Wednesday, April 23, 2014

Watering Down The Home Improvement Practices Code

The Home Improvement Practices Code is an order issued by the Wisconsin Department of Agriculture, Trade, and Consumer Protection pursuant to its authority under Wis. Stat. s. 100.20 to forbid unfair trade practices. The Wisconsin Supreme Court has noted that the HIPC is intended to "deter . . . contractor malfeasance, with the aggregate effect of working to the public good." Stuart v. Weisflog's Showroom Gallery, Inc., 2008 WI 22, 308 Wis. 2d 103, 746 N.W.2d 762.

The HIPC protects homeowners by requiring that contractors "put it in writing." For example, the HIPC requires written home improvement contracts if the contractor requires the homeowner to pay anything prior to completion. Wis. Admin. Code s. ATCP 110.05(1)(a). A written home improvement contract shall "clearly accurately, and legibly set forth all material terms and conditions of the contract, including:

(a) The name and address of the seller, including the name and address of the sales representative or agent who solicited or negotiated the contract for the seller.
(b) A description of the work to be done and the principal products and materials to be used or installed in performance of the contract. The description shall include, where applicable, the name, make, size, capacity, model, and model year of principal products or fixtures to be installed, and the type, grade, quality, size, or quantity of principal building or construction materials to be used. Where specific representations are made that certain types of products or materials will be used, or the buyer has specified that certain types of products or materials are to be used, a description of such products or materials shall be clearly set forth in the contract.
(c) The total price or other consideration to be paid by the buyer, including all finance charges. If the contract is one for time and materials the hourly rate for labor and all other terms and conditions of the contract affecting price shall be clearly stated.
(d) The dates or time period on or within which the work is to begin and be completed by the seller.
(e) A description of any mortgage or security interest to be taken in connection with the financing or sale of the home improvement.
(f) A statement of any guarantee or warranty with respect to any products, materials, labor, or services made by the seller or which are required to be furnished to the buyer under s. ATCP s. 110.04(1).
(g) A description or identification of any other document which is to be incorporated in or form part of the contract.   

ATCP 110.05(2). These detailed requirements prevent disputes between homeowners and contractors regarding their agreement. 

Of course, contractors could amend their contracts during the course of the project, but only with the notice and consent of the homeowner. Under the current version of ATCP 110.02(3)(d), it is a Prohibited Trade Practice for a contractor to substitute the materials provided for in the contract without the homeowner's written consent. Under the current version of ATCP 110.02(7)(c), it is a Prohibited Trade Practice for a contractor to fail to give a homeowner notice of an impending delay in contract performance beyond the deadline specified in the contract or to fail to obtain the homeowner's written consent for such a delay. Homeowners often come into my office and complain that their contractor has not completed the kitchen remodel that was supposed to be completed months ago. For whatever reason, some contractors put existing projects on the backburner so that they can work on more lucrative projects. Even worse, some contractors simply take the money and run.

Given my experience with these issues, I was not pleased to learn about the changes to the HIPC that will take effect on June 1st

These changes limit the scope of the home improvement contracts that are subject to the HIPC. While new construction has always been exempt from the HIPC, the new HIPC now exempts "major renovation of an existing structure," which is defined as "a renovation of reconstruction contract where the total price of the contract is more than the assessed value of the existing structure at the time the contract is initiated." Unfortunately, this definition could conceivable exempt most home improvement projects in the City of Milwaukee from the HIPC. Home improvement contractors who do business in the City of Milwaukee are not somehow more ethical than home improvement contractors who do business in the Village of Summit. I have run across more than my fair share of fly-by-night contractors who prey on Milwaukee homeowners, taking their money and promising to improve their homes and neighborhoods, never to be heard from again. 

