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The Punch List
Disputed Work Back to all FINANCE articles
Many jobs go without a hitch, and small problems are usually resolved peacefully through negotiation. However, if unresolved problems remain at the end of the job, final payment can become a contentious issue. It is important to have some financial leverage at the end of job to help motivate the contractor to take care of any loose ends, and to do it promptly. In fact some contracts have a liquidated damages clause specifying financial penalties for missing the contracted completion date.
Most contracts require full payment for the job, minus any money held back for punch list items, at substantial completion or at the issuance of a Certificate of Occupancy (CO). Substantial completion means that the project is complete and usable, except for a few minor loose ends. When the job has reached the point of substantial completion, but before the final check is cut, the owner and contractor do a formal “walk-through” of the project. Together, they compile a punch list, noting any loose ends that need to be resolved before the owner accepts the work as complete.
I would recommend that you tie your last big payment to both substantial completion and to the owner receiving a certificate of occupancy (CO). Substantial completion has a legal definition. It means that the project is complete enough that it can be used as intended. That still leaves room for disagreement, but if all parties are reasonable, there should not be a problem. And having the certificate of occupancy is required to legally move in, so you want that nailed down before releasing payment. In general the CO is issued to the builder or entity that applied for the building permit. Before you agree to hand over the last big check, make sure that the hold-back is enough to cover any unfinished work, which should be documented on a written punch list that both parties agree to.
If you are working with a bank or an architect (using an AIA contract), there will be language holding back 5% to 10% of the cost of the job until it is “substantially complete.” This amount, called retainage gives you leverage toward the end of the job, when the contractor may be more focused on starting the next job than finishing yours. At substantial completion, you should still retain an amount equal to twice the cost of completing the punch list.
Whatever amount of retainage is agreed to is deducted proportionately from each draw. For example, for a 5% retainage, each draw would be reduced by 5%. If a fixed retainage of $5,000 is agreed to, and the job has five draws, then $1,000 (or an apportioned amount) would be deducted from each draw to total $5,000. In the sample custom home draw schedule, the retainage has already been built into the payment schedule.
If the contract does not specify any retainage, make sure that the last check is not due until substantial completion, and that you reserve the right to retain funds (hold-back) to cover all punch list items. Regardless of the specific contract language, if the job is nearly done and the contractor is anxious to get the final check, you should negotiate a partial payment, making it clear that you will pay the rest when the punch list items are completed. The standard hold-back amount is about twice the value of the punch list items.
How much retainage? Retainage is typically in the 5% to 10% range, although some contractors will negotiate for a fixed fee or limit. It’s hard to generalize, but in my opinion, 10% works well on smaller jobs up to, say $100,000, while 5% is probably adequate on larger jobs. It’s important to have a little leverage at the end of the job when the contractor’s focus is usually on the next job and it’s easy to let things drag on. Once you release the final large payment, you should still retain a small “hold-back” of at least twice the value of any remaining punch list work — enough to get another contractor to complete the job if necessary.
THE PUNCH LIST
Upon substantial completion, but before you release the final large check (or retainage, if specified in the contract), you and the contractor should do a walk-through to identify any loose ends that need to be tied up. The final walk-though and “punch list” procedure should be spelled out in the contract.
It’s a rare job that has no loose ends: a special-order fixture that has not arrived, a missing molding, a gap in the woodwork, a cracked tile, torn screen, sticking window or door, and so on. All these items are noted on a written punch list jointly developed by the contractor and owner (or owner’s representative).
A checklist, like the one below, is useful to make sure you don’t overlook any important details:
| Residential Construction Walk-Through Checklist
For new homes, additions, renovations, and K&B remodels
When the final check (or retainage, if any) is paid to the contractor at substantial completion, the owner should withhold at least two times the value of the punch list items – this is the industry standard and should be specified in the contract. The amount is negotiable – for small items, some people hold back as much as 10 times the assigned value to provide a greater incentive for the contractor to take care of these small, but often annoying, items – annoying to both the contractor and the owner.
While it’s not common, I think it’s very reasonable to ask the contractor for an estimated completion date in writing. If the work cannot be completed until next spring — due to winter weather, for example — the deadline for that item would need to be extended. Assigning deadlines helps focus attention on your project and also puts you in a better position to hire others to finish the job is the deadlines are ignored.
SAMPLE PUNCH LIST FORM
|Item no.||Description||Value||Completion date||Approved by Owner|
|1||Dimmer switch in dining room hums loudly||$20|
|2||Scalding water at shower/tub spigot||$25|
|3||Tub drain plug will not hold water||$25|
|4||Gap between back of window trim and walls.||$200|
|5||Touch-up paint window sills, as needed.||$100|
|6||Basement window screens broken, need replacement||$175|
|7||Windows in office and master BR much to tight – difficult to open||$200|
|8||Vanity doors need adjusting, Master Bath||$25|
|9||Garage door opener runs rough, out of alighment||$50|
|10||Cracked tiles at entry||$150|
|Total Due Upon Completion (2X)||$1950|
The dollar values of the punch list items are assigned by the contractor. If you’re not happy with some, particularly for big items like painting the exterior of the house, then, then you may need to get the opinion of another building professional and negotiate for a more realistic hold-back amount. You should only release this money when all the work is completed to your satisfaction. It’s your only leverage at this point. If some of the work is not completed in the time frame agreed to, and you are unable to agree on new terms, then you should pay for the work completed and retain enough money to hire someone else to complete the job (after checking with your contract and/or lawyer, as needed).
Punch list tips: It’s best for you and the contractor to do separate walk-throughs and compile separate lists before the final joint walk-though. The contractor may notice things that you would have missed. Conversely, you are likely to notice things that the contractor overlooked. I recommend that you do your private walk-through with your spouse or friend, and take the time to scrutinize the job at your leisure. Open and close doors and windows. Try fans, lights, etc., to make sure everything is working as it should. Finally, do a walk-through together with the contractor to combine your lists and discuss any outstanding items. If you go unprepared on a quick walk-through with the contractor and his clipboard, you may overlook things that shouldn’t be overlooked. At this point the contractor is anxious to get the final check and move on to the next job, so you may need to be the one push for legitimate punch list items. Be reasonable, but don’t be a pushover – the job is not right until its right!
Quality standards. There may be some disagreement as to what belongs on the punch list. For example, a visible lump in the drywall, bubbles in the polyurethane, an uneven gap around a cabinet door, a rattling exhaust vent, and so on, may fall within the contractor’s quality standards, but not your own. If you have an architect or construction manager involved at this point, he or she can help by citing accepted industry standards. Ideally, the answer is in the specifications – yet another reason to have really clear specifications. If the drywall specs say “ All joint compound shall be smooth and free of tool marks and ridges” then you shouldn’t see any ridges.
A set of minimal quality standards such as the Residential Construction Performance Guidelines from the builders organization NAHB can offer some guidance, but many of these standards are below what most customers expect of a custom home or remodel. Regardless of the specific standard applied, hopefully everyone is still getting along well enough at this point to come to a mutually acceptable resolution.
Punch list or warranty issue? The contractor may say that some items, like a sticking window, are really warranty items that should be taken up with the manufacturer. Whether it’s a manufacturing problem or due to improper installation is often not clear. In any event, if the job is not complete and you have not accepted the work, it’s the contractor’s job to make it right, not your job to deal with manufacturers’ reps who, in my experience, are often not very helpful.
Time limit. Once you and the contractor agree on what belongs on the punch list, ask the contractor for a time commitment (one to two weeks?) to complete the work. At that time, you make a final inspection and, assuming everything is OK, make the final payment.
If, despite your best efforts to resolve things peacefully, the contractor refuses or is unable to complete the work properly in the allotted time, then you should hold back enough money from the final payment to pay someone else to complete the job. These are not minor punch-list items but significant portions of the work.
Once you know the cost to complete the job, you can make a partial payment to the original contractor, deducting for the remaining work. Most state laws allow the owner to hold back a limited amount –usually 150% of the reasonable cost to complete or repair the contested work. If, at this point, you have completely given up on your current contractor, add a notation to the check that states, “This check constitutes full and final payment for [job description].”
In taking this action, you are in essence terminating the contract. Playing hardball like this is a last resort, but may be your only recourse other than paying for the job twice. Before taking this step, it’s wise to talk to a lawyer about the best way to protect yourself against mechanics’ liens or other legal action by the contractor.
See also: Contract language for Substantial Completion and Final Payment
Can I Withhold Money for Incomplete or Defective Work?
