The Consumer Fraud Act regulates home improvements in cumulative excess of $500.00 provided on existing residential properties. A home improvement provider that is required to comply with these administrative and business practices, but fails to do so, is strictly liable even for unknowing oversights, with no legal defenses. Establishing sound business practices and utilizing properly drafted contracts is far less painful to the small business owner, than lost collections, fear of counterclaims, and/or defense of consumer fraud litigation.
Upon finding one or more violations of the consumer fraud regulations, if the property owner or tenant proves any loss related to the home improvements, it may sue for triple damages, and for reimbursement of its attorneys’ fees and costs of suit. Such claims often focus on lack of permits, improper contracts, and code violations (even if requested by the client!).
Designed to protect residential owners and tenants from fly-by-night contractors and shifty business practices, the Consumer Fraud Act does serve an important public interest. That said, it has been used by some as a sword instead of a shield, resulting in substantial financial harm to small businesses in the already strained home improvement industry. In other words, if the client refuses to pay for services rendered, and can find even technical violations of the regulations and problems with the work, it often costs the home improvement provider less to forgo collection efforts, than to defend anticipated consumer fraud claims. And a common misconception is that these regulations apply only to those who must register as a home improvement contractor.
Consumer Fraud laws are implemented through two sets of regulations: the Contractors Registration Rules and the Home Improvement Practices. Both apply to contractors who must register with the Division of Consumer Affairs (www.njconsumeraffairs.com). Exempt from home improvement contractor registration is “any other person in any other related profession requiring registration, certification, or licensure by the State, who is acting within the scope of practice in that profession.”
For these persons or businesses providing home improvements who are exempt from contractor registration, the Home Improvement Practices still apply if the services include any “home improvements.”
“Home Improvements” include:
- The remodeling, altering, painting, repairing, renovating, restoring, moving, demolishing, or modernizing of residential or noncommercial property;
- Making additions to residential or noncommercial property;
- The construction, installation, replacement, improvement, or repair of driveways, sidewalks, swimming pools, terraces, patios, landscaping, fences, porches, windows, doors, cabinets, kitchens, bathrooms, garages, basements and basement waterproofing, fire protection devices, security protection devices, central heating and air conditioning equipment, water softeners, heaters and purifiers, solar heating or water systems, insulation installation, siding, wall-to-wall carpeting or attached or inlaid floor coverings;
- Other changes, repairs, or improvements made in or on, attached to or forming a part of the residential or noncommercial property; and
- The conversion of existing commercial structures into residential or noncommercial property.
Therefore, the Home Improvement Practices arguably apply to, without limitation: architects and engineers who design and manage improvements; landscape architects who install and build their designs; the residential work of electrical contractors and master plumbers, and licensed site remediation professionals and certified tank installers working on underground storage tanks, soil remediation, or water remediation. These are only examples. Any business providing changes, repairs, or improvements on a residence, must determine the applicability of these regulations.
What is a residence? If any portion of an existing building is used as a place of residence, then any home improvements on the building, its lot, or appurtenant structures falls within the scope of consumer protection. This includes a multi-family building in commercial ownership, and mixed-use buildings with a residential component.
While not intended to be an exhaustive list of business requirements, by way of example, unlawful acts under the Home Improvement Practices include:
- Certain product and material representations/misrepresentations, such as: 1) no need for periodic repainting, finishing, maintenance, or other service; 2) distinguishing qualities of the product or its performance;
- Failing to have required permits;
- Providing services valued in excess of $500.00 without a contract signed by the parties;
- Failing to include the following necessary terms in the contract: a) Legal name of the company representative; b) description of the principal products and materials to be used and installed, including, where applicable, the name, make, size, capacity, model, and model year; c) a date or time period within which the work would begin; d) a date or time period within which the work would be completed; and e) a description of any guarantee or warranty with respect to the tank, labor, or services.
For those home improvement contractors who are required to register as a home improvement contractor, additional examples of unlawful acts under the Contractor Registration Act and Rules include, in part:
- Providing home improvements in excess of $500.00 without a written contract signed by all parties thereto, in understandable language, including all terms and conditions of the contract, including: a) Legal name, business address, and registration number of the contractor; b) a copy of the certificate of commercial general liability insurance; c) the total price or other consideration to be paid; and d) a properly formatted and specific notice that the contract may be cancelled by a consumer for any reason at any time before midnight of the third business day after the consumer received a copy of the fully executed contract;
- Failing to promptly display a registration certificate at each place of business;
- Failing to include the contractor’s registration number on all advertisements, business documents, contract, and correspondence with consumers;
- Failing to mark both sides of commercial vehicles in lettering at least one inch in height with the business number and “HIC reg. #” followed by the contractor’s registration number;
- Failing to provide a properly formatted, specific Consumer Fraud Notice, containing the statutory language in 10 point bold face type, on each and every invoice, contract or correspondence given by a registrant to a consumer; and
- Failing to secure and maintain, in full force and effect, a commercial general liability insurance policy with minimum coverage in the amount of $500,000.00 per occurrence.
Holders of other licenses, certifications, and/or registrations are likely to have additional insurance, contracting, and business practice requirements. For example, architects must comply with certain advertising and document retention practices specified by their licensing board.
The above is not intended to be an exhaustive list of requirements applicable to any given business. Careful legal review of the goods and services provided by your company, and advice of legal counsel, is essential in business and risk planning. When it comes to the Consumer Fraud Act and its strict liability, an ounce of prevention truly is worth a pound of cure.
© Shanahan & Voigt, LLC 2014
BE ADVISED that these comments are not legal opinions and are not to be relied upon as legal advice. If you need legal advice, contact your county bar association; most of which have referral services.