The Home Repair and Remodeling Act - Contractors and Homeowner's Beware

The Illinois Home Repair and Remodeling Act (the "HRRA") became effective on January 1, 2000. The purpose of the HRRA is to "safeguard the life, health, property, and public welfare of the citizens" of Illinois and to "promote fair and honest practices."

The HRRA requires that before starting home repair or remodeling work for over $1,000, a "person engaged in the business of home repair or remodeling" (a contractor) must provide the customer with a written contract or work order that states the total cost, including parts and materials listed with reasonable detail and any charge for an estimate. The contract must also state the business name and address. The customer must sign the contract. If the customer does not sign the contract and later refuses to pay the contractor, the court will not force the customer to pay since the contractor was in violation of HRRA.

If the contract contains provisions that require the consumer to submit disputes to binding arbitration or waive his right to a trial by jury, the consumer must be made aware of these provisions and have the right to reject them. The customer must indicate whether he accepts or rejects the arbitration clause and the jury trial waiver clause by signing his name and writing the word "accept" or "reject" in the margin next to each clause. Failure to advise a consumer of the presence of an arbitration clause or jury trial waiver clause or to secure the necessary acceptance, rejection or consumer signature for each clause renders the clause null and void.

For any contract over $1,000, the contractor must also provide to its customers a copy of the "Home Repair: Know Your Consumer Rights" pamphlet prior to the execution of any contract. The consumer must sign and date an acknowledgment form that states: "I, the homeowner, have received from the contractor a copy of the pamphlet entitled 'Home Repair: Know Your Consumer Rights.'" The contractor must also sign and date the acknowledgment form, which includes the name and address of the contractor.

The HRRA also sets forth minimum insurance requirements. Every contractor must maintain public liability and property damage insurance in the amount of $100,000 per person and $300,000 per occurrence for bodily injury and $50,000 per occurrence for property damage. In addition, every contractor must maintain public liability and property damage insurance in the amount of $10,000 per occurrence for home repair or remodeling not in conformance with applicable State, county, or municipal codes. These insurance requirements do not apply if the contractor has a net worth of at least $1,000,000.

Although the HRRA became effective in 2000, the first reported case interpreting the statute was not published until 2005. It was this first case in 2005 which established that failure to comply with the HRRA would not allow the contractor to recover his fees if the customer did not pay. Another appellate court issued a similar opinion in 2007. These opinions make it clear that it is not relevant whether or not the contractor performed the work as agreed. A failure to comply with the HRRA is a complete bar to recovery by the contractor.

The Illinois Supreme Court issued its first opinion regarding the HRRA in April of this year, MD Electrical Contractors, Inc. v. Abrams. The question before the Supreme Court was whether the HRRA applied to subcontractors. In holding that it did not, the Court stated that "The statute is focused on regulating the communications and business practices of those people who directly solicit and contract with the homeowner. . . The Home Repair and Remodeling Act is unambiguous and only applies to those who form direct contracts with the homeowner."

Although the decision in the Abrams case seems clear, it leaves many questions unanswered. Subcontractors often communicate with homeowners during a repair of remodeling project. How much communication will be required for the HRRA to apply to a subcontractor? What if the contractor does not comply with the HRRA? Will subcontractors still be able to force the homeowner to pay them even though the contractor could not?

The Appellate Court cases also leave questions unanswered. Although the homeowner prevailed in both of these cases, a homeowner might not prevail under different facts circumstances if the court is moved to enforce an equitable resolution. Will the courts allow a homeowner to knowingly accept hundreds of thousands of dollars of improvements and not pay for them because of a technical but seemingly harmless violation of the HRRA?

These questions and many more remain to be answered. However, in order to avoid being the test case for the court, contractors should comply with the law in all respects. Always use written contracts and obtain the customer's signature with a date. Provide the "Home Repair: Know Your Consumer Rights" brochure to all customers and again obtain their signature with a date. If your contract includes arbitration or jury waiver provisions, have the customers "accept" or "reject" the clauses as provided in the HRRA.

For homeowners, if a contractor has not fulfilled his obligations to you and he did not comply with the HRRA, you may withhold payment to the contractor, but you must still beware of subcontractors. Never pay your contractor without the proper lien waivers from subcontractors. You must receive a written and signed lien waiver from each subcontractor and supplier. The lien waiver will state that the subcontractor and supplier has been paid in full and has no right to file a mechanic's lien against your property. Take the time to review all of your paperwork in order to avoid costly surprises from your contractor, subcontractors or suppliers.