The Tri-County Area is no stranger to home improvement contract scams. Anyone who has paid attention to the local newspapers over the past few years will recall the scandals and prosecutions of home improvement contractors gone bad – of contracts not honored, and of unearned deposits not refunded. It appears that the Pennsylvania legislature has heard those stories as well, for on July 1, 2009, a new Home Improvement Consumer Protection Act will take effect in the Commonwealth of Pennsylvania. The Act, located at 73 Pa.C.S. § 517.1 et. seq., is replete with numerous definitions, requirements, prohibitions and penalties. While many lawyers will be spending many hours learning the details of the Act and the interplay between and among its various provisions, we can now report on at least some of the basic details of the Act.
“HOME IMPROVEMENT CONTRACTOR”
The Act applies to any person who owns and operates a home improvement business or who undertakes offers or agrees to perform any home improvement, including a subcontractor who has contracted with a home improvement retailer to provide home improvement services to the retailer’s customers. But the Act does not apply to a person for whom the total cash value of all of that person’s home improvements is less than $5,000.00 during the previous taxable year. Most provisions of the Act also do not apply to home improvement retailers having a net worth of more than $50,000,000.00 or any employee of that retailer that does not perform home improvements, thus excluding from the scope of most of the Act entities such as Home Depot or Lowe’s when those entities do no more than sell home improvement materials. In such a case, while the subcontractor who installs materials bought from the large retailer will be governed by the Act, the large retailer, in most particulars, will not be.
The term “home improvement” is broadly defined to include most repair, replacement, remodeling, demolition, renovation, installation, alteration, conversion, modernization, improvement, rehabilitation and sandblasting work done in connection with land or a portion of land adjacent to a private residence, so long as the total cash price of all work agreed upon between the contractor and owner is more than $500.00. The term “home improvement” also includes construction, replacement, installation or improvement of driveways, swimming pools, porches, garage roofs, HVAC and solar energy systems, security systems, flooring, patios, fences, gazebos, sheds, windows, awnings and waterproofing.
However, the term does not include the construction of a new home or the sale of goods and materials by a seller who neither arranges nor performs installation work. The term also does not include the sale of services furnished for a commercial or business use or for resale if the service takes place somewhere other than at a private residence. Nor does the term include the sale of appliances, such as stoves, refrigerators, freezers and room air conditioners, which are designed for and are easily removable from the premises without material alteration. The term “home improvement” also does not include the services of a an Agriculture Department-certified landscaper except to the extent that the services include any of the installations noted above.
The Home Improvement Consumer Protection Act only applies to work done in connection with a “private residence,” which term includes a single family dwelling, a multifamily dwelling consisting of not more than two units, or any single unit located within any multifamily dwelling, including condominiums and co-op units.
The first major restriction of the Act is set out at Section 517.3, which provides that “no person shall hold themself out as a contractor, nor shall a person perform any home improvement without first registering” with the Bureau of Consumer Protection of the Office of the Pennsylvania Attorney General. This registration requirement is critical because the information required to be included in an application for registration includes not only the name and home address or any individual applicant or the officers, managers and general partner of any partnership, corporation, limited liability company or limited partnership applicant, but also such additional information as driver’s license number, Social Security number, and all prior business names and addresses of home improvement businesses operated by that individual, partner, officer, or manager.
In addition, in applying for such registration, the applicant must state whether the individuals making the application, even if applying as part of a larger business entity, have ever been convicted of any criminal offense related to a home improvement transaction, fraud, theft, a crime of deception or any crime involving fraudulent business practices, as well as a statement of whether the applicant has ever filed a petition of bankruptcy or, within the last ten years had a final civil judgment entered against the applicant or business in which the applicant held an interest that was related to a home improvement transaction. The contractor must provide proof of liability insurance covering personal injury in an amount not less than S50.000.00, and covering property damage caused by the work or the home improvement contractor in an amount not less than $50,000.00. While the Act does not provide the Bureau of Consumer Protection with discretion to deny the issuance of a license to anyone who has paid the required S50.00 application fee and provided the required information, the Act does provide for public access to registration information (excluding Social Security number, driver’s license number and other such confidential information) by a toll-free telephone number and by posting on the Bureau’s internet website.
When the home improvement contractor registers with the Bureau of Consumer Protection the contractor is assigned a registration number. Under Section 517.6 of the Act, this registration number must be included in all of the contractor’s advertisements, contracts, estimates and proposals created by the contractor after July 1, 2009. The registration number must be included not only in the more obvious forms of advertising, such as television, radio, newspaper and billboard advertising, but also on letterhead, business cards and promotional materials such as clothing and pens. In short, no home improvement contractor will be permitted to use any form of advertising or promotional material that does not allow the consumer to trace that contractor through a registration number to the Pennsylvania Bureau of Consumer Protection.
