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Fire your home contractor? Do it carefully

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As homeowners regain equity in their homes and remodeling activity picks up, can contractor disputes be far behind? If you are not happy with the way your home remodeling contractor is handling the work and want to fire him, then slow down.

Don’t rush into action.

3 things about firing a contractor

  • If you do it wrong, you’ll incur heavy expenses.
  • You have to have a substantial reason.
  • You’ll be on safer ground if you document everything.

Firing a contractor can be costly

Consider any fallout first, especially if you don’t have a termination clause in your remodeling contract or by some chance didn’t even enter into a contract with the remodeler. As George Wolff, principal attorney at Wolff Law Office in San Francisco, advises, “Terminating a contractor if you don’t have a good cause can be risky if you are going to have liability for lost profits.”

You could be liable for the cost of any services and materials that the contractor provided on the undisputed portion of the project, and you could be responsible for legal costs you incur.

Want to borrow from your home’s equity to pay for renovations? Use Bankrate’s home equity search tool.

Material breach of contract

Make sure you have an adequate basis for firing the contractor before you take action. For instance, you can’t fire a contractor just because you don’t get along, or because she did something a little differently than you expected.

One standard that can provide enough of a justification is if the contractor commits a material breach of contract. Mark Hinkston, counsel with the law firm of Knuteson, Hinkston & Quinn in Racine, Wisconsin, says, “There is no magic formula for material breach. It’s basically if the essential elements of the contract have not been complied with.”

Material breach of contract

A failure to perform the terms of an agreement to such a significant extent that the agreement is broken. The aggrieved party can sue to collect damages.

What constitutes a breach?

Even in a situation where you consider that there is a material breach of contract, you might find that the law thinks otherwise. For instance, consider a project in which you are adding an additional bedroom to your house. If, after most of the work is done, the contractor does not handle to your satisfaction the task of adding the molding around the edges of the walls, this is not a situation that would constitute a material breach of contract, according to Hinkston.

On the other hand, if the contractor did everything else perfectly but the floors are uneven, that is a more serious issue that would destroy the essential purpose of the contract and constitute a material breach of contract.

Other situations that could constitute a material breach include the contractor delaying the project or violating building codes.

Right to cure defects

Consider state laws relating to such situations. For instance, many states, such as Wisconsin, have right-to-cure laws that require you to give the contractor the opportunity to fix any defect before you can take any action against her.

Kevin Anundson, president of the National Association of the Remodeling Industry, points out, “What was happening in the past was that people would go and hire another contractor to fill the work of the first contractor and then send the first contractor the bill. So Wisconsin enacted a law that says consumers are required to give a contractor the right to cure any defects.”

Some state laws require a contractor to stick to start and finish dates for a remodeling contract. If a contractor doesn’t follow such rules, that could also provide justification for the firing.

Adequate documentation

If you decide to fire your contractor, it’s a good idea to document the project beforehand as it proceeds — by taking videos and keeping a diary, for instance. Do it diplomatically so as to not offend the contractor.

Always terminate the contractor in writing, rather than orally. Even if the contractor doesn’t show up for work, you have to document the termination by sending a written notice specifying the reason for termination without defaming the contractor.

Also, in cases where a bank or escrow company is involved in the project, make sure to inform it of the termination.

Before you act

Before you fire your contractor, consider that the act could backfire on you. “Oftentimes, the owners don’t realize that when they fire a contractor there could be ramifications such as the contractor beating them to the punch and filing suit first,” Hinkston says. “Or they could put a lien on the property.”

While the viability of a contractor’s lien has to be decided in court, it could give the contractor leverage over you while the issue is being decided.

Another option to consider is the possibility of mediation by a third party, such as the Better Business Bureau, or a state agency that can investigate the situation. Sometimes, the situation resolves itself, as this gives the contractor an impetus to sort out the issue.