I have a general question. For a new build (house), if there is seasonal work that is incomplete and can’t be completed until the Spring, Can I get an estimate on the remaining work and have a holdback? OR Do I need to state something in my original contract about holdbacks, which I don’t have. There are also deficiencies as well that I would like to have a holdback for. My builder is saying it’s not in our contract so I can’t holdback any money for seasonal work and deficiencies?
Many contracts contain holdback or retainage clauses that withhold 5-10% of each construction draw or a lump sum from the total contract amount. The retainage is typically paid upon “substantial completion” of the work to the satisfaction of the owner. If your contract does not contain a retainage clause, then the builder is correct that you cannot arbitrarily withhold money that is owed.
However, the lack of a retainage clause does prohibit you from withholding money for valid reasons such as delayed, incomplete, or defective work.
First, I would look to the payment schedule you agreed to in your contract. Contractors like to front-load the payment process to get paid in advance for work while homeowners want to pay only for work completed or materials delivered. The payment schedule is a compromise between these competing interests. If the owner pays too much too soon, he has little leverage if there are conflicts over the quality of the work or cost overruns.
Often, any conflicts over money get played out in the final check, as discussed in the article above.
Regardless of the payment schedule you agreed to, but I would not recommend paying now for work that is delayed for six months. Also, I would not pay fully for work that is defective. State law varies, but in general, you have the right to withhold money if there is a valid concerns about the payment. Incomplete or defective work would qualify as valid reasons for withholding. In many states you can legally withhold 150% of the reasonable cost to complete or correct the work with another contractor.
As a practical matter, the best approach is usually to sit down with the contractor and try to work out a mutually agreeable solution – often a compromise. Hopefully, the builder will be reasonable. If not, you want to be holding enough money to hire someone else to complete the work.
Before withholding money or terminating a contract, it’s always a good idea to check with a local lawyer about local construction laws the best way to protect yourself against mechanics’ liens or other legal action by the contractor.
What is the Protocol For Contractors and Subs Touching or Using Owner’s Possessions?
What is the protocol for contractors/subcontractors when in a customer’s home without the customer? In my opinion, they shouldn’t be touching anything that isn’t part of the job at hand or part of what they are there for. Am I correct in this? I just had an incident where the electrician, who was only there to run wires and put up outlets in the newly built bar frame. Everything was fine until they left.
They picked up and messed with an air valve (for garbage disposal) I had sitting in a corner on top my new sink. One also made a swipe/punch at my punching bag. They also put jobsite debris where they weren’t supposed to be and left them at my house (contract says they will clean up and haul away all jobsite debris). The guy that hit my punching bag went back in the direction again and I thought he was going to hit the bag more, I’m glad I was wrong, he went back to push the garage door closed.
Because of them using my property that I thought they shouldn’t be touching, I put a hold on the project till I could get things cleared up and the issues resolved. They still aren’t resolved, but now the contractor is threatening termination and more money saying my concerns to hold the project isn’t sufficient enough and saying I’m in breach of contract. But technically since the contract says they will haul away all jobsite debris and they didn’t, wouldn’t they be in breach of contract? Any information, insights and advice on this would be greatly appreciated. Thank you
In answer to your question, it is not standard protocol to touch your possessions or visit part of the home not required as part of the work. Also if the contract specifies the contractor will remove all construction debris from the site, then they should do so.
However, these are not the types of issues that usually spawn breach-of-contract lawsuits or other legal actions. Lawsuits a generally related to significant (substantive) breaches of contract involving tens or thousands of dollars or more. Otherwise, they are rarely a cost-effective or efficient way to resolve a dispute. Lawsuits are expensive, slow, and stressful, and there is no guaranty of success.
Also, once one party brings any type of legal action, you and your contractors become adversaries rather than partners trying to work together toward a common goal – finishing your project. This rarely results in a successful project for either party.
If you happy overall with the company’s performance and the quality of the work, then you can choose to overlook some smaller issues like the punching bag or placing the debris in the wrong place. If they are important to you, then by all means bring them up (in a respectful fashion) in a meeting with the contractor and most likely you can work out a mutually agreeable solution with no one suing anyone. Negotiation is almost always better than litigation – it’s the last resort.
If on the other hand, your are very unhappy with the quality of the work, the you may want to look for reasons to terminate the contract. These are issues you can discuss with your lawyer.
How To Deal With Contractor Behaving Badly?
I am in the process of contacting a lawyer, but I would like your advice before I go that far. What is the protocol for contractors/subcontractors when in a customer’s home without the customer? In my opinion, they shouldn’t be messing with/touching anything that isn’t part of the job at hand or part of what they are there for. Am I correct in this? I just had an incident where the electrician, who was only there to run wires and put up outlets in the newly built bar frame. Everything was fine until they left. They picked up and messed with an air valve (for garbage disposal) I had sitting in a corner on top my new sink. One also made a swipe/punch at my punching bag.
They also put jobsite debris where they weren’t supposed to be and left them at my house (contract says they will clean up and haul away all jobsite debris). The guy that hit my punching bag went back in the direction again and I thought he was going to hit the bag more, I’m glad I was wrong, he went back to push the garage door closed. But cause of them messing with my property that I thought they shouldn’t be messing with, I put a hold on the project till I could get things cleared up and the issues resolved.
They still aren’t resolved, but now the contractor is threatening termination and more money saying my concerns to hold the project isn’t sufficient enough and saying I’m in breach of contract. But technically since the contract says they will haul away all jobsite debris and they didn’t, wouldn’t they be in breach of contract? Any information, insights and advice on this would be greatly appreciated. Thank you
(name withheld) says
Does It Make Sense To Sue Builder Over Disputed Costs?
Our builder took full complete last draw, even though we told the title company that he owed us money. The title company said we had to give them receipts for items we purchased and were supposed to be reimbursed for, but still released full draw to builder. Builder added $9000 in bogus fees for work and supplies we supplied, change orders for things left off the spec sheet but discussed before build. He came up with a figure he says he owes us of $11,000 but won’t give it to us unless we sign a release which releases him from any and all claims arising from the build.
The problem is, his questionable building practices caused mold that he allowed to grow for 8 weeks that he ultimately “allowed” us to have remediated or we would have had to sue him because he was going to leave it until he could get the house dried in.
How long do we have to collect this money from him. We are in the process of deciding if we want to spend $30,000 plus to bring a law suit for everything when the reality seems to be we will never see a dime even if we win. This builder has a family attorney who have been one step ahead the entire time. We are concerned they have made sure there is no money to get at if we win. Any suggestions would be greatly appreciated. So far we have talked to multiple attorneys who say sue but give no guarantees.
Sorry to hear about your situation. It is unfortunate that the title company released the final draw before you reached an agreement with the builder over reimbursement, building defects, and other issues.
Change orders for work “discussed” but never documented in the contract or specs are problematic. Even if the contractor agreed verbally to make these changes at no extra charge, that will be difficult for you to prove. On the other hand, the contractor should have issued a change order, and have you sign it, before doing the extra work.
Sounds like there are many issues to untangle here. There is never a guarantee of winning a lawsuit, as your lawyers advised. I am not a lawyer, and even if I were, do not have enough information to offer any advice on the wisdom of suing to resolve this dispute.
As you correctly point out, legal actions are expensive and slow, and not guaranteed to succeed. Getting paid can be difficult even if you win. In some cases, sending a “demand letter” drafted by a lawyer, or otherwise threatening to sue can help move things along. But I’ve also seen builders countersue.
It’s never a picnic will probably be a lot more stressful to you than the builder. My general advice is to sue only if it makes business sense – not to get even or to prove who is right or wrong.
The statute of limitations varies across different states and different types of disputes – say, breach of contract vs. fraud vs. building defects. Time limits typically range from 2 to 6 years.
Wish you the best of luck in resolving this issue quickly and moving on with your life.
Can Client Withhold Large Payment for Punch List Item?
Hello, we are the builder. Our customer has had about a dozen items for the punch list which have been covered, then there are more. There is one outstanding item of a chipped shower glass enclosure. This usually takes time to get replaced. The customer is holding back the final draw of 52000.00 for a chipped shower enclosure. We will have to file a mechanic’s lien shortly to fall within the standard time frame for submitting a lien. What other legal action can we take to get more of the final closing from this customer? it is not always the builder that is out to get you.
You are absolutely right that either party in a construction project can act irresponsibly and cause a dispute. When I worked as a contractor, I heard a lot shop talk about “getting stiffed”—i.e., not paid.