REQUIREMENTS AND PROHIBITIONS FOR HOME IMPROVEMENT CONTRACTS
In addition, the Act at Section 517.7 requires that in order for a home improvement contract to be valid and enforceable against the owner of residential real estate, that contract must be in the form of a signed writing bearing the contractor’s registration number. The contract must set forth the entire agreement, including, among other things, the approximate start date and completion date, a complete description of the work to be performed, the total sales price due under the contract, and the amount of any down payment required plus any amount to be advanced for the purchase of special order materials. In order to avoid confusion, the Act requires that the amount of the down payment and the cost of special order materials be listed separately. The Act also prohibits a contractor from changing the contract specifications without a written change order signed by both the owner and contractor. Further, the Act requires that any contract include a notice of the owner’s right to rescind the contract without penalty within three business days of the date of signing, regardless of where the contract was signed.
The Act also prohibits a home improvement contract from containing various terms, including the waiver of building code requirements, confession of judgment clauses, the waiver of a right to a jury trial, wage assignment clauses, provisions that the contractor be awarded attorneys fees and costs, and, perhaps most importantly, the waiver of any rights provided under the Act. A home improvement contract can be voided by the homeowner if it fails to contain required terms, or if it contains prohibited terms.
“HOME IMPROVEMENT FRAUD”
The Act at Section 517.8 also makes “home improvement fraud” a criminal offense, punishable as either a felony of the third degree or a misdemeanor of the first degree, depending upon the nature of the violation and the amount involved. “Home improvement fraud” is defined to include a number of related offenses, including the making of false or misleading statements to induce, encourage or solicit one to enter into a written or oral agreement for home improvement services, receiving advance payments for performing home improvement services and failing to perform or provide those services or materials when specified in the contract, with exceptions for force majeure or unforeseen labor strikes. The definition of home improvement fraud” also includes misrepresenting or concealing a contractor’s identity while soliciting a person to enter into an agreement for home improvement services, damaging a person’s property with the intent to induce, encourage or solicit a person to enter into a contract for home improvement services, misrepresenting an item as a special order material or misrepresenting the cost of any special order material, and directly or indirectly publishing a false or deceptive advertisement in violation of the Act. It must be noted that the definition of “home improvement fraud” is more extensive than noted above, but cannot be cited fully due to the confines of space. Home improvement contractors would be well advised to consult with counsel regarding their legal rights and prohibitions prior to the July 1st effective date of the new Act.
Finally, the Act sets forth a number of “prohibited acts” which, though not necessarily constituting crimes, can result in the imposition of civil liability. These prohibited acts include the failure to refund the amount paid for home improvements within ten days after demand if no substantial portion of the contract work has been performed at the time of the request, and if more than forty-five days have elapsed since the starting date specified in the written contract. Other prohibited acts include, but are not limited to, the abandonment or failure to perform, without justification, any home improvement contract engaged in or undertaken by a contractor, the deviation from plans or specifications without a written change order signed by the parties, advertising to perform a home improvement without intent to perform or charge for the home improvement as advertised and, for home improvements for which the total price is more than $1,000.00, receiving a deposit in excess of one-third of the home improvement contract price or one-third of the home improvement contract price plus the cost of any special order materials that have been ordered.
The Act also prohibits a home improvement contractor from changing the contractor’s name, address, liability insurance information or any other identifying information in a fraudulent or deceptive manner likely to cause confusion or misunderstanding without advising the owner in writing within ten days following any such change. The Act further provides that any violation of any of the provisions of the Act is deemed to be an Unfair Trade Practice under the Pennsylvania Unfair Trade Practices and Consumer Protection Law. Thus, any violation of the Act is subject to the award of not just actual damages, but also, potentially, treble damages and attorneys’ fees.
While it is likely take years for the courts to flesh out the details of the Act and interpret its many provisions, there can be no doubt that the Act will have broad consequences for both home improvement contractors and home owners. Meanwhile, Pennsylvania home improvement contractors should consult with their legal counsel before July 1, 2009 to ensure that they are in compliance with the Act prior to its effective date.
Our attorneys at Wolf, Baldwin & Associates are able to answer your questions regarding these matters. We are experienced in handling a variety of Consumer Protection cases. Please click here to contact us.
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