A Guide to Residential Construction Contracts
Make sure that you take your time in reviewing renovation or home building contracts, they will make or break your experience
The level of detail and thoroughness in a General Contractor’s contract will tell you a lot about the company you are planning to work with for your renovation, home addition, or custom home building project. For us, it is something that we allow our potential customer’s to look at very early on in the process because we believe that it is an advantage to show it and put all of our cards on the table. With the amount of money that homeowners and investors are spending on their home renovations and home building projects in Toronto it is the least we can do to give them some transparency.
Having created custom construction contract with our lawyer and understanding the potential risks for both the General Contractor and Homeowner, we have compiled a list of must-have terms and conditions that you will want to see in a resdiential construction contract before signing up.
CCDC and CuSTOM CONSTRUCTION Contracts
It is important to comment that residential construction is not bound to CCDC contract terms and conditions if the contract that a General Contractor uses is custom to their business operations, therefore it is up to you to figure out with each of the General Contractors you are working with at the quoting stage to see what contract format they use and how that may work with your project. Every General Contractor has a different way that they approach contracts so make sure you ask about it as soon as it makes sense in the pre-construction process.
With BVM Contracting, we have a custom contract that stipulates a fixed price amount (because we fully procure our projects before our clients sign our contract) with adjustments to the contract based on commodity increases and decreases. Some other General Contractors offer other types of contracts but we have found that the one that we use works for homeowners and real estate investors alike to help accurately budget and make sure they can afford the work.
Key Terms and Conditions for Residential Construction Contracts
Independant Legal Advice - An Absolute Must
As a homeowner you will want to have the ability to get independent legal advice (otherside known as ILA) for the contract(s) you are reviewing. This will allow you to ensure fairness in the contract terms and make sure that everything is included that should be. Your lawyer will be able to tell you which contract is the best so don’t be afraid to ask their opinion. At the end of the day a contract should protect both parties so make sure that the ones that you are reviewing do just that.
Holdback
To make sure that a scope of work is fully executed there is a condition for a certain amount of money to be held back until the contract is fulfilled. This amount will vary depending on the size and type of project but expect this to be in the range of 5 to 10 percent.
Warranty Information
The contract is usually the area that outlines what is included and the validity period of the warranty from a renovation contractor or home builder. Make sure that the contract includes this and is something you are comfortable with. Usually we recommend that our clients speak with our past clients that we refer them to and ask about how the warranty period went and how we responded to warranty-eligible items. It is important to verify this as things always pop up and it will be important to have a team that will respond quickly versus one that will disappear after you give them the final cheque.
Clear Payment Terms
Make sure that if the renovation or home building contract outlines the way the payments will be made, along with the options of how the payments can be accepted. With such large amounts it is usually direct transfer or cheques that work best. You should be looking for signs that the payments will be made in draws that match the amounts shown in the budget (which should be an budget itemized, just so you are aware!).
Clear Terms on Communication Procedure
This is probably not discussed at all by General Contractors but is nonetheless very important. Having a single representative on the homeowner and Contractor side is super important to making sure that information and discussions are accounted for and acted upon. As cumbersome as it is to have everything documented via email, it is an important step in ensuring that both parties are protected should any disputes come up.
Dispute Resolution Terms
Obviously a last resort but this is an absolute must to have in any contract. There are so many ways that a renovation or home building project could go, if you are working with a reputable General Contractor this won’t need to be used but it will outline the steps in the event that something goes wrong.
Definitions Section
Since legal contracts sometimes cannot explain every word that is being reused, there is usually a section that provides the definition for each regularly used term. Make sure you understand and review the definitions of these words to ensure there are no gaps in your understanding of any of the terms and conditions.
Change Order Process
Make sure you understand the process of how change orders will be documented and completed during the project, there should be a term that outlines this.
Insurance Information
Ensure that the insurance information for your General Contractor, usually it outlines it but they should be able to provide it upon request.
Default Conditions
In the event that either party defaults on their contract obligations it is important to understand the mechanism in which the default can be created and what the other party is entitled to.
Other important considerations when reviewing a residential construction contract
While you are reviewing the contract you should also review the following items:
References for past projects. Preferrably you will want at least 1 reference from a similar project completed along with another 2 references from recently completed projects. Make sure that you ask them about warranty and other potential issues that came up and how the General Contractor dealt with them.
WSIB, Insurance, and Business License. They should be available upon request.
You should ask for a draft draw schedule (for payments) that outlines what the first 3-6 draws are going to look like, with estimates of draws amounts and timing after that.
Conclusion
Once you obtain legal advice, review the additional items above, and have confirmed that all of the items above are included you should be in good shape to make an educated decision about which General Contractor to move forward with for your home renovation or custom home build. It is important to have a checkpoint at this stage and take the time to review properly, it is a lot of money on the line so make sure you are choosing a Contractor that will protect you during the project.
About BVM COntracting
BVM Contracting is a full-service General Contractor or Home Builder located in Toronto. We provide home renovation and building services for major home renovations (kitchen renovations, bathroom renovations, basement renovations, full interior renovations, home additions, lot severances, and new home construction). Our goal is to help guide our clients through the process of renovating their home, from concept to completion.
Further than providing General Contracting and Project Management for major home renovations, we also offer value-added services such as renovation financing, renovation rebate consultations and services, building permit and design services, smart home installation services, and real estate investor services.
To learn more about our offering by visiting our services page.