Most contracts state that final payment is due upon substantial completion, minus any holdback for punch-list items. The amount held back is typically twice the value of the unfinished work, but may be more. It should be at least enough for the client to get the work done by someone else if needed.
I’m not sure what your contract says about final payment, but regardless, it sounds like your customer is being unreasonable – especially if everything has gone smoothly and only this one item needs attention.
You can certainly file a lien, which may prod the client into action. You could also take the first steps in a lawsuit, typically a “demand letter” from you or your lawyer, which often gets people’s attention. If you haven’t already done so, a frank meeting with the owner explaining your position would be the first step.
Do I Have To Pay an Invoice 3 Years Late?
I built an Accessory Dwelling Unit (ADU) in my in-laws back yard.
We started building in 2018. I hired an electrician at the beginning of the project. The electrician completed work in 07/2019 and final inspection was done in 03/2021.
I paid him periodically throughout completions of electrical throughout the project. I had approximately 5-8k left of the bill at the end of his work. I asked him multiple times for a final invoice. I called and texted him multiple times but never got a response. After a year of trying to reach out to him, I used the money in other home improvements.
In the beginning of October of 2022, I got a text from my electrician telling me he was out of the Country this entire time. The electrician was dealing with deaths in the family and a divorce. Now, he asking me if he can send the final invoice of his bill. It’s been 3 years and 3 months. I feel like I owe him nothing at this point with the amount of time that has passed. I live in California where the laws can be very strict.
I’m pretty sure he does not have his contractors license any longer. At the time, he did.
My understanding is that the statute of limitations for issuing an invoice varies by state and the type of debt. In most states, the limit ranges from 3 to 6 years, but it may be as high as 10 or 15 years. So your first step should be to contact your state’s division of consumer protection or attorney general’s office to find out the governing law.
If the work was completed properly and the invoice falls within your state’s time limit, then it seems like you do owe the money. If the bartering option under discussion works for you, that would be acceptable as long as you get a receipt stating that final payment has be made.
You electrician’s billing methods may be unconventional, but not illegal. I don’t think his current lack of a license is relevant to the debt.
Steve Loew says
House Almost Done, But Subs Not Paid
I contracted out a 700 sq ft addition to my home which includes a Great Room, Bedroom, and combination bathroom and laundry. We have paid our contractor on time and many times prior due to his need for funds. I am most concerned that all of the subcontractors have not been paid and need a form to have my contractor notarize that states all subs have been paid. We are holding back 10% on $107,000.
In order to get final approval I need a final completion from the electrical and plumbing subcontractors. I believe that the contractor is not completing a minimal amount of work due to not having money to pay the subs. I have not been happy with the electrical contractor and was told by the contractor that he would use another company. This has not happened. I would like to hire another company to complete the work.
Most importantly I need to write a letter of subcontractor satisfaction that is signed and notarized by the Contractor in proper form. If he refuses to sign this letter what is my recourse?
Thank you and enjoy reading your replies
It’s not entirely clear from your letter what you are trying to achieve. I think you should be asking the general contractor for signed final lien waivers from all the major subs and suppliers on the job. Lien waivers can be conditional (awaiting payment) or unconditional (payment received). They can also be partial for progress payments for final for completion of the work. A properly executed lien waiver acts as proof of payment. If the contractor can’t or won’t provide these, then you will need to negotiate a resolution – possibly with help of an attorney,
Not sure what you mean by a “letter of subcontractor satisfaction” signed by the contractor. In some cases, the contractor will ask the owner to sign a Letter of Satisfaction and Final Acceptance at final payment, indicating that the project is satisfactory and meets the conditions of the contract.
If you wish to have another subcontractor complete the job, and the general contractor refuses to cooperate, then you may need to terminate with the current contractor. This should only be a last resort after all attempts at negotiation have failed. Also, it would be wise to speak with a lawyer before proceeding so you do not expose yourself to mechanics liens or other legal action by the contractor.
linda Saenz says
Can I Withhold Final Payment Until Contractor Repairs Damage to Site?
I had a contract or do a bathroom remodel. At the end of the job, the contractor left four five huge buckets of concrete mortar in my front lawn and along my entire walkway and garden. The entire front yard is full of concrete and now everything is brown and dead.
The contractor is fully aware of the mistakes that they created, was apologetic, and took responsibility. But now they’re not taking care of it and they want final payment because they say the work in the bathrooms completed.
I feel that the job is not done until the damages are rectified and the sod, soils and plants are replaced. Am I correct in withholding the final payment? It’s about a $3,000 landscape job and I owe them $3,500 for my last payment. I fear they’re going to sue me, but I can’t imagine any court or mediator they would not agree with my position. I have dated photos and videos of everything dying and what my yard looked like 4 days prior to the start of the job.
Based on your description of the events, I would not consider the job complete until the concrete was removed and the lawn and other plantings repaired or replaced to restore the site to its original condition – to the extent possible.
Even if you had agreed to do some or all of the clean-up work yourself at the end of the job, you would not be responsible for this extra cleanup and repair work due to the actions of the contractor or subcontractors under his control.
It is reasonable to withhold an amount large enough to pay for the remediation work if you need to hire a someone else. With punch list items, owners typically withhold up to twice the value of the incomplete work. So withholding a $3,500 payment for a $3,000 landscaping job seems very reasonable to me.
Of course, the contractor might disagree. If he insists on payment before completing this work, it’s best to speak with a lawyer how to withhold payment without exposing yourself to mechanics’ liens or other legal action. It’s unlikely the contractor will sue for such a small amount – relative to the cost of bringing a lawsuit.
It’s great that you have detailed documentation of the site conditions before and after the contractor’s work. This will be important in any dispute resolution process – whether mediation, arbitration, or other legal action.
Can Contractor Bill Me 4 Months After Final Payment?
Once final payment has been made and accepted by the contractor, can they come back 4 months later stating they made a mistake on the invoice and you owe more money?
In general, there is a statute of limitations on how long a contractor or other vendor can wait to send out an invoice. This ranges from 3-10 years depending on whether the contract is written or oral and what state you live in.
In your case, however, final payment was made and accepted, completing the contract. So it is my understanding that additional invoices would not be legally enforceable. If you feel this was a legitimate error, and are otherwise happy with the work, you would have the option of paying.
For an authoritative answer, you would need to check with a lawyer (which I am NOT). Also, looks like you are in Canada, where different rules may apply than here in the U.S.
Kathleen A Jones says
Should I Pay Surprise Invoice Months After Job Completed?
After 7 months of delays, a company finally finished our roof, fence and new garage door in October 2021. They provided a final invoice to us and the insurance company and were paid in full. It is now March 2022 and they have contacted our insurance company stating the underestimated the cost and are owed an additional $10,000 and were going to sue us and the insurance company if they were not paid this additional money. The company never called us about this, we received a call from our insurance company because they were concerned they were were not notified.
It is my understanding that once they accepted the payment in full, the contract was fulfilled. They have not provided any documentation of where this additional costs is from 5 months later. If this much was missing from the invoice, isn’t this something they should have been aware of sooner? Does this sound like a scam or bad business practice? Who is at fault here? Do we have any options if they start to contact us for this additional money, other than suing them?
This is definitely a bad business practice and suggests, at a minimum, a highly disorganized business.
If you have a fixed-price contract and you paid them in full, then you should not own them any additional money. If you had a cost-plus contract and paid a final invoice (clearly marked “final invoice”) you should also be protected from a surprise bill of $10,000 months after the job was completed and paid for.
The fact that they went directly to your insurance company without notifying you first is also unusual and very suspicious. Maybe they are looking a quick out-of-court settlement.
As I do not have knowledge of all the particulars (and am not an attorney), I can’t say whether their claim has any merit. However, I would suggest contacting your local consumer protection agency and/or attorney general’s office for guidance and would also consider filing a complaint with the Better Business Bureau.
The insurance company has lawyers on staff who can address this issue from their end. They may provide some useful, free advice. If the contractor persists in harassing you and threatening a lawsuit, you would be wise to consult a lawyer as well. My guess is that the contractor will back down quickly unless their claim has any real merit.
Contractor Overcharged Us & Won’t Provide Certificate of Occupancy
We had a home built by a builder/contractor that is trying to charge $42K more than the contract price. The builder had two different home sites within the city. We decided to back out of the original home site we selected as we realized we didn’t like the location after all. The builder offered to move us to the other home site but would have to charge 42K more. We agreed and the builder asked that we sign a side contract of the 42K increase that was to be paid outside of the original contract. The builder said he was doing us a favor so it wouldn’t affect our construction loan amount approval. Later, we end up signing an amendment for the increased home price.
