On July 1, 2009, a new law entitled the Pennsylvania Home Improvement Consumer Protection Act will take effect. The Act is designed to protect against several abuses that some home improvement contractors have inflicted on innocent consumers. The Act as a whole does three things: first, it subjects contractors to a detailed registration process that will enable consumers to obtain basic information about a prospective contractor. Second, it specifies certain terms that a home improvement contract must include and certain provisions that it cannot include. Finally, the Act specifically prohibits certain acts of home improvement contractors and criminalizes certain other egregious business practices which the Act defines as “Home Improvement Fraud.”
Any individual or company that wishes to engage in home improvement activity must register with Pennsylvania’s Consumer Protection Bureau. The registration process requires that basic information be provided, such as the address of the company or person, the individuals managing a company, the names and addresses of other affiliated home improvement companies, a history of any bankruptcies filed by the contractor, and, finally, any home improvement related criminal convictions and civil judgments obtained against the contractor or its affiliates. This information will not only be of record with the Bureau, but it is intended to be accessible to consumers via the internet. Substantively, the registration requirements also compel a contractor to carry property damage insurance and personal injury insurance at certain specified limits.
In addition, the Act requires that home improvement contracts be written and that they contain certain terms and conditions. For example, a contract must state the date of the transaction, an approximate start date and approximate completion date for the transaction, a set of specifications that cannot be changed without written change order, the total sales price due under the contract, an itemized listing of the down payment and any amount advanced for the purchase of special order items, the contractor’s obligation to carry the statutorily required insurance, and wording that notifies a consumer that he or she has the right to rescind the contract within 3 business days of signing. This right of rescission is an important feature of the Act.
Conversely, the Act also prohibits certain terms from appearing in a home improvement contract. The appearance of these terms allows the consumer to void the contract. For example, such a contract cannot include a “hold harmless clause,” a clause under which the consumer waives its right to a jury trial, or a clause by which the owner agrees not to assert any claim or defense arising out of the contract. Many of these now prohibited terms were standard in construction contracts. Some were at least frowned upon in consumer transaction/home improvement contracts – now, however, they are outright illegal. Because these terms allow a homeowner to void the whole contract rather than just the offensive provision, making sure that none of the offending provisions appear in the contract is an important consideration for home improvement contractors.
Finally, the Act will prohibit certain business practices that are perceived to be common among home improvement contractors. For example, as of July 1, the Act makes it a misdemeanor to make a false or misleading statement to induce, encourage or solicit a person to enter into any home improvement agreement. The Act also specifically criminalizes one practice that many lawyers see too often: a contractor takes a large deposit and/or advance payments for work or services and then, without any legitimate justification, never shows up to do the work. Generally speaking, after July 1, this practice will be a felony if the contract is for more than $2,000.00 and a misdemeanor if the contract is for less. Additionally, and not surprisingly, the Act criminalizes the practice of damaging a homeowner’s property with the intent to convince the homeowner to enter into an agreement to fix that damage.
These and other practices, called “Home Improvement Fraud” under the Act, were often criminal even prior to the Act; however it was sometimes difficult to get the local assistant district attorney interested in these practices because the homeowner was always felt to have a civil remedy and because these cases were not “garden variety” fraud cases. With the advent of these specifically targeted provisions of the Act, the criminal case should be easier, and we hope that the district attorneys’ offices will take them on with more regularity. Whether that happens or not, a contractor, even a conscientious one, should pay close attention to these criminal sanctions, because they can result in a felony conviction in some cases and a misdemeanor conviction in others. Also, if one of these “Home Improvement Frauds” is committed against a victim who is 60 years of age or older the court is required to step-up the severity of the conviction and sentencing.
Above and beyond these “Home Improvement Frauds”, the Act also prohibits other less egregious business practices. For example, it is prohibited to practice as a contractor without registration, to change or disregard plans or specifications without a written change order, and not to honor a homeowner request for a refund of payment if work has not started within 45 days of the contractual start date. Generally, the Act also prohibits taking a deposit for more than one third of the total contract price when the total contract price exceeds $1,000.00. If the contract includes “special order items” the contractor is prohibited from taking more than one-third of the contract price, plus the cost of the special order items.