Contract warranties/limitations--what's fair for both parties?

dibgarDecember 13, 2012

We are in the process of developing a contract for remodeling 3 bathrooms plus flooring throughout most of the house. I have looked at sample documents online and most do not include some of the limits that our contractor has put into his contract. His contract provides a lot of protection for him, but I am not sure if it provides enough protection for us. Are these reasonable clauses to include? Should we ask for any changes before we sign?

I am including just those sections about which we have questions:

Most of the obligations spelled out for the builder and owner seem appropriate.

He will provide general liability insurance and worker's compensation insurance and we will provide Builder's Risk Insurance.
He will hold us harmless from claims by suppliers and subcontractors and we will hold him harmless from claims of bodily injury or property damage other than what is covered by insurance except for negligence.

Most of our questions have to do with his warranties, wavers and limitations, so I will copy those sections as written. He says he warrants workmanship for one year, but he expressly disclaims the warranties of good workmanship, habitability, fitness of purpose and merchantability. What constitutes good workmanship? What would be covered and what would not be covered?

Some of his limitations make sense, but we are concerned about the statement that any damages shall not exceed the price of the project. What if he or his subcontractor accidently does serious damage to the house that costs more than the planned project? Also, his statement forecloses any and all tort claims. Does this mean that we have no recourse if something really bad happens? We are not litigious people, but we do not want to get stuck with an unforeseen problem that cannot be specified in advance.

Is there anything in the two sections below that looks unreasonable or unfair to either party?

Warranty. Builder warrants its workmanship for one year after the date of substantial completion and, on written notice from Owner to Builder delivered within seven days after such defect arises, will repair any substantial defect arising during such period without any labor charge to Owner. Warranties do not cover materials or labor supplied by Owner, defects arising due to existing or Owner-created conditions. The warranties given hereunder shall have no force and effect until the Builder has received full payment of the Price, as adjusted, and all warranties shall date from the time of such payment. Builder shall assign any third-party warranties after Builder's warranty expires.

Waivers and Limitations. Builder and Owner agree to waive all claims against each other for any consequential damages that might arise out of or relate to this Agreement and the project. Owner agrees to waive damages including but not limited to Owner's loss of use of the project, any rental expenses incurred, loss of income, profit or financing, as well as the loss of business, or loss of reputation. Builder agrees to waive damages including but not limited to loss of business, loss of financing, loss of profits, principal office overhead and expenses, loss of bonding capacity, or loss of reputation. The provisions of this Section shall also apply to the termination of this Agreement and shall survive such termination.
Builder and Owner agree that any damages for which Builder might be adjudged liable to Owner shall not exceed the Price, as adjusted.
Builder and Owner agree that all their respective obligations and remedies related to the project, except for statutory liens, arise from the terms of this Agreement and therefore foreclose any and all tort claims. Accordingly, any claims for property damage related to this Agreement and the project shall sound in contract. Builder and Owner agree that no claim or action of any character arising from or related to this Agreement, or the performance thereof, shall be commenced by either party against the other more than two years after completion or cessation of the performance contemplated herein.

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You are going to spend a lot of money on 3 baths, and flooring. You need a lawyer to review / draft the contract. IMO it's worth $300 - $500.

Also I would add milestones with solid completion dates and penalty's for everyday they are late. You can always extend the completion date if material is late.

With completion dates - your job has priority!

    Bookmark   December 14, 2012 at 5:32PM
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"You need a lawyer to review / draft the contract. IMO it's worth $300 - $500. "
With a decent chance the bid will be increased by the builders legal costs 9cntract5 review) and some more to support a warranty,

They are not free.

Money often needs to be set aside so that the issuer can fulfill warranty claims.

You can try and shift risk to another party, but expect to pay for that 'privilege.'

This post was edited by brickeyee on Sat, Dec 15, 12 at 16:14

    Bookmark   December 15, 2012 at 4:13PM
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A year is common and some states require a certain warranty period.

In AIA contracts the term "warranty" is not used. Instead, the period of time that the contractor is responsible for the work meeting the contract documents is extended to a year.

    Bookmark   December 17, 2012 at 3:58PM
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Just try to collect from an LLC that was dissolved 6 months ago.

    Bookmark   December 17, 2012 at 4:12PM
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