My husband and I didn’t catch on to what was going on. We assumed it was one in the same and had to be documented one way here and one way there but ultimately covering the new contract price. Pretty much, my husband and I were just plain dummies! We trusted what he was doing was in our best interest.
It turns out, the side contract is an additional 42K on top of the 42K increased amount listed on the amendment. So now, he’s expecting 84K more than the contract price. He literally pulled a fast one on us. What is our recourse? Besides this, the builder has not finished our home completely. We’re still lacking our fencing and landscaping that was a part of the contract. We moved in without the Certificate of Occupancy with a verbal promise the work would be completed. It’s been 3 months since we moved in and he still hasn’t finished the work.
All in all, it took us over 1 1/2 years to move in — which is why we moved in without the Certificate of Occupancy. We did a VA refinance loan to pay off the construction loan, with a residual of monies to be paid once the work is complete. So many issues with this builder. He keeps blaming everything on Covid. He’s doing the same crap to the other buyers that have also moved in without the certificate of occupancy. Please help!!
In most cases, the final loan payment is tied to the final inspection by the town/city and the issuance of a certificate of occupancy (COA). Waiting for the final check can motivate a contractor to complete a project. However, it sounds like did not occur in your case and the full construction loan was paid out.
Issuance of the COA indicates that the house complies with all applicable codes and is safe to occupy. Moving in without a certificate of occupancy is risky and a technical violation of law. Whether or not the law is enforced by the city, it could complicate things if you have an insurance claim or any type of legal issue involving the property. Assuming you own the land, it is probably OK to move in once you have the COA, even if you are disputing the final charges with the contractor.
It sounds like you agreed to a $42,000 extra charge for the 2nd home site, but not another $42,000 on top of that. It’s not clear from your email what, exactly, the additional charges were for. A more expensive lot, different house design, or other issues? If you feel you were tricked into signing the second contract, you certainly have the right to dispute the charges. The contractor may file a mechanic’s lien or sue you (or both) for the additional money he feels is owed to him.
In the meantime, you should work on getting your COA from the local building department. You may be able to apply for this without the builder’s cooperation, but this could be tricky. Laws and procedures vary from one jurisdiction to another.
In any case, you really need the advice of a good real estate lawyer in your area. Find someone with a lot of experience with residential construction. If you do not follow the recommended procedures you could weaken your position in a lawsuit or mechanics lien, or expose yourself to additional liability. So proceed with caution!
Can Contractor Charge Late Fee Due To Delay in Financing
We have had a new roof, siding ,rock work and new sliding doors( 5 of them at the cost of $31,000) We had agreed to pay a deposit on the doors in February. Unfortunately my mother died and I had to be away for 1 1/2 months and financing for the product was delayed because of that. I came home and all the products were started really without warning. ( We really didn’t agree on set dates or time) We were able to pay partial payments ( total cost was around $120,000 and we still owed $40,000) The project was officially over about 16 days ago. We have finally closed on refinancing and the contractor has been patient but obviously wants his money. Am I obligated to pay a late fee or interest on the money we owed?
A good resource for legal questions like this is Nolo Press (now Nolo.com) , a self-help legal publisher that has been providing commonsense legal advice for decades.
Nolo’s article on late fees makes three main points. Businesses are allowed to charge late fees and interest on debts as long as
1) The fees are reasonable – roughly equivalent to what the business has lost by not getting paid on time
2) The fees do not exceed the limits set by state law.
3) The business notified the customer in advance, in writing, about the late fee.
In your case there is another complicating factor — that you didn’t even know the work had started. It seems like the contractor has not done a great job of communicating with you. Did you communicate to the contractor that your financing would be delayed due to your extenuating circumstances?
Getting the work done early provided some benefit to you, especially in today’s difficult market with rapidly rising prices and material shortages.
So taking everything into account, you may wish to negotiate for a reduced (or waived) Often a compromise is the best resolution for an issue like this that is not black-and-white, but some shade of gray. Most construction disputes stem from a misunderstanding of some sort and both parties often bear some responsibility for the problem.
You could also challenge the late fees in Small Claims Court, but it is probably not worth the hassle and there is no guarantee that you would win.
I hear many variations of this story – where the work is incomplete or faulty and the contractor wants final payment. Usually things get resolved through negotiation and compromise before anyone takes legal action.
It’s unfortunate that the contractor took the step of filing a lien. This is a pressure tactic to force you to pay. It certainly raises the blood pressure of both parties and reduces the likelihood of negotiating a mutually agreeable outcome. It’s a heavy-handed approach akin to filing for divorce.
However, it’s still not too late to negotiate, and this is probably your fastest and least expensive option. Take a deep breath and remember that this is a business decision, not an emotional one. Choose the strategy that costs you the least in terms of time, money, and stress.
You can propose that you will pay a reduced amount to settle the contract and have the lien removed. In most cases, the contractor would rather settle and move on than have to deal with enforcing the lien.
If negotiation does not work, you have a few options (depending on state law) in increasing order of cost, time, and aggravation:
1) You can contest the lien directly and try to have it removed. This is typically handled by the county courthouse.
2) You can file a lien bond (surety bond) with the help of an insurance company.
3) You can hire a lawyer to fight the lien in court. Not sure how this would play out with the arbitration clause, but lawsuits and binding arbitrations are very costly and time-consuming.
For a lien to remain valid, the contractor must follow state law precisely and meet all deadlines and notification requirements. The biggest deadline is for the lien claimant (the contractor) to file a foreclosure action against you before the lien expires. However waiting out a lien can be risky because, in theory, you could lose your home to foreclosure. This is pretty nasty stuff.
Since your dispute with the contractor has entered the legal arena, the best advice I can offer is that you should consult a real estate lawyer. Mechanics liens are technical instruments, different in every state, and very specific in terms of the legal requirements for both parties. If deadlines are not met and proper notifications are not sent by certified mail, either party could be found at fault.
More importantly, your lawyer can speak with the contractor’s lawyer and usually work out a reasonable settlement. They both know the rules of the game and are not emotionally involved.
Nolo Press, a good source of legal self-help advice, offers these suggestions.
Read more on Critical Contract Clauses
Should I Hold Back Money Until All Problems Are Resolved?
Thank you for a great informative article.
We recently had two full baths and flooring throughout our common spaces replaced/renovated in a vacation home we own.. After agreeing on a budget and complying to all the allowances for flooring, tile, hardware etc. the contractor decided to do a personal upgrade to “surprise” us and put a rain shower in our master bath. As the job progressed, he shared this surprise and said he was running over and would we mind splitting the cost of plumbing/fixtures to the tune of $500. Because his crew found a leak behind our wall and stayed aggressive to fix it…we agreed to the $500.
When the vanities arrived without a backsplash, he indicated that he would have a local granite place match and cut and install them. I have a text indicating this. When it was time to install the glass in my shower, again, he mentioned factoring in a frameless glass but he would need $650 for the thicker glass. We agreed to this. As the job progressed, he then indicated he wanted an additional $400 to pay his painter for painting my baseboards. This is where I drew the line and said the job was priced out and he should have considered this when giving me a quote. He didn’t balk. When we flew down to sign off on the job there was a significant punch list. The bathrooms were painted the wrong color and were painted poorly, the condo was definitely not cleaned (dust everywhere from removing tile), the sprinklers had gaping holes around them (trim was left off), there were significant nicks in the wall from where it looked like the vanity and toilet were installed amongst other things. They also used Moen. hardware from. collections that were from a collection I didn’t pick to save money…(I had picked spot resistant)…but I stayed within the allowance.
I thankfully decided I wanted to have it repainted to the color I had asked for…as the. painter while we were still there showed us a leak coming from one bathroom vanity unrelated to a huge leak in our master bath we were just about to uncover.. This led to us realizing a 2 week significant leak from a pipe fitting not done properly was spewing water under all our floors. I had noticed damp rugs and bath mats which confused me…the water was running under our LVF and seeping up between the cracks. This led to all the floors needing to be ripped out and replaced. (but just found out they didn’t replace the floors in one of the bathrooms which is irritating), a new vanity installed due to warping and tile taken out so the pipe could be fixed.