These changes also dilute ATCP 110.02(3)(d) by allowing "verbal authorization" of material substitutions. Actually, this provision will be repealed and replaced with the following:

ATCP 110.023.  Substituting products or materials; altering the written contract. (1)  No seller shall substitute products or materials for those specified in the home improvement contract, or for those which the seller represented would be used in the home improvement, without the prior consent of the buyer.  Except as provided in sub. (2), if a written home improvement contract is required under s. ATCP 110.05 (1) or the buyer signs a written contract, the buyer’s consent under this paragraph shall also be in writing.
Note:  According to s. 137.15 (3), stats., “If a law requires a record to be in writing, an electronic record satisfies that requirement in that law.”
(2)  Verbal authorization.  The seller may act on alterations to the contract that are verbally authorized by the buyer, if all the following conditions are met:
(a)  The alteration does not represent any additional cost to the buyer.
(b)  The alteration does not represent a decrease in the value of the materials used or the services provided.
(c)  The seller maintains documentation of the following:
1.  The manner in which the buyer communicated the authorization for the alteration.  In this subd., “manner” means face-to-face discussion, phone call, or some other method of communicating.
2.  The name of the buyer who authorized the alteration.
3.  The date and time that the buyer authorized the alteration.
4.  A description of the alteration.
           (d)  The seller must report any alterations documented pursuant to subd. (c), to the buyer before final payment is accepted. 

Written authorizations prevent disputes and misunderstandings between homeowners and contractors. My concern is that some unscrupulous home improvement contractors will drive their trucks through this verbal authorization loophole. Frankly, it does not seem too difficult for a contractor to manufacture proof of a verbal authorization. This loophole will increase the frequency of disputes between homeowners and contractors and also make these disputes more difficult for courts to resolve. As we sit here today, it is clear that a contractor violates the HIPC when he substitutes laminate flooring for hardwood flooring without the homeowner's notice and consent. In the future, we will apparently have to argue and litigate the issues of whether the laminate flooring decreases the value of the home improvement services and whether the verbal authorization really happened. Instead of simply applying the unambiguous regulatory language, courts will have to evaluate expert valuation testimony and make credibility determinations.  

ATCP 110.02(7)(c) will be repealed and replaced with the following:
ATCP 110.027 Delay in contract performance.  (1) A seller must give the buyer timely notice of any impending delay in the home improvement contract performance if performance will be delayed beyond a deadline specified in the home improvement contract.  The notice shall specify any reasons for the delay, and shall specify new proposed deadlines by which the seller will begin and complete the work.  If a written home improvement contract is required under s. ATCP 110.05 (1) or the buyer signs a written contract, no change in performance deadlines is effective unless the buyer agrees in writing to the change.
Note:  According to s. 137.15 (3), stats., “If a law requires a record to be in writing, an electronic record satisfies that requirement in that law.”
(2)  Notwithstanding sub. (1), a seller shall not be responsible for delays in contract performance if the seller can demonstrate any of the following:
(a) The delay was caused by actions or inactions of the buyer.
(b) The delay was caused by a destructive act of nature such as tornado, flood or fire.
            (c)  The delay was caused by disruptive civil disorder such as a strike, hostile action, or war.   

Essentially, the burden shifts from the contractor (to prove that he provided written notice) to the homeowners (to prove that they are not to blame for the delays). This is a heavy burden to impose on homeowners, as contractors will always find a way to blame homeowners for delays. In contrast, the old burden was really not much of a burden for contractors, as ATCP 110.027 points out. In this day and age, contractors should be able to simply email (or text) the homeowner and request new project deadlines with the reasons for those new deadlines. If the homeowner replies that the new deadlines are acceptable, the contractor is in the clear as far as this HIPC requirement is concerned. Once again, however, it appears that we will now have to argue and litigate issues that have nothing to do with the simple question of whether or not the contractor provided notice and obtained consent for his delays. Courts will become embroiled in credibility determinations regarding who was to blame for the delays themselves.

As you could probably guess by now, I was not consulted about these changes to the HIPC. I suspect that the DATCP did not consult with any homeowners or anyone who represents homeowners. Instead, the DATCP consulted with the Wisconsin Builders Association and the National Association of Remodelers. Like most fraternal organizations, the WBA and NAR look out for their own, even those members too lazy to send customers an email or a text about upcoming project delays.

I remain more than willing to help out homeowners who are negotiating with contractors or believe that their contractor has violated the HIPC. Please email me at or call me at 262-251-5700.