsuits against contractors under the New Jersey Consumer Fraud Act and corresponding Home Improvement Practice Regulations.

New Jersey has some of the most expansive laws in the country aimed to protect homeowners from unscrupulous contractors. The CFA and HIPR create a web of protections for homeowners who engage in the services of a home improvement contractor. Moreover, violations of the CFA can result in significant liability for contractors.

For example, the CFA allows homeowners to sue a contractor who has violated the act, and, if the homeowner is successful, the homeowner may be entitled to significant monetary compensation, including treble damages, attorney’s fees and costs.

However, contractors are not defenseless. There are multiple ways to defend against these types of claims, such as the ascertainable loss defense, which may prevent a homeowner from recovering a “loss” for a technical violation of the CFA if the homeowner has not incurred any actual damage as a result of the violation. There are also a number of situations where the CFA may not apply. For instance, the CFA is typically limited to noncommercial residential properties. Thus, contractors performing renovation work on a commercial property may not be subject to the CFA.

With these cases on the rise, the following tips and best practices can be kept in mind to avoid a potentially costly lawsuit:

  • Written contracts are necessary: Under the CFA and HIPR, the failure to provide a written contract or written change order pertaining to a home renovation project constitutes a violation of the CFA. Therefore, it is critical that contractors take the time to prepare a written contract outlining the exact scope and cost of the renovation project before the works commences. In the event of an unexpected or requested change, the contractor should prepare a written change order that outlines the effect the change will have on the total cost and estimated project completion time and makes sure the homeowner signs it.
  • Warranties: The CFA and HIPR also require that a contractor provide the homeowner with a written copy of all guarantees or warranties made with respect to labor services, products or materials furnished in connection with home improvements. These warranties — if made — must be specific, clear and definite. There may also be circumstances where the law will imply the existence of a warranty, even where no express warranty has been made. For example, there may be an “implied” warranty that the contractor will perform the renovation work in a workmanlike fashion and that the work will be free from defects.
  • Keep detailed records: Documentation, such as written communications, written change orders, invoices or requests for payments and payment receipts are critical in cases involving CFA and similar types of claims. Courts look to these types of documents to determine the scope of the agreed upon work, the agreed-upon price, the dates for completion of project and for any warranties that were made. With proper documentation, a contractor or builder will be able to build a significantly stronger defense. Additionally, CFA cases often include ancillary claims for conversion or unjust enrichment. Having detailed financial documents in place will help a contractor demonstrate that they did not accept payments beyond what they were entitled to.

As we mentioned, business is booming and it’s a great time to be a contractor in New Jersey. Ensure you are prepared to take advantage of current market conditions and avoid unnecessary risk by always staying on top of the rules and regulations governing the industry.

Dylan Newton and Michael Horn are business litigation attorneys with Archer & Greiner P.C.