I am about to go down again to sign off on the job next week. In the mean time, I found a back splash online for $200 that I sent down to them and asked that my property management company do the cleaning. They agreed to the cleaning. An insurance adjuster is involved but we haven’t spoken yet. To say we are aggravated is an understatement. We’ve been very patient, losing rental income and hoping we can soon put this behind us. We just received our last invoice for $2700 which they asked us to pay. It represents 7% of the job…I indicated I wouldn’t pay anything until I see the job.
For the record we’ve paid each installment a day or two before each due date. I would like advice if I should hold any money back for a certain period of time to ensure there isn’t anything additional that is “unforeseen”. Also, would like to deduct that backsplash and cleaning fee rather than be reimbursed. The contract said it would replace both toilets and I had them only replace one, so I also feel since that was budgeted for, it should pay for the backsplash.
I’m not looking to take advantage, but I want to feel whole walking away from this. I’m not looking to be compensated for stress or loss of rental. A lot of detail but wanted to share the whole story. Would love thoughts on this.
Sorry to hear that the job did not go smoothly. There are always a few bumps on any large remodeling job, but this job has had more than its share. I can’t specifically address each issue because there are too many moving parts and I don’t know all the particulars (including the contract language).
However, I can give you my general impression of what has gone wrong and how best to move forward.
I am assuming that you have a fixed-price contract with allowances for certain items, as well as a few deviations from the original plans/specs. For example, you did non install the second toilet and upgraded to an extra-thick, frameless-glass enclosure.
It’s not clear from your description whether the missing backsplash was included in the original contract or the result of conflicting assumptions – you assumed they were included; the contractor assumed they weren’t. This is often the source of disputes on construction jobs. Also, working long distance adds another level of difficulty.
There is always the possibility that an unscrupulous contractor leaves things out of the plans intentionally, knowing that the customer is going to want them, more or less guaranteeing that the contractor will be able to add extra charges. But it doesn’t sound like this is the case here. It’s more a result of poor communication between the contractor and owner and insufficient documentation, such as change orders.
To untangle all this you need to do a full accounting, on paper, of all allowances, extra charges for extra work, reduced charges for deleted work, and any other changes that would affect the cost of the work. Ideally the contractor has provided written records of allowances, and issued written change orders for work added or removed from the contract.
Whether or not these items were priced out before the work was done (as should be the case), the contractor should provide a detailed summary of all price adjustments at the end of the job. This will consist of plusses for approved extra work and overages on allowances, and deductions for deleted work and underspending on allowances. If changes were not approved by you, such as the surprise rain shower, you shouldn’t have to pay for them.
This will add up to a final adjusted price, assuming you agreed to all the changes and agree that the price adjustments are reasonable. Where prices seem unfair, you will need to negotiate. You may need to add your own adjustments to the final cost, for example, for cleaning if they left a mess. Again, this may require some negotiation. If the contract does not mention cleaning, the industry standard is “broom clean”.
The insurance repairs throw a monkey wrench into the process. It sounds like some of the water leaks were discovered by the contractor and others were caused by the contractor. Simply stated, the contractor is responsible for any damage caused by his crew or subcontractors, and the insurance company should pay for other water damage (assuming it is covered by your policy).
If the contractor is asking for final payment at this time, I would not pay the final check until the work is “substantially complete,” that is, fully ready for occupancy except for minor punch-list items. A final check of 5% to 10% of the job cost is pretty typical. But still withhold enough money to pay for all the punch list items if you need to hire someone else to do this.
As for holding money back after final completion of the punch list, this is not standard procedure. If problems crop up after the job is done, these should be handled by the original contractor as callbacks or product warranty issues. Getting a contractor to come back to fix minor problems after the job is complete can be a challenge, especially if you end the job on bad terms.
In my opinion, this type of problem is best handled by negotiation. Formal dispute resolution by litigation or arbitration is very expensive, slow, and stressful. It sounds like you are negotiating in good faith — giving some but also drawing the line at some point. On issues that are difficult to resolve one way or the other, splitting the cost 50/50 is often the best approach.
It’s reasonable to demand that the job be completed to specifications before cutting the final check. But sometimes you have to cut your losses, pay the final bill (minus any adjustments) and move on.
Best of luck in finding a workable solution!
Should I Pay Final Bill With Some Work Unfinished?
I am ready to receive a CO on a residential reconstruction, I have paid for 95% of the working including all cabinets based on a completion milestone scheduled. Now the contractor is requesting a final payment and not giving me the allowances that were in the contract. He is also charging more for some work that are components of the contract. For example the contract says that all electrical devices impacted by water are to be replaced. Now he says some of the switches are not included. How can he do that. THERE WERE NO EXCLUSIONS.
I’m not sure what you mean by “not giving me the allowances.” Allowances are price estimates built into the contract for materials not yet selected at the time of signing. For example, you may have an allowance in the contract for ceramic tile (materials only) at $5 per sq. ft. If you select a more expensive tile, you pay more. If you select a cheaper tile, you receive a credit.
Regarding the other issues mentioned, it sounds like the contractor is trying to bend some of the contract provisions to save money. Perhaps he is running over budget and trying to find ways to cut his costs. Unfortunately, this is a common scenario.
Assuming you have a fixed-price contract, the contractor is legally obligated to complete the work described in the Scope of Work, even if he is losing money (or making less profit than expected).
Sounds like you need to have a frank conversation with the contractor. If, overall, you are happy with the quality of the work and the price, and he has a plausible explanation for the adjustments to the price or the Scope of Work, then you may be able to work out a compromise – maybe split the cost of extra charges.
If you feel that the contract is perfectly clear and the contractor is simply trying to weasel out of his responsibilities and take advantage of you, then you always have the option of withholding the final check until the work is completed properly.
There are obvious advantages to working out a mutually agreeable resolution. You have a better chance of remaining on good terms with the contractor, which will be important if there are callbacks or warranty issues.
If you decide to dispute the final bill and withhold payment, you may wish to speak first with a lawyer. It’s important that you follow the proper procedure so you do not expose yourself to liens or other legal action taken by the contractor.
Best of luck in working out an amicable compromise — almost always the best possible outcome.
Michelle Dupell says
Should I Pay For Cost Overruns in Insurance Work
What if you have a vague contract that states a price of $10,000 for the roof, but lists other projects with no specific fees?
The contractor refused to give dates to complete the job and refused to give cost estimates for the remaining work until the insurance company responds? Now after giving him $10,000 as a down payment, he is sending a final bill after a year after the completion date? It has now been three years running on roof shingles, garage trim, gutters, and siding on one side of our home, requesting an additional $15000. Your advice?
It’s sounds like you have signed a contract with a fixed price for the roof, but a cost-plus contract for all the additional work. I don’t like cost-plus contracts because they put all the risk of cost overruns on the homeowner. In this situation, the contractor has little incentive to hold down costs.
In general, a cost-plus contract is “open book”. This means that the contractor must provide a detailed, itemized invoice showing exactly how the bill was calculated, including the amount of markup. Generally, the fee or percentage for overhead and profit is disclosed up front in the contract.
For example, the contractor will state in the contract that his charge will be “cost plus 20%” or cost plus a fixed “management fee”. If requested, the contractor should be willing to provide you with actual invoices from suppliers and subcontractors documented the reimbursable costs.
I have no way to no whether your final bill was reasonable or not. However taking three years to complete the project is very unprofessional, unless there were extenuating circumstances.
Since your contract did not include a completion date, you have little recourse on this issue. However, you can certainly ask for an itemized invoice showing how the bill was generated. If this was an insurance job, you should speak with your state’s insurance commissioner or consumer affairs division. If the charges or contractor’s procedures were improper, you can file a complaint.
If you wish to contest the bill, you may want to speak with a lawyer about the best way to proceed – to avoid exposing yourself to liens or other legal risks.
Since the contractor took three years to complete your job, I would be in no great rush to pay the bill. Don’t pay the bill until you are satisfied that the charges are reasonable. If the contractor cannot provide good documentation, then you can negotiate for a reduced bill. Most contractors would rather settle for a reduced bill than spend the time to go to court.
Related posts: Withholding Final Insurance Payment Problems With Floor Repair Contractors
Should We Approve Punch List Before Final Payment?
My pool builder has decided to sneak in the final inspection before we approved the completion of our punch list items, which even getting them to fix those it’s becoming a hassle.
Is this putting us in a situation where we might not get our list finished? I’ve read our contract several times and these issues aren’t discussed specifically.
The normal procedure is for the owner (or his agent) and contractor to do a walk-through together to generate a punch list. There may be a bit of negotiation about what is or is not a problem that needs to be addressed. But if something is not right, you should hold your ground. Then you and the contractor make a final inspection together.
