By Julian Neiser on G+ The Pennsylvania Legislature several years ago passed a law called the Home Improvement Consumer Protection Act (the “Act” or the “HICPA”).  The purpose of the law is to establish rules and govern conduct of home improvement contractors who primarily work with residential customers. This article is a brief overview.  However, if any of this is new to you, then you need to talk with a lawyer sooner rather than later to ensure you are protected. The reality of the law is that home improvement contractors must follow a number of administrative requirements or put their entire business at risk. Contractors who do no understand the Act can fall into a fatal cycle of customer problems and lawsuits.  In fact, if you are not absolutely sure that your contracts and your practices comply with the HICPA, you need to contact an attorney immediately for a review.  A copy of the Act can be found here. The first step for all contractors is to register with the Attorney General’s office.  A link to the registration site is here.   This is mandatory. If you are not registered, do so immediately. Do not perform any work in Pennsylvania without being properly registered.  If you are not incorporated, do so immediately. The next step is to ensure that your contracts comply with the Act.  The requirements range from ensuring that the contract is signed and has an estimated start and end date to a prohibition against certain types of damages.  It also requires the contractor to list their registration number, the 800 number to the attorney general’s office and a statement that the contractor will maintain at least $50,000 in insurance coverage for property damage. If you perform work under a contract that does not comply with the Act, your customer may be able to declare the agreement as “void” and you could have serious problems getting paid. You could easily be in a position where you do great work, perform as promised, and have a customer throw up roadblocks to payment because of a “technical” default of the HICPA. Additionally, you cannot include contract clauses that allow you to collect attorney fees or that prohibit certain types of customer claims. The Act isn’t entirely one-sided.  It doesn’t apply if the customer fails to pay or if you have performed as promised.  Also, the Pennsylvania Superior Court has ruled that contractors are entitled to be paid for work performed even if the contract is “voided” due to noncompliance with the HICPA requirements. Here’s a real world example.  A customer hires a contractor.  The contractor gives an estimate and provides a contract that everyone signs, except, the contract doesn’t include the 1-800 number for the Pennsylvania Attorney General’s office.  There are some issues between the customer and contractor, and the customer decides he doesn’t want to pay a remaining balance of $5,000, even though the contractor performed the work.  The customer hires a lawyer, who says that the contract is voided and no further payment will be made.  The contractor sues and says that the violation of the HICPA is of no issue, it’s a pure technicality and he is entitled to be paid for work performed on the customer’s behalf. Under the current law — and without saying this is a certainty — I believe the contractor can be paid for the work that was completed regardless of whether the contract was missing a term required under the HICPA.  Recent rulings by the Pennsylvania Superior Court suggest that the doctrine of quantum meruit, which provides a right to payment for work done in the absence of a contract, requires payment for any value conferred by a contractor to an owner. The idea is simple.  If a contractor improves property by performing $10,000 in work, and the work is good, the contractor should be paid. The problem for the contractor under the HICPA is that he has to defend a claim based on a technicality because his contract wasn’t complete. The contractor easily could have avoided the claim if one additional line were included on the agreement. There is no way to prevent someone from suing. However, because the HICPA does not allow for recovery of attorney fees against consumers, the only “teeth” a contractor may have is to seek sanctions against a consumer who files a frivolous law suit. As always, the best defense is a good offense. Make sure you contracts are in compliance with the HICPA. –Julian         Share this:EmailTweet

