It is unfortunate that, in Ontario’s residential construction industry, there is often an imbalance of bargaining power between contractors offering construction services and homeowners looking for help with said services. This imbalance often leads to various blunders and consequences, some of which are innocent and others that are intentional (and stem from a lack of education on the part of homeowners).
In this blog, we will be discussing some of the common pitfalls and traps affecting homeowners during their construction projects.[1]
Lack of Documentation
To this date, there are too many projects entered into by verbal agreement or handshake deals. Whether it’s landscaping, interior renovation, or other forms of construction, homeowners find a contractor on Facebook marketplace, Kijiji, or other blog posts, have a phone call, get a verbal quote, and do not follow through in ensuring that all terms are explicitly discussed and agreed-upon.
Any easy solution to this issue is to ensure that all paperwork: including the initial contract, as well as any changes, E-Mails, texts, and photos are organized throughout the life of the project (and retained for at least two (2) years following the project’s completion). Although it may feel tedious to follow-up and demand that contractors document everything, a bit of headache at the start of the project saves a ton of migraines in the future. For those homeowners facing resistance from the contractor, the Consumer Protection Act, 2002, provides enforcement measures as it necessitate contractors to provide written agreements with clear terms about scope of work, cost, and duration.[2]
For homeowners, in addition to general documents and such, it is especially important to keep track and records of all accounting: i.e. the amount charged and invoiced, the amount paid out, and the outstanding balance of the contract (if applicable). Maintaining this accounting (and sharing it with your contractor) avoids disputes down the road. Of utmost importance is keeping written receipts or receipt acknowledgments with respect to cash payments. It is not a secret that the construction industry (especially residential) operates on cash. Where contractors entice homeowners to make cash payments in an effort to avoid HST (which is not condoned in any way by the author of this blog, but which is a reality of the industry), homeowners should ensure to obtain written confirmation of receipt of such monies to avoid allegations of non-payment once disputes arise.
Paying too Much too Soon
On the topic of payment, it is also not uncommon that some contractors will demand outrageous deposits up front to secure the material/labour used in the project. Many homeowners do not realize that these payment terms may be subject to negotiation. Paying large deposits to contractors at the outset of the project is inherently risky. If that contractor ends up closing shop and disappearing, that money is gone. Additionally, if the relationship does not work out at an early stage and you want to terminate your contractor, chances are you may lose the entire deposit if it’s classified as a “deposit” and not a “partial payment”.
Homeowners should not be afraid to negotiate fair payment terms. There may be some contractors that take a “my way of highway” approach, but any contractor worth having a relationship with should be amenable to compromise. Remember, finding a contractor in many ways is like dating: behaviour in the early stages of negotiations paints a picture of what the remaining relationship will look like.
Not Retaining Proper Holdback
In one of our previous blogs, we briefly touched on the idea of retaining holdback as an obligation with which homeowners often were unfamiliar.[3] Pursuant to Section 22 of the Construction Act creates a mandatory obligation for “payors”, which includes residential homeowners, to retain ten percent (10%) of all monies to be paid on account of the value of services and materials provided.[4] To underscore, this obligation exists during the course of the entire contract. This means that the holdback must be retained from each invoice and request for payment from the homeowner.
Some contractors try to trick homeowners (intentionally or otherwise) by making what appears to be holdback owed at the end of the contract. As an example, suppose that you (homeowner) enter into a contract with a basement renovator for $100,000.00 (inclusive of HST). The payment terms in your contract suggest that an initial deposit of 20% shall be made for materials, followed by 35% at milestone “A”, a further 35% at milestone “B”, and 10% once the project is complete. Does this comply with holdback? No! In order to comply with holdbacks, the homeowner must retain 10% from each of the payment milestones, including the original deposit. That means that, instead of paying $20,000.00, $35,000.00, $35,000.00, and $10,000.00 from our example, the homeowner must only pay $18,000.00, then two payments of $31,500.00, and finally a payment of $9,000.00 upon completion.
It is important to note that, generally, holdback should only be dismissed following the expiry of all liens: i.e. sixty (60) days after the project is completed. Otherwise, as set out in Section 24 of the Construction Act, homeowners will be personally liable to pay that same additional amount if any subcontractors lien the project.[5]
Conclusion
With more and more projects going wrong, it is becoming increasingly necessary for homeowners to take matters into their own hands and become better educated on their rights and responsibilities as it relates to construction projects. While a contractor may be able to persuade homeowners not to strictly comply with those obligations, there is no such thing as too much due diligence. Annoyance and irritation upfront are much less expensive that litigation at the end of the project.
The foregoing is for informational purposes only and should in no way be relied upon as legal advice. If you have any further questions, or would like to schedule an appointment for legal advice tailored to your circumstances and business, please contact me at dan@fridmar.com.
[1] This edition of Concrete Concepts builds upon our previous issues faced by homeowners, which can be found here: https://fridmar.com/2023/10/important-considerations-for-homeowners-starting-residential-construction/ [Previous Blog]
[2] Consumer Protection Act, 2002, S.O. 2002, c. 30, Sched. A, ss. 22 & 42 and O. Reg. 17/05: General, ss. 24 & 34.
[3] Previous Blog, supra note 1.
[4] Construction Act, R.S.O. 1990, c. C.30, as amended, s. 23.
[5] Ibid, s. 24.