If the contractor wants the last large draw before completing the punch list, then you should withhold at least twice the value of the punch list items until they are fixed to your satisfaction. You should also agree on a deadline for the work to be completed.
You should not release the final check until all the items are fixed to your satisfaction. The more money you have withheld, the more incentive the contractor has to get the work done. “Sneaking” a final inspection without your knowledge or participation does not count for much. You are customer who needs to accept the work before making payment.
If there is a significant dispute over the quality of the work, you may need to bring in an independent third party to help determine if the work is up to industry standards. If the contractor refuses to fix the substandard work, you may need to withhold the final payment. Filing a complaint with the BBB or the contractor licensing authority can also help motivate the contractor.
Ultimately, you may need to terminate the contract and use the retained money to hire another contractor to make the job right. To avoid exposing yourself to possible liens or other legal action, it’s best to talk to a construction lawyer before taking this step. Hopefully you won’t have to.
How Long to Complete the Punch List?
We remodeled our kitchen a 8-10 week project. It took 3 months to get a functioning kitchen. We are at 7 months now and still waiting on one cabinet door, which is being remade for the fourth time. He said it would be in one or two weeks. We are at three, and nothing in sight. We have held back 10%. We fear he has walked away and we will never see the correct cabinet door. How long do we have to wait before we can consider the job done? 30 days? Are we obligated to make the final payment?
There is often some tension at the end of a job over final payment and loose ends. There may be some disagreement over change orders, quality of workmanship, or punch list items. Often the parties end up compromising to reach a resolution. I don’t know the full story of why the door had to be remade four times, so I can’t comment on the particulars of your problem and its resolution. But it sounds like there are some communication issues over what, exactly, needs to be done to complete this job.
If you are holding back 10% of the total job cost, it is unlikely that the contractor will walk away from the job for the cost of a cabinet door.
If the job is “substantially complete”, then most contracts call for full payment with a holdback just for the punch list items. The amount of holdback varies, but about 200% of the cost of the punch-list items is customary.
If the contract does not specify a deadline for the punch list (say, 30 days from substantial completion), then the standard would be a “reasonable” amount of time, which would vary depending on the type and amount of work to be done. Obviously this is a judgement call.
If you feel that the contractor is taking an unreasonable amount of time, you can take steps to terminate the contract, pay him for the work completed, and keep enough money to hire someone else to complete the job. From a legal standpoint, you would be terminating the contract. If you have a written contract, it probably has a termination clause, outlining the procedure.
To legally terminate a contract, you must have a valid legal reason, which means the contractor must have made a serious breach of the contract (a “material breach” in legalese). In general, you must give the contractor written notice and a reasonable period of time to fix the problem before terminating. It’s best to contact a lawyer before taking this step to make sure that you do not expose yourself to liens or other legal claims.
Once you take this step, you will be burning bridges with this contractor and might have difficulty getting him to show up for any warranty work, etc. Also, there is a slim chance that he will fight you over the amount withheld. So I would consider this a last resort if all else fails.
Below is a sample termination clause (#18) from our model contract:
18. TERMINATION FOR CAUSE / CONTRACTOR DEFAULT: If Contractor fails to commence or prosecute the work hereunder promptly and diligently at all times, or, in the opinion of the Owner’s Representative falls significantly behind schedule, or Contractor fails in any way to perform the conditions contained within this Agreement, or any of the conditions relating to Contractors contained in this Agreement, or repeatedly fails to follow the instructions of the Owner’s Representative, Contractor may be terminated for default by Owner or Owner’s Representative after being given 48 hours’ notice by Owner’s Representative if Contractor fails to take significant steps to cure his default. Owner agrees to make payments to Contractor in accordance with the terms of this Agreement as long as Contractor is not in default under this Agreement.
Best of luck in getting the job completed to your satisfaction.
Should I Make Final Payment Without Certificate of Occupancy?
Great article! Once the municipality’s final inspection has been completed and the Certificate of Occupancy has been issued and physically given to the builder, can the builder withhold the Certificate of Occupancy until the final payment has been made to the builder? A sort of leverage for the builder if the final payment has not been made by the customer? (Assuming there are no outstanding punch list items)
For the most part, these transactions are governed by the contract. In some cases, the final payment is linked to “substantial completion,” in other cases, to the issuance of a certificate of occupancy (CO), or possibly both conditions. If this is left unclear in the contract, then it becomes a matter of negotiation.
In my experience, it is customary for the customer to have the CO in hand before making the final payment, minus any holdback for punch-list items. The bank will want a CO before funding a mortgage loan.
If the contractor already has the CO in hand, then he should certainly give you the document. Although the CO is typically issued to the party that took out the permit –usually the contractor — it belongs to you, the owner of the property. Withholding the CO as a form of negotiation is certainly unethical, whether or not it is legal.
If the contractor refuses to provide you with the CO, you should be able to get a copy yourself, by requesting a copy from your local building department. Procedures vary somewhat from town to town but the CO is matter of public record and is even available online in many areas.
If there are other unresolved issues with the project, best to get them cleared up before releasing the final check. I believe it is best to end a job on good terms if possible – especially important if there are callbacks or warranty issues. Some give-and-take and compromise on both sides may be required. Best of luck!
Wow – thank you so much for such a detailed reply! I know that takes a lot of time, and I really really appreciate it. And I’m sorry for the delayed reply. I must have read your reply a dozen times now 🙂 I especially appreciated this line “If the contractor refuses to provide you with a CO.., you should be able to get a copy from your building department. yoursefl”
Thank you again, for honestly helping such a stranger. I can’t thank you enough!!!
Can I Withhold Money for Overdue Punch List Items?
What if a homeowner refuses to let the contractor to correct defects after final walk and tell the contractor that they will make the fixes themselves, can they legally withhold final payment and tell the contractor what they feel they should pay and in a sense back charge and the work still not done four months after completion?
If things have not gone smoothly during a construction job, then the completion of the job can be a stressful and contentious time. Conflicts may arise over the following:
Substantial completion. When is the job “substantially complete”? This is the point where the contractor typically gets the last large draw and the building is usable. An occupancy permit, if needed, has been issued. However, if significant work remains incomplete or substandard, the owner may justifiably be reluctant to fork over a lot of money and still have the noise, dust, and inconvenience of workers on site.
Extra charges. If the contractor has not been good about issuing change orders and the pricing of allowances, then the owner may be hit with large surprise costs at the end of the job. The owner and contractor may have different ideas about what, exactly, was included in the bid and what is a legitimate extra charge.
Punch list. The owner and contractor may not see eye to eye on what is a legitimate punch list item. For example, the contractor may claim that the concrete cracks are normal, that all shower doors leak, or that the rough patches in the drywall are acceptable. The owner may not agree. In addition, the contractor may drag his feet on completing the punch list items that are mutually agreed to.
It’s best if problems of this type can be worked out by discussion and negotiation between the owner and contractor. Sometimes the contract spells out the answer – like how long the contractor has to complete the punch list – but often it does not. Other issues like quality standards or what should be reasonably included in the contract price are rarely 100% clear.
If the contractor fails to correct problems or takes an unreasonable amount of time to do so, you may be able to legally terminate the contract and hire someone else to complete the work – or do the work yourself. Most contracts contain language describing the conditions under which the owner may terminate the contract and the procedure for doing so. For example, see Clause 18 Termination for Cause in our Model Contract.
Whether or not this is “legal” depends on the specific language of the contract, state construction law, and whether you follow the proper procedure for terminating the contract. If you can get the contractor to agree to terminate the contract and accept your deduction for incomplete work, then all is well. If he does not, then you can notify him by certified mail that you are terminating the contract for cause and deducting the cost of the incomplete work.
At this point, the contractor has the choice of accepting your terms and moving on or suing you for breach of contract – an unlikely move for the amount of money involved. Nonetheless, it’s a good idea to speak briefly with a lawyer before terminating a contract to make sure you follow the proper procedure that will best protect you from legal exposure. Procedures for dispute resolution are also spelled out in most contracts.
Best of luck with finding a mutually agreeable resolution and getting the job completely properly!
Move in Without Certificate of Occupancy?
Hello. My house was flooded in April & May of this year, to the roof. The insurance company approved 90% completion October 13th and made payment. There is approximately $7900 left owing on the contract/change orders, of which only $750 has been invoiced. There are still things not complete and there is some damage caused by workers. After missing the deadline he gave us of two weeks ago, we told him last week that we had to move in no later than tomorrow and needed to have all of his work completed. He responded to me today and said that we cannot move back into our house until he is paid in full. I don’t see anything in the contract that references this and I cannot find anything online. Is this true?
