Pennsylvania’s Home Improvement Consumer Protection Act (HICPA), passed in 2008, requires contractors who do over $5,000 in annual business to register with the state. Its provisions protect homeowners from unscrupulous and unlicensed contractors, with a scope that goes beyond the state’s Unfair Trade Practices and Consumer Protection Law (UTPCPL).
This is great for homeowners; no one wants to be left with a half-finished project or a structure change that wasn’t completed according to code.
But what about contractors like you? What advantage does requiring a HICPA-compliant contract give you?
Your business contract (which you should require for all jobs) protects both you and the homeowner. If your current contracts aren’t HICPA-compliant, they may be unenforceable, leaving you holding the bag if something goes wrong with the project or the homeowner refuses to pay.
An experienced Pennsylvania business contracts attorney can review your contracts and advise you on any changes needed to ensure they are fully enforceable.
Who Needs to Register as a Home Improvement Contractor?
Anyone who owns or operates a home improvement or contractor business or performs home improvement work in Pennsylvania must register with the Pennsylvania Attorney General unless they are a large retailer (think Lowe’s or Home Depot) or do less than $5,000 worth of work in a calendar year. Sole proprietors, self-employed contractors, subcontractors, and all other contracting business entities (LLCs, corporations, etc.) must be registered unless they meet the exemption requirements.
You can register online or send your completed form to the Attorney General’s Office. The registration fee is $50. You will be issued a registration number that must be on all contracts and business advertising.
Failure to register prohibits you from legally offering home improvement services. So, essentially, if you don’t register, you’re out of business, and there’s no “grandfather clause” for established, currently operating businesses.
What Should Be Included in an HICPA Contract?
HICPA standardizes home improvement contracts, removing much of the “legalese” in many home improvement contracts and “cleaning up” overly cumbersome or confusing contracts. Many common provisions (including waivers of state and local health, life, safety, and building codes) that were common elements of home improvement contracts are now essentially unenforceable.
Your contract is only valid and enforceable if it contains all the required elements spelled out in HICPA:
- Is in writing, legible, and contains the contractor’s registration number
- Is signed by both the contractor (or their agent) and the homeowner (or their agent)
- Contains the entire agreement between you and the owner and includes copies of all required notices
- Contains the date of the transaction
- Contains the contractor’s name, address, and phone number
- Lists the start date and completion date
- Describes the work to be performed, materials used, and specs that cannot be altered without a written change order signed by the owner
- Lists the total sale price OR includes a time and materials provision agreed upon by the contractor and homeowner
- Includes an initial estimate in writing, which must be given to the homeowner before starting work. The estimate must:
- List the total dollar value of the initial cost estimate
- State that the cost of services may not exceed the listed dollar value by more than 10%
- State the total potential cost including the 10% permitted overage
- State that the cost will not increase above 10% without a written change order signed by the homeowner and contractor
- Separately list the amount of any down payment and any advance for the purchase of special-order materials
- Include names, addresses, and phone numbers of all subcontractors to work on the project
Many of these details are probably already in your existing contracts. One significant change for contractors is the stricter requirements limiting how much they can charge for a down payment and advances for special materials.
Important Changes HICPA Made to Down Payments and Fees
HICPA notes that a down payment of 1/3 of the total contract price or 1/3 of the contract price PLUS the cost of special materials is appropriate.
However, the law doesn’t specify how or when the homeowner is to pay the balance of the project. It does permit incremental payments, negotiated between you and the homeowner, with the final payment on the job’s conclusion.
HICPA regulations standardize payments and deposits, eliminating a common sticking point in negotiations. Both contractors and homeowners can benefit from more consistent standards for down payments and payment for materials.
Failure to Comply with HICPA Could Cause Serious Business Losses
Failure to comply with the Pennsylvania Home Improvement Consumer Protection Act can result in severe legal, financial, and professional consequences. Contracts that fail to comply with HICPA regulations are essentially non-enforceable, leaving the contractor with few options if there’s a dispute with the homeowner.
If a contract fails to meet HICPA requirements, which can include anything from missing mandatory terms to failing to include the contractor registration number, the homeowner may be able to void the entire contract.
If the contract is invalid, the contractor cannot enforce the original payment terms, meaning the homeowner can refuse payment and the contractor has little legal recourse. The contractor may only recover the actual value of the work performed (quantum meruit), which could be considerably less than the agreed-upon cost for the project.
Even if the contractor places a lien, that lien’s value will be restricted to the value of services rendered, and not the full agreed-upon price.
HICPA requires contracts to contain a notice of the homeowner’s 3-day right of rescission (3 days to change their mind without penalty). Absent this clause, the homeowner can cancel the contract at any time—even if the work is nearly complete.
Violating HICPA violates Pennsylvania’s Unfair Trade Practices and Consumer Protection Law, too. Contractors may be liable for treble damages (three times the actual monetary damages) if the homeowner files suit, and have no legal defense against it. Additionally, if the judge finds in favor of the homeowner, the contractor may be forced to pay the homeowner’s attorney fees and costs. The contractor usually faces an uphill battle in a contract dispute, as non-compliant contracts have little legal standing.
Failing to ensure your contract contains all the HICPA clauses essentially forfeits your right to demand payment for the balance of the job, even if you complete it or have fronted the cost of materials.
You won’t just lose money on the disputed job. You could lose your business. Courts can revoke a contractor’s HICPA certification of registration, meaning they’re unable to legally operate for at least five years.
Contractors can also face criminal penalties, from a misdemeanor to a second-degree felony, for home improvement fraud.
How a Lawyer Can Help Contractors with HICPA Violations
The best defense against HICPA violations is to ensure all your contracts are scrupulously compliant with state laws. Experienced contracts attorneys can revise your current contracts to ensure that each element required by HICPA is included and that the terms protect your business.
If you’ve already ended up in a contract dispute with a homeowner, and the contract fails to meet every HICPA standard, then your best option may be to negotiate as favorable a settlement as possible with the homeowner or engage in alternative dispute resolution like mediation or arbitration. If the matter goes before a judge, there’s a slim chance that you, the contractor, will prevail trying to enforce a non-compliant contract.
If you’re facing criminal charges, too, it’s critical to get legal representation right away. Penalties if you’re charged with a second-degree felony include up to 10 years in prison and thousands of dollars in fines.
Get HICPA Advice Today
Strong contracts are the lifeblood of your home improvement business. Clearly stating the terms and obligations of each party (you and the homeowner) as required by Pennsylvania’s HICPA law leaves little room for misunderstandings and helps avoid costly disputes.
The attorneys at Kaminsky Law have decades of combined experience representing small businesses and drafting contracts for general contractors, subcontractors, and other home improvement professionals. Our firm writes your contracts, reviews your existing ones, and negotiates favorable terms on your behalf. We keep abreast of changes in Pennsylvania laws, including revisions to HICPA, that could affect your business operations. We also review any contract before you sign it to ensure the terms are favorable to you and protect your rights in the event of a dispute.
Contact Kaminsky Law today for a professional consultation with our Pennsylvania contracts attorney.
