Builder Contracts: Everything You Need to Know
Builder contracts are important because they prevent misunderstandings and disagreements that stand between what both parties want.3 min read
Builder contracts are important because they prevent misunderstandings and disagreements that stand between what both parties want. The contractor needs to get paid the agreed-upon amount for the work he does, and the building owner wants to get the house they're dreaming about.
Most professional builders have contracts prepared for their customers to sign. If yours does not, create one yourself or hire an attorney to create one. Never begin a project of this size with no signed contract.
A good contract should be neither too vague nor too detailed and complicated. Contracts need to have specific terms that are complete and clear, understandable to an ordinary person without a law degree. It's a legally binding agreement, so consider it carefully.
Builders have the option to use different types of construction contracts, but some types are more suited to new home construction. They define how the payments will take place as well as other terms such as the amount of time the builder will take to complete the project, quality, and the specifications of materials and design. A builder contract is not an ordinary work contract; it is a home sale. Such a contract protects the builder's expectation of payment and prevents the builder from selling the house to a different buyer.
Scope of Work Section
The first section of your builder contract should cover the scope of work. This is a description of the project that will be performed by the contractor. This will include details about the project, such as:
- Permits that need to be obtained from your municipality
- The type of labor, materials, equipment, and other services the builder will provide to complete construction of the house.
- A requirement that the contractor follow the house's specifications and plans, which should be made part of the contract by attaching them as a separate document.
There may be situations in which plans and specifications may conflict. It's not unusual to find that the plans and specifications call for a different fixture or dimensions. In such a case, it's helpful to include a statement in the contract that the specifications should take precedence over the plans or any other document. The contract should be the final authority over all.
Timing of Work Section
Your builder may promise that the project will be completed in a certain amount of time, but your contract should include a specific statement about it. Include a statement that says the builder must finish the work professionally and legally, and also include a schedule of work that the builder is expected to follow.
Without a guarantee of schedule, it may be difficult for you to make plans on your end. You may need to coordinate the home construction with the sale of your current house and know when you will be moving into the new one.
Delays happen, however. The contract should allow for this, granting extensions of time for unforeseen circumstances such as:
- Inclement weather
- Labor strikes
- The customer's delay in payment
- Issues related to inspections required by your municipality
- Additions or modifications to the original scope of work
- Any other reasonable issues that are out of the control of either party.
What happens if the contractor does not complete the work on time? Your contract should cover this with a provision stating that every day beyond the scheduled completion date, the builder will be charged a fee, or have a set amount deducted from the total payment they are due.
This provides the builder with an incentive to avoid delays whenever possible. One of the justifications for adding this to the contract is that you may need to store your belongings or rent an apartment or hotel room while waiting for your home to be completed so you can move in.
Other Important Contract Sections
Your contract should include a clear explanation of how the customer will pay the builder, as well as how much and when payment is due. Typically, payments will need to be made throughout the project to cover the builder's supply of materials needed for the job.
Many contracts also include warranties against defects. These cover the types of defect the builder is responsible for fixing, and what he is required to do if problems occur.
If you need more information or help with builder contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.