The contractor cannot bar you moving into your own house unless that is written into the contract. However, it could interfere with his completing portions of the work. He might be referring to the Certificate of Occupancy (CO).
Most likely, you will need to obtain a new or updated CO after the level of repair work you are doing. These are generally required for new construction, changes in a building’s occupancy, and major renovations such as yours.
If that’s the case, you are not supposed to move back in without a Certificate of Occupancy (CO), which is not issued until the final inspection by the local building department. Technically, it is illegal to move in without a CO. Some municipalities are more strict about this than others. In the worst case, you can be fined or run into other legal difficulties with the town. In addition, your homeowner’s insurance may be invalid until the CO is issued.
On the other hand, plenty of people move into a house without a CO and obtain it later without problems. It really depends on the local regulations and attitude of your local officials. Some municipalities will provide you with a temporary CO for situations where the work is mostly completed and there are delays beyond your control. The safest course of action is to check with your local building inspector.
Regarding your contractor, you should not pay in full until the work is completed and approved by you. The terms and amount of the final payment should be covered in your contract. Some contracts require most of the final payment at “substantial completion,” with a small amount withheld for punch list items. Others wait for the final payment until after all punch list items are completed.
Best of luck with getting the project completed as soon as possible!
Withholding Final Payment on Substandard Fire Repair
My daughter and son in law lost everything in a house fire. The are rebuilding and things were going well till the finish work. They cannot get the contractor to fix, or even acknowledge, some significant issues. The were to move in two months ago. The occupancy permit has already been issued. The final draw has not been made. They are going to move in and not make the final payment till he fixes the issues. Some of the issues are cracked concrete on steps Cracked fiberglass tub. Uneven countertops 1/2 inch out of level. Did not cover laminate floor an a lot of scratches. Paint spatters all over one side of vinyl siding. Plus there are a few more problems. They believe the contractor is holding them hostage, so they are going to move in. Do you think this is OK?
Insurance work is always tricky as there are several parties involved: the insurance company, adjuster, contractor, owner, and a bank if there is a mortgage. Each party has its own agenda and may not be working in the best interests of the owner. For that reason, owners often find the process stressful and end up dissatisfied with the outcome.
It is good that the final draw has not been released. Your daughter and son-in-law should contact the insurance company, mortgage lender, or whoever is controlling the funds and inform them of the incomplete and defective work and instruct them in writing not to release the final draw until the work is completed properly. If they have full control of the funds, that simplifies things.
In the meantime, the homeowners should document in written, dated notes and photos the incomplete and defective work, and keep copies any correspondence with the contractor. Also, they should document in writing any phone calls or conversations with the contractor. That way, if this ever goes to court, they will be in a much stronger position than trying to recall from memory who said what to whom and when.
If an occupancy permit has been issued, I don’t see why they can’t move in, unless this would violate the contract. If the project was substantially delayed, through no fault of theirs, and they incurred extra costs for rent or other housing, this is also a cost that the contractor may be responsible for, depending on the wording of the contract, and the laws in your state.
Before moving in, however, it would be a good idea to speak with a lawyer, or perhaps someone in your state’s consumer affairs office. They should also speak with the state’s insurance commissioner and may wish to file a complaint with that office. State laws regarding construction contracts and insurance claims vary from state to state, and they don’t want to do anything that would weaken their position legally. Sometimes a quick consult with a lawyer and a single lawyer’s letter can motivate a contractor to do the right thing.
They should also ask a lawyer what procedure to follow if they need to terminate this contract (fire the contractor) and use the money from the final draw to pay another contractor to complete the job. Again, there are specific procedures for doing this that should be followed or the homeowners could be liable for a breach of contract.
Best of luck in getting the job done properly so the owners can put this behind them and move on with their lives.
Related links: Documentation Dispute Resolution
Punch List Dragging on For Months
We had a complete gut renovation at out 3 bedroom apt. We are at the end of the renovation (95% completed and living already in the space) and my contractor has been delaying and not coming to finish off the job. Currently we hold 5% of the total job including all change orders, which equals to about $24,000. We are have been waiting on a punch list and the C.O./inspection for months now but nothing.
First of all, my contractor had a lot of trouble finding a suitable and reliable millworker to build our living room bookcase, a/c radiatior covers, kids closets and desk system. He changed three times and built 3/4 of the job. 1/4 which is the girls closet and desk system is still not built. It has been 2 months nobody shows up and we have been given the run around. We also keep getting phone calls from his first millworker saying he wants to get paid and wants to put a lien on our property. I told him I don’t have a contract with him and that all payments should be dealt directly with my contractor. He said he cannot ever reach my contractor because he does not pick up the phone. I asked my contractor to release us from this portion of the contract (about $13,000) so I can subcontract it out but had no response from him.
Secondly, we were notified by the neighbors downstairs they have their ceiling in the master bathroom damaged due to some water leakage. Super has checked and said it could have come from us. The contractor “said” he will address it, but two weeks passed and nothing.
Thirdly, my kitchen has no passive vent panel in the ceiling nor a place to vent out the heat above my stove. It has a hood, which model is supposed to hook up to a pipe and direct out to the building’s vent system, but the contractor did not install the pipe connecting the hood to the pipe, so currently we have to open the cabinet above the hood to vent out the hot air, otherwise the cabinets overheat.
There are other smaller punch list items due as well like doorknobs, lighting in build in cabinets, etc but we just wanted to get these three major ones done and are willing to forfeit the smaller items. What do you recommend we do? Do we fire him before getting a C.O.? Do we hire a lawyer? Can he keep the job open for such a long time without closing the permits? Thanks.
From what you describe, your contractor is, at best, highly disorganized and over his head — at worst incompetent and highly unprofessional. Sounds like an extremely frustrating situation.
Unfortunately, it is not uncommon for small contractors to take on more work than they can handle, often taking on new work (and new cash flow) while leaving current jobs incomplete and unattended to.
The most disturbing part of your story, and there are several, is the lack of communication about the incomplete and substandard work. To me, not returning phone calls in this type of situation is inexcusable and leaves you few options other than to wait indefinitely or take legal action.
To protect yourself, you should be documenting the various problems with detailed notes, photos, and any correspondence by mail, email, or phone calls/messages. A simple log of who said what to whom and when will go a long way if you end up in a dispute process.
Assuming you have a written contract, check the section on dispute resolution to see if it stipulates a method such as mediation or arbitration. Arbitration is a little simpler and cheaper than civil litigation, but tends to seek a compromise solution even when the contractor is clearly at fault.
Also check with your state’s attorney general or consumer affairs division to see if there are specific procedures in state law regarding residential remodeling contracts. If your contract specifies a completion date and states that “time is of the essence” or has a liquidated damages clause (less likely), then you would have more leverage in getting work completed and being compensated for unreasonable delays.
After documenting the problems in writing, I would attempt to schedule a face-to-face meeting with the contractor and present a written list of work that needs to be completed or corrected and ask for a response, in writing, of when and how the work will be completed. If he is unable or unwilling to comply, then you will have to terminate the contract and find another contractor, or individual subcontractors, to complete the job. If you have retained enough money to get the work completed, then you are in better shape than many clients with shoddy, incomplete jobs.
Before taking the step of terminating the contract, I would definitely speak with a lawyer about the proper procedure, which varies from state to state.
Regarding the permits and CO, I don’t think you will have much luck getting the local jurisdiction to take any action. Many permits are never closed out, which only comes to light during a title search years later. When you are ready for the final inspection and CO, however, just contact the local building department and explain your situation. They should be happy to work directly with you even if the original contractor took out the permits.
Finally,you would be doing others a favor by reporting the contractor to the BBB and state division of consumer affairs. You should also file a complaint with the state licensing board, assuming you are working with a licensed contractor. In choosing a contractor, remember to always check references — picking the right contractor is the most important decision you can make in any building project.
Best of luck in finding a suitable resolution and getting your job completely properly.
Victoria Ward Traynham says
How to Resolve Punch List Dispute
We renovated a home (our first home) using a standard rehab loan because the crawl space on the almost 100 year old property didn’t qualify for a Federal 203K loan. The Standard load required us to hire a GC & gave that GC 6 months to complete the project. Over a year later, the project is “Substantially Complete” however, the contractor refuses to correct a major punch list item and has been demanding compensation of $2,000.00 for what he claims is for services performed.
