Whether you are a home owner or a contractor, some common sense can help avoid costly and often unnecessary disputes
The recent low interest rates, combined with the significant costs of moving home and the increase in stamp duty, have made many homeowners decide that it’s cheaper to borrow to develop, renovate or extend their existing home than move. Homeowners in the UK have generated a boom in property refurbishment, whether it be a loft conversion, side and rear extensions or even complete rebuild projects.
In most cases these projects will get completed with, if anything, minimum problems but there is always a risk of disputes developing and the current increase in home renovations is seeing more disputes arising between homeowners and building contractors.
So what can you do to reduce the risk of disputes?
Of course, there is never any way to guarantee against things going wrong but there are some practical steps you can take, whether you are a building contractor or homeowner, to help avoid construction disputes.
Should you have a construction contract for straightforward works?
A lawyer is always going to say that it sensible to have an agreed contract. Of course, it’s not a legal requirement but consideration should be given as to whether a contract is appropriate for a specific project and there are a few things to bear in mind:
- If one of the parties strongly disagrees then this should give rise to caution. Often works still continue but you are already starting off on an uneasy foot.
- Realistically, you may only need a verbal contract or a simple written agreement, especially if the work is straight forward but it’s important to remember that even a verbal contract is just as valid and binding as a written contract, although it does not help when trying to identify all of the terms.
- Often, an informal written agreement is created based on an exchange of letters or e-mails detailing the broad terms of agreement, referencing approved plans and drawings, specifications and the costs involved. This is normally sufficient.
When is a construction contract really important?
The importance of a clear contract comes to light if things start going wrong and of course hindsight is a wonderful thing. So what are the benefits of having a well written contract and what should it cover?
A formal contract provides clarity and predictability on all sides by setting out the arrangements governing a project and should cover areas including:
- when the stages for payment are triggered
- how much should be paid
- procedures for how to deal with variations and extra costs
- extending completion dates
- issues around purchasing materials
Disputes often arise over pricing, time limits, payments and variations to the agreed works. A contract gives a starting point to refer back to specific terms if any part of the agreement is not met, reducing either side’s ability to move away from the agreed terms.
Practical things to consider when undertaking construction projects
At the end of the day, although a formal contract may help maintain the relationship between the parties on a project, it can never be a replacement for a happy working relationship allowing for flexibility, pragmatism and compromise. So what is the right approach
Listen – Disputes often occur when the parties fail to understand each other’s positions and expectations are not met. This can often be caused by an initial failure to listen.
- Contractors and professionals need to ensure that they listen and fully understand the homeowner’s vision and expectations at the start and if not realistic or achievable, they should make this clear and suggest other options which may create the same or a similar result.
- From a homeowner’s perspective, contractors can be a source of valuable experience and advice. It is wise to listen and not automatically disregard anything. It may be that they can recommend a better, less expensive or simpler solution to a design issue or have useful knowledge of materials and local suppliers, which can possibly save time and money. Spending time on site and keeping up with progress is important.
Clear instructions – Renovating involves making countless decisions, with many needing to be made quickly if they are not to hold up work. It is sensible to:
- As a contractor to warn, and as a homeowner to be aware, well in advance of the decisions that need to be made, whether its about the choice of fixtures and fittings, the route for plumbing or electrical wiring or how details should be finished off.
- A lack of decision making can lead to delay or, perhaps worse, a contractor taking the simplest and speediest route, which may not be the most practical or aesthetically pleasing one.
- Once the work is done, if changes are to be made later on it will cost more and extend the time being taken to complete the project.
- Indecision or late decisions may also risk damaging the relationship between the parties.
- Instructions should be clear and preferably in writing, whether a text, e-mail or letter.
Changing the original project design – Variations can be a common cause of complaint in construction disputes, especially where a home owner keeps changing the plans at the last minute. This can create frustration, confusion, disagreement as to the value of works carried out and may result in work having to be undone and redone.
- If there are to be any variations deviating away from the original plan, then these should be agreed with all parties to ensure that they are practical.
- A specific cost for the variation should be agreed.
- On projects where there is a contract, it is advisable for any variations to be in writing. The contract may provide for a specific procedure to be followed.
- For a homeowner, this provides certainty as to how any plans have changed and the cost implications.
- From a contactors point of view, this enables them to consider any additional time which may be required and changes to payment values and dates.
Payments – The risk of a payment dispute appears to increase the further along the project goes and is a common reason for a construction dispute.
- Typically, issues arise when there is late payment or a homeowner tries to withhold part or all of a payment, as they are not happy with an aspect of the works.
- To minimise some of the risk, it is best if all parties understand at what stage a payment will be requested by a contractor and when that payment becomes due.
- This allows a home owner who may need to secure funding from a bank to plan ahead and fund the project more efficiently, whilst giving a contractor greater certainty to manage cash flow and paying other trades.
Get the right insurance cover – Whether you are a home owner or a contractor, you should always ensure that there is sufficient insurance coverage for the project. If operating under a formal contract, a specific range of cover may be required, to be taken out by either one or a combination of parties and/or professionals.
As a homeowner, it is also important to check that any policy adequately covers the works being done. Once the project is finished, the value of your property and its rebuild value will have changed and it is best to discuss this with an insurance broker.
If you are unfortunate enough to be in a dispute, it is best to get advice from a specialist construction solicitor as soon as possible to try and resolve it quickly, efficiently and as cost effectively as possible rather than risk legal action.
Rix & Kay’s specialist construction disputes team can advise on all aspects of construction contracts and disputes including advice on suitable contracts and whether amendments are required to best protect your position. The team also advise on payments disputes.
For more information, whether a homeowner or a contractor, contact Michael Mulcare e-mail firstname.lastname@example.org