By Julian Neiser on G+ Selling a home is a major milestone that can mark the end of a long and time-consuming process for everyone involved.  However, without full disclosure — prior to closing — of problems with a home, the buyer and seller could find themselves at odds long after the sale. Being “at odds” really means engaged in a lawsuit that could involve tens of thousands of dollars. Under Pennsylvania law, a home seller must disclose known defects and problems prior to the sale.  This law, the Pennsylvania Real Estate Seller Disclosure Act (“RESDA”), provides the rules and penalties in the event that a seller is aware of a defect but fails to disclose the problem in writing. For example, the closing documents for every real estate sales transaction includes a seller disclosure form that the seller must complete and every buyer must receive prior to sale. A sample form can be found at http://www.parealtor.org/clientuploads/StandardForms/Sample_Forms/SPD.pdf. The form requests information about a number of key areas of any home.  For example, it inquires into structural issues, whether the home is sitting on fill, and if there has been water damage or leaking. The rule should be to “check the box” and disclose anything and everything that could potentially be a liability under the Pennsylvania Real Estate Seller Disclosure Act. For example, if you experienced a wet basement once after a major thunderstorm, you might not think that this single instance warrants disclosure — after all, it could jeopardize your sale.  However, if flooding in the basement occurs within months after the sale and during the remediation, evidence of the prior damage is uncovered, your buyers can sue you for the repair costs.  If they win, the court can award attorney fees. Simply, a flick of a pen to disclose the condition along with an explanation that it was a limited, contained event can save you thousands of dollars and a significant amount of aggravation. The statute of limitations for Pennsylvania RESDA claims is two years from the date of closing.  If the home inspector also is to blame for not discovering a defective condition on the property, you need to move very quickly. The statute of limitations for those cases is one year from the date of the inspection. Also, it is my suggestion that neither the sellers nor the buyers should opt for mediation through the multi-list system.  The process can be expensive and not result in a final resolution in a timely way.  A better option is to sue — if absolutely necessary — in the Courts of Common Pleas. –Julian Share this:EmailTweet

I’m a member of council for the Allegheny County Bar Association Construction Law section, and we had an interesting discussion yesterday about a proposed bill to change portions of the Mechanics’ Lien law. Subcontractors must keep an eye on the law and understand how to comply, otherwise they could lose their rights to file a lien for nonpayment. Simply put, the law (House Bill 473 in its current form), would authorize creation of a website where owners would initiate an online “Notice of Commencement” process to “identify” the universe of subcontractors working on projects.  To be fair, I’ve seen many projects where there are many layers of subs and owners might never know who all is working on the job — unless something goes wrong. The proposed website would be called a “State Construction Notices Directory.”  An owner would have to file on the Directory — prior to the commencement of work or furnishing of materials for an “improvement” — a listing of information including: (1) name, address and telephone number of a contractor; (2) and name, address and email address of the legal owner of the property.  The owner would also have to conspicuously post a copy of the notice at the project site at the time that the physical work commenced. Here’s where subcontractors need to be cautious… If the owner files a Notice of Commencement (it would be optional for the owner to use the website as the law currently is written), then a subcontractor would be required to file and serve a “Notice of Furnishing” on the owner 20 days after first performing work or first providing materials AS A PRECONDITION TO RETAIN LIEN RIGHTS.  The Notice of Furnishing would have to be served upon the owner: (1) via certified mail to the owner’s address; (2) personal delivery to the owner; and (3) filing of the notice on the proposed web site. This means a contractor’s failure to file and properly serve a Notice of Furnishing can result in a complete barrier to filing a mechanics’ lien.  Any time a law is written this way, you can assume that notice and service requirements will be strictly applied and any failure, regardless of how slight, to follow the letter of the law will result in a waiver of rights. It is expected that there will be more public hearings on this issue, according to a memorandum by Representative Thomas Killion (R-168) who sponsored the bill. This proposed change is not unprecedented,  as several other states have similar requirements.  I had a case several years ago in Ohio involving a mechanics’ lien and compliance with a notice or commencement/notice of furnishing issue.  These requirements are neither forgiving nor are they optional once in place. I will continue to follow the status of this bill and will post updates as they happen. I would like to thank the attorneys of the firm of Meyer, Unkovic & Scott (of which I am a proud alum) for an excellent briefing on the topic. Sina Cera Share this:EmailTweet