We have requested (over a dozen times in writing) that he provide an itemized invoice for these items and that he meet with us in person to discuss these items. He categorically refuses to meet with us and he denies that the punch list item in question even requires his attention despite the HUD inspection failure. We have reminded him that failure to complete the job to customer satisfaction and per HUD requirements means that he is in violation of the contract. In a recent e-mail correspondence, he states that if we pay him the 2k (he claims we owe), he will fix the punch list item (therefore acknowledging an issue).
He is now levying threats about putting a lien on the house because we refuse to blindly pay him 2k and we won’t release the final payment of 15k until the project is completed to satisfaction per contract. I have 3 questions. 1) Isn’t this a form of extortion? 2) Does moving into the property which is meant to be our home signify or constitute satisfactory completion? 3) What should we do? Any advice would be helpful. Thank you!
Sorry to hear about your situation. It is always difficult, at a distance, to understand and untangle these types of disputes. Also I am not a lawyer and you are asking legal questions. Furthermore, liens are governed by state law and the provisions vary a great deal from state to state. The timelines and conditions for filing a lien are very specific. Also, the specific language of your contract regarding final payment, substantial completion, hold backs, and liens come into play here.
In general, you are obligated to release the final payment at substantial completion, minus any hold-back for punch-list items. In the absence of an agreed to hold-back amount, the general rule is that you hold back at least twice the cost of the work to be done. You want to hold back enough to pay another contractor to complete the work, if necessary.
If there is a major flaw or significant incomplete work then the job would not be considered substantially complete. Whether the work to be done is substantial enough to justify withholding payment is a judgement call. Punch lists are generally for a missing piece of molding, sticking doors or windows, missing cover plate, etc. To some extent, it depends on the size of the incomplete or defective work compared with the overall size of the project. If you have acknowledged in writing that the work is substantially complete, however, then you would be responsible for the final payment, minus any hold-back.
While issuance of a Certificate of Occupancy (CO) and moving in do not, in themselves, constitute substantial completion, they are important considerations. The AIA contract defines substantial completion as the stage when the work is : “sufficiently complete in accordance with the Contract Documents so that the Owner can occupy or utilize the Work for its intended use.”
Regarding the $2,000 charge, if you never agreed in writing (or verbally) to additional work for an additional charge, then you should not be responsible for payment. If the charge does not stem from a change order, allowance, or other contract provision, and you don’t even have a written invoice or description of the work, then it’s difficult to see how you would owe money.
Finally, it is easy for a contractor to file a lien if he is within the statutory time limits. If the lien is fraudulent and based on improper charges or work that is defective or unfinished, then you can legally challenge the lien – again following strict timelines.
Ordinarily, I would recommend that you sit down with the contractor to try to negotiate a mutually agreeable resolution. This is almost always preferable to legal action. However, it sounds like that is no longer an option here.
There are a number of complicated legal issues here. If I were you, I would schedule a one-hour meeting with a lawyer to better understand the job’s legal status and your options. Get organized beforehand with all the relevant documents (contract, plans, loan documents) as well as photos of the defective or incomplete work. Bring a written list of your questions and be prepared to take notes. The clock is ticking, so use your time with the lawyer efficiently.
Best of luck in finding a workable solution.
Can I Legally Hold Back Final Payment?
We have received the Occupancy Permit and are moving into the house. Our punch list is not completed and our general contractor has not held 10% from any sub during construction. I believe that if I pay the final bill in full that I will be at the mercy of the subs “whenever” schedule to complete our list.
The general already has them working on other projects.
Can I legally do this even though I do not have a holdback clause in contract? I am using a title company to pay all bills and get lein release from all subs each time we pay. The last bill will be about $30K and I was thinking of holding 10% until the punch list is completed since he holds all the power over the subs. I would have title company hold the funds in trust. Appreciate any suggestion.
Retainage of 5 to 10% is pretty standard – in general, you want to retain enough money to pay for someone else to complete the job, if necessary (and also to motivate the GC to get it done).
You are correct that the GC is fully responsible for the work of the subs – your relationship is with the GC, not the subs. So you shouldn’t be obligated to pay the GC for work that the subs have not completed.
Because the holdback is not written into the contract, it’s a somewhat gray area. However, I believe you should only pay for work that is completed. If the work is not completed, then you are justified in withholding a reasonable amount of money. The legality of the issue would depend on state law where you live and the specific language of your contract. But, for practical purposes, it is a matter of negotiation between you and the contractor. No one is going to go the court over this.
You don’t want to alienate the GC, but I think it’s reasonable to withhold a small amount of money. You can explain your reasoning in person, or in writing, and hopefully the contractor will respect your position and be cooperative.
Best of luck with finding a suitable resolution and getting the work completed quickly!
Contractor Ignored Our Concerns at Walk-Through
We recently built a home and are scheduled for a final walk-through. I noticed last week the backsplash we had installed was chipped and cracked in several spots (it’s mosaic glass) and the hardware on the cabinets were not installed correctly. The hardware is not centered and to the bottom of the drawer. I am concerned the contractor will be dismissive. They also forgot to install a water loop and we brought it to their attention before all drywall was completed they treated us as if we were idiots. Sales rep and contractor said it would be added later and it wasn’t. Any recommendations for dealing with builder?
There is no magic here other than to stand your ground and insist that the important items be corrected before releasing the final check. Hopefully, you have withheld some money pending the walk-through. As in any negotiation, you need to decide what is most important to you and where you might compromise. Be firm but polite. You may give a little here to get a little there.
In preparation for the walk-through, I would recommend documenting all the problems with photos, if possible, and written and dated notes of who said what to whom and when. These will come in handy should any of this escalate into a more formal dispute process, such as arbitration or small claims court (hopefully, not the case).
I have been on both sides of this fence. I had some problems several years ago when my wife and I had a new home built by a pretty conscientious custom builder/developer. He took care of the small problems such as missing moldings, but resisted dealing with several double-hung windows that were very hard to operate. The problem, as I saw it, was that the windows were installed incorrectly – not an easy problem to fix. The contractor insisted they were in the normal range. We agreed to have a manufacturer’s rep come out. The rep hemmed and hawed and ended up spraying all the sash edges with silicone spray (which he kept handy for this problem). He admitted that they weren’t perfect but said they would loosen up over time. I compromised here and lived with it.
On a more recent remodeling job, I had the GC rip out half a wall of tile in a new shower stall because they were laid out poorly – after I had given him clear instructions.
None of these things will endear you to the contractor, but this is a business relationship, not a popularity contest. Decide what is important and stick to your guns. From your description, the plumbing loop and damaged backsplash should definitely be fixed. The cabinet hardware should certainly be centered left and right, but is often off-center up and down. To move them, they will have to patch/putty the screw holes – not sure you want that. If they are really messed up and need to be moved, the contractor may need to replace the drawer fronts.
Read more on The Final Check and Punchlist.
courtney durham says
Hold enough money back to pay another contractor to correct work (as needed)
Jean Sorochka says
Should I Accept New Tub With Chip?
I am purchasing a new home and had my walk through today. There is a deep chip in the soaking tub in my master bedroom and they said it would be fixed with filler and they could have a professional come and do it. Otherwise to remove the tub and reinstall it would take 3 days of work.
My concern is that it shouldn’t have been installed with the chip or if done afterwards should have been replaced or brought to my attention before this so I could make a decision beforehand.
There is 1 year warranty on the tub and my fear is that the filler will start to deteriorate after a period of time and then it’s my problem. Your thoughts or recommendation?
It’s hard to say who made the chip or when, but that’s why you do a final walk-through. A lot of tradespeople work in a new home and anyone could have dropped a tool, pipe, or whatever. These things always seem to happen at the last minute due to one careless mistake — like moving a stepladder with a crowbar on top (I did this once – duh!)
If it was me, I would opt for a new tub rather than a repair. How successful a repair is, and how well it matches the original, depend on the material the tub is made of, the skill of the repair person, and whether they have access to factory-matched repair materials. Both fiberglass and acrylic tubs are fairly easy to repair, but it’s not so easy to get a perfect match on color and gloss. Acrylic is a superior material that is harder to chip and has color all the way through. With fiberglass, the color and gloss are in a thin “gel coat.”
Also, your concern about the longevity of the patch is legitimate. It may last for the life of the tub — or not if conditions were less than perfect when the patch was made. So if they are offering you a new tub in three days, why not take it?