How Do You Resolve Disputes With a Contractor?

Many homeowners are choosing to remodel over moving, which often means working with contractors to complete the work. In a perfect world, the contractor carries out the contract terms established with the homeowner, sticks to the timeline, and produces beautiful work — but unfinished projects, faulty work, or not paying subcontractors can sometimes put a damper on your dream renovation project.

Having an issue with a contractor you hired? Learn how to resolve the issue quickly so that you can get your renovations back on track.

Though a home improvement project is exciting, it's also ripe with opportunity for disputes, which can occur over many different aspects of a renovation. Starting with a clear, detailed contract can reduce the risk of conflict, but it doesn't always prevent every disagreement. Some common points of contention include:

• The timeline of the construction project, including the start date, completion date, or milestones during the project
  
• Payments, including the amount and when the homeowner makes the payments — from deposits to the final payment
• Changes to the original plan
  
• Quality of the work
  
• Contractor mistakes, such as improper central air sizing or incorrect wiring
  
• Who buys or pays for the materials
  
• A contractor who leaves the job unfinished

Having a written contract in place before any work begins is essential for protecting both yourself and the contractor — and for preventing most common disputes. Construction contracts outline all the details and terms that you and the contractor must follow. For example, a contract might specify that your kitchen contractor will complete the work in eight weeks. Routinely reviewing the contract helps you determine if there's a breach of contract.

Your contract also includes key information that you can use as evidence to support your position if you consider taking legal action against the contractor. This includes the work timeline, cost and payment schedule, scope of the work, and services provided by the contractor. You can refer to the contract to prove that the contractor didn't start or finish the project on time, for instance.

Should a problem pop up in your renovation project, it's always best to keep the dispute out of court. This not only saves you money because you often don't need a lawyer and won't have court costs, but it's also quicker since you might have to wait to have your day in court. These resolution options are also less structured than going to court, which can ease your nerves if you're not used to legal battles.

Need an issue solved with a contractor? Here's what to try first.

Resolving the dispute directly with the contractor is usually the easiest (and cheapest) method. You don't have to involve lawyers or pay court costs. The resolution can often happen quickly if both parties are willing to negotiate. For example, if the contractor falls behind on the promised timeline, consider renegotiating the timeline to allow the contractor to get back on track.

Being firm and straightforward, yet amicable, gives you the best chance of resolving things directly with the contractor. Be clear about what you're disputing and how you would like them to fix the issue.

Check with the contractor licensing agency for your state to see if it offers resolution programs. There could also be a city or county agency for contractor licensing or consumer advocacy that can also help at an even more localized level. Some licensing agencies offer mediation and will contact the contractor to set up the mediation process, or it might have an internal resolution process that can help you and the contractor come to an agreement.

You can also file a complaint with the licensing agency if the contractor doesn't follow building codes, creates a threat to your safety, or otherwise doesn't follow licensing requirements and regulations. The contractor could face fines, get kicked out of the organization, or lose their license temporarily or permanently if your accusations are proven to be true.

If you hit a wall while negotiating directly with the home renovation contractor and can't come to an agreement, a mediator might help both sides find a compromise. The mediator is a neutral third party whom both the homeowner and the contractor must agree on. That person looks at the situation and helps the parties find middle ground to resolve the issue.

You'll split the cost of mediation with the contractor, which varies but is often a few hundred dollars. While you can have a lawyer, mediation is often done without attorneys, which saves you money. Hiring a lawyer is more expensive, and lawyers are notorious for wanting to "win" even though mediation doesn't necessarily have winners or losers, so it can be more difficult to agree on a solution when lawyers are involved.

It's important to note that mediation is not a binding resolution method. That means even though the mediator might give a perfectly reasonable solution, you're not obligated to follow it and neither is the contractor. You might be required to go through mediation before you can file a lawsuit, either due to state or contract requirements.

Binding arbitration is similar to mediation in that an arbitrator listens to the homeowner and contractor before coming up with a resolution. The main difference is that the decision is binding, meaning both parties have to follow the resolution. You can't appeal the decision, so be prepared to deal with disappointment if it doesn't go your way.