By Julian Neiser on G+ Incorporation alone isn’t enough to protect your assets or prevent personal liability.  As with everything, there are rules and exceptions. It’s true that incorporation is mandatory for most businesses.  In most circumstances, incorporation will create a complete barrier between your personal and business finances.  Sometimes, however, mismanagement and neglect can cause that barrier to falter. There is a legal theory called “piercing the corporate veil” that every business owner should understand.   The idea is that incorporation creates a veil that separates a business owner’s personal and corporate assets.  If suit is filed against the corporation and there are inadequate business assets, then the plaintiff or creditor cannot usually reach through the veil to take the owner’s personal possessions or money.  The existence of a corporate veil is not absolute, however.  It can be torn down in certain circumstances, thus exposing the owner personally. So, an understanding of veil piercing can help avoid significant — if not fatal — problems.  Fixing deficiencies before they fester are relatively easy. The most common argument in veil piercing is called the “alter ego” theory.  The idea here is that the veil should be pierced because the corporation is merely a sham and is an alter ego of the owner.  A court will consider whether: (1) the owner or officers followed corporate formalities, such as holding board meetings, using the corporate name properly, and doing business in the name of the corporation instead of the owner; (2) solvency of the corporation; (3) siphoning of funds from the corporation; (4) a lack of corporate records; (5) whether it would be unjust to not pierce the veil of a corporation. Assume that a small carpentry business incorporates.  The company business cards have the owner’s name on them — not the business.  Some of the invoices and letters are in the owner’s name, others use the company name.  The owner has only one bank account, and he pays personal debts from the same account that he pays business obligations — and the balance is always hovering near zero.  In fact, the owner uses money from the business to pay his debts before he pays the business debts.  The business is not well insured. Under those facts, can the owner be held personally liable if a customer sues for shoddy work? I’d say it is likely the owner would be individually liable.  Under those facts, it’s hard to tell whether a customer is dealing with the business or the the owner as an individual.  The owner doesn’t consistently use the corporate name.  The payments go to him directly.  It would also be just to go after the owner as an individual if the business was devoid of assets (because the owner spent them on himself) and a harmed customer couldn’t recover against the company. This is a pretty straightforward example (that actually isn’t uncommon).  But what if the business is in compliance with some rules, but not others?  What will happen if suit is filed, the owners are named individually, and proof has to be made in support of keeping the veil intact? Indeed, this could turn in to an expensive mess. Here are some guidelines to follow: First, use your business name on everything.  Everything.  Business cards, flyers, invoices, checks — you name it.  If you don’t have a fictitious name registered, use the actual name with the corporate designation, e.g., Home Repairs, LLC.  If you are an owner, make sure you don’t sign for anything under your name.  Make sure the word “By:” is above your signature line.  Get an Internet domain that features your company’s name and create a simple corporate web site.  Don’t use personal email addresses.  Second, keep your business and personal expenses separate.  Once you receive your incorporation documents, go to your local bank and open an account.  You will need the actual documentation due to restrictions under the Patriot Act.  If you need money from that account, write a check to yourself or do a transfer with a description in the ledger. Third, do everything possible to communicate your corporate name to your customers.  This includes having a web site, vehicle lettering, and a separate business address.  This way, there should be no question in anyone’s mind that they are dealing with a business and not an individual. Finally, do your best to be “adequately capitalized.”  Maintain adequate insurance levels (it’s fairly inexpensive to do so), and put money aside in a savings account.  I know this can be difficult, especially when times are lean.  However, do your best and make your best effort. Doing all of the above cannot protect you from being sued as an individual.  Anybody can sue anyone for anything.  Ensuring that corporate formalities are maintained can allow you and your attorney to make short work of any such bogus claims.  As with any defense strategy, the stronger your evidence, the less money (usually) you have to spend. Veil piercing is an extraordinary measure and it is something that courts are loathe to do.  But it does happen and it’s easily preventable if you follow the rules. Julian Share this:EmailTweet