Home Renovations: What You Need to Know
Home renovations have become a very popular item to increase the value of your home, and make it more comfortable and enjoyable. There are do-it-yourselves, but for any substantial renovations most people employ contractors to do the work, or at least the bulk of the work, and do some of the finishing themselves.
With the popularity of home renovations, there has been a proliferation of contractors doing the work; some good, some bad and some downright dangerous. The most popular renovations are kitchens, bathrooms and basements.
If your renovation involves structural changes (i.e. removing a bearing wall or floor joist, modifying roof trusses, electrical work, plumbing or heating and air conditioning) a permit will be necessary. If renovations are done without the necessary permits and inspections from the local municipality or electrical authority, you could be required to remove a portion of the work for inspection, in addition to obtaining a permit. Further, your home insurance may deny coverage if your home is subsequently damaged and the damage can be attributed to the renovation for which there was no permit and/or inspection, when one was needed.
If structural changes are done, municipalities require that a licenced engineer approve the drawings and confirm that they comply with the Ontario Building Code. Electrical changes must meet Electrical Safety Authority standards, and be done by a licenced electrician.
When considering a potential contractor, one should:
- Ascertain whether all the work will be done by the contractor’s own work force or will parts of it be sub-contracted out to another contractor. If sub-contracted out, you will want to know who the sub-contractors are and how long have they been doing sub-contracting work for the contractor?
- Some areas that are commonly sub-contracted out are electrical, heating and air conditioning, plumbing, drywall and tiling. One must remember that the quality of the work is only as good as the sub-contractor.
- It is essential that you have a written contract with your contractor. In renovation work, it is not always possible to obtain a fixed price contract, especially if you have not selected some of the finishing such as cabinets, flooring, windows, counter tops and bathroom fixtures. If at the time of entering into the contract, these amounts are not known, generally an allowance with a maximum cost should be put into the contract. The contractor should be able to give you a range of possible costs depending on the type and quality of the finishing items you wish. If the renovation is small (less than $10,000.00) and your house is not more than twenty years old, a contractor should be able to provide a fixed price contract if the homeowner knows the finishes to be used.
- Obtaining references and checking those references for other renovations done by the contractor within the past two years is also a valuable source of information, however be aware that contractors generally only provide references to contracts which were successfully completed, and the homeowners were pleased with the work.
- You should obtain from your contractor, a warranty for the work done. A minimum warranty would be one or two years with structural portions of renovations having a five to ten year warranty; however, one must remember that the warranty is only as good as the contractor. Most contractors operate as limited companies. This means that any liability for the work is solely that of a limited company. It is frequently seen that a limited company contractor does several bad jobs then becomes involved in a number of disputes or law suits. The company is simply closed and the homeowner has no recourse to collect any damages. It is common for contractors to incorporate another limited company and continue doing renovation work under another name. Therefore, check to determine whether the contractor has operated under different names, over the past ten years. This is usually an indication of previous problems with its work or finances.
- Prior to commencing any renovation work, you should confirm with your homeowner insurance company that you are covered under your policy while the renovations are done. You should also confirm that the contractor has insurance coverage, the nature of that coverage and the amount of that coverage. The contractor should also be able to show that his/her workers have Workman’s Compensation coverage in the Province of Ontario, and it is in good standing. If the contractor does not have coverage, you could find yourself in a law suit by a worker who becomes injured on your project.
To summarize, for anything, other than some minor cosmetic work, (i.e. painting, minor carpentry) a written contract is essential and it should cover as a minimum, the following areas:
- The work to be performed and the time frame in which it will be done.
- List the documents that make up the contract, including construction drawings, listing of finishes, selection of materials.
- Contract price and allowances.
- A term that permits changes from the initial contract, if necessary, and a method of determining the cost of those changes.
- A listing of the permits that the contractor will be obtaining and inspections.
- Warranty; what is covered and the length of the coverage? Generally, there is a longer period of warranty for the structural work than other parts of the construction.
- Insurance coverage of the contractor. The contractor’s indemnity of the owner for any claims against the homeowner, as a result of the performance of the contract by the contractor.
- The procedure for terminating the contract if there has been default by the contractor.
- iCoverage of contractor workers under Workman’s Compensation.
- A licence by the municipality to carry on business in the city or town where the work is done. (Not all municipalities require contractors to be licenced).
- It should also list miscellaneous items such as where notices between contractor and homeowner are to be sent. The ability of the contractor to post signs on the property indicating that it is doing the work. A provision and time frame for the party to remedy any breaches of contract, after which it can be terminated.
Ontario has legislation known as Construction Lien Act (the “Act”). The Act requires the payor (homeowner) to retain a holdback from each payment to the contractor of 10%. This accumulated 10% is not released until substantial performance of the contract is obtained.
Substantial performance is achieved when 3% or less of the contract price still needs to be completed. This applies to contracts up to $500,000.00. Although homeowners and contractors frequently ignore this holdback requirement in small contracts (i.e. less than $15,000.00), it is essential to have it on a larger renovation. If the holdback is not done, a homeowner could find themselves being required to pay twice; once to the contractor and then 10% of the value of the contract to workers, sub-contractors and material suppliers that were not paid by the contractor. This can happen when a contractor simply does not pay its sub-contractors and material suppliers.
If a homeowner receives a Notice of Claim for Lien under the Act, they should immediately seek legal advice, as the Act is complicated and a homeowner can very easily find themselves in major problems if they try to rectify the situation themselves.
A simple construction contract could be as little as five to ten pages. Larger renovations, however, are more complex and a fifteen to thirty page agreement is not unusual. There are standard form agreements (CCDC’s and CCA’s) which are industry standards and a good start for an agreement, but for the purposes of home renovations, they may require some modification, as these contracts are of a more general nature.
If you have any questions or require assistance with a construction matter, please contact us.