During arbitration, the parties present evidence, similar to a trial. Whereas mediation tries to find neutral ground, arbitration could favor one party over the other. Arbitration usually costs more than mediation and can sometimes come close to the cost of going to court if it's a complicated situation. You can go through arbitration without a lawyer, but it can be helpful to have one since the decision is binding.

If you can't find a resolution out of court, you can take legal action and take the contractor to court. The two options are small claims court and civil court. Which option you choose depends on the amount of money you're seeking. Court decisions are binding, but you can appeal them.

Small claims court is a common option if you're looking for a small amount of money. There's an upper limit on how much you can ask for, usually between $3,000 and $5,000. For instance, if your bathroom contractor cracks your new $500 sink while installing it, you could take them to small claims court over the issue.

Small claims court is an inexpensive option if your case qualifies. The filing fee is typically around $50. Most people represent themselves in small claims court instead of using a lawyer, which also saves money.

You can typically find filing information online for the small claims court that has jurisdiction for your area. The paperwork is usually simple enough for you to complete on your own, but a lawyer can help if you want assistance. Small claims court is usually a quick way to resolve the issue.

If your suit exceeds the dollar amount for small claims court in your state, you can file a suit in civil court. For example, if you're trying to recoup the costs of a $30,000 kitchen remodel, you'll need to go to civil court since the amount exceeds the small claims court maximum. This is the most expensive option. Filing fees are often much higher, typically ranging from $250 to $800.

Another factor that increases the cost is that you'll want to hire a lawyer. Lawyers might work on a contingency basis where they take a percentage of your reward if you win the case. They can also work on an hourly basis, which varies widely but could range from $200 to $500 per hour. And keep in mind that a complicated or drawn-out case can result in very high lawyer fees if you're paying by the hour.

In the ultimate form of contractor-homeowner disputes, contractors and subcontractors can file what's called a mechanic's lien for nonpayment for services or goods. If you withhold your payment, they can slap a mechanic's lien on your home, which is essentially a claim against the property.

Though you can control whether or not the general contractor gets paid, it's not just the general contractor who can file the mechanic's lien. If a subcontractor doesn't get paid, they can also file a lien. For example, an electrician who completes part of a kitchen remodel can file a mechanic's lien if the general contractor doesn't pay them.

A mechanic's lien stays with the house, which means you likely won't be able to sell the house or refinance it until you resolve the lien. If you try to refinance, your lender will find the lien and deny your application.

The contractor who doesn't receive payment must file the lien within a specified time frame. It can vary by state, but it's usually 20 to 30 days after the work is completed. The lien amount is usually limited to the cost of services, labor, and materials used to improve the property. That means the lien can't include legal fees, emotional distress, punitive damages, or similar costs.

The specific filing process varies by state, but any contractor or subcontractor who hasn't been paid can file the mechanic's lien. Generally, the contractor has to notify the homeowner of the amount due before filing the lien. It's typically filed in the county where the property is located. The contractor has to provide supporting documents to prove the right to file the lien. You'll get served with the lien either in person or by mail depending on state regulations.

You can prevent having a mechanic's lien placed on your home by getting lien waivers from contractors and subcontractors. A lien waiver is a document that prevents the contractor or subcontractor from filing a mechanic's lien. Conditional lien waivers can be issued before you make a payment and waive the right to file the lien on the condition that you pay and the funds clear the bank. You can also request lien waivers from contractors, subcontractors, and materials suppliers as you make your payments. Ask your general contractor to include lien waivers in the contract to protect yourself.

Even if you pay your general contractor, a subcontractor or material supplier could file a mechanic's lien. This can happen if the contractor takes your money but doesn't pay the subcontractors. To prevent this, you can write joint checks to the general contractor and subcontractors, which forces both parties to sign the checks. In general, paying your contractor on time can also avoid a lien because your contractor has the funds to pay the subcontractors. Keep a file folder of all documents, copies of payments, and other records in case a dispute arises about your payments.

Once a lien is placed, you can get it removed by paying the amount you still owe if you have an outstanding balance. You might be able to negotiate with the contractor for a lower amount if you feel you don't owe the money. Some states allow you to dispute the lien claim when it's filed. Follow the process and observe deadlines for this dispute process. You can also choose to fight the lien in court.