Many remodelers' contracts contain clauses indicating that any disputes beyond a certain dollar amount be submitted to mediation and, failing that, binding arbitration. Why? Apart from the time and expense involved in a trial, Texas attorney Stephen Bell, of law firm Coats, Rose in Houston, suggests remodelers usually fare better before an arbitrator. "With an arbitrator, a businessperson, the chances of getting a non-emotional result are better," he says.
Mike Carden, owner of MUI Corporation, Birmingham, Ala., suggests the arbitration agreement be not just a contract clause but a separate, signed document. He's been doing that for 10 years. Courts, he says, have sometimes refused to recognize the validity of the binding arbitration agreement embedded in the contract. The advantage to the separate document, Carden says, is that homeowners can't claim they didn't know what they were signing. "A full-page separate document holds a lot more power than a single line with an initial next to it," Carden says.
Houston contractor and attorney Dan Bawden notes that the need for an arbitration agreement separate from the contract varies by state. What it says, advises California attorney and contractor Gary Ransone, author of The Contractor's Legal Kit, is more important than how it's presented. "Certain states require very specific language that informs the owner that he or she is waiving the right to a trial by jury." Contractors, Ransone says, should check with their construction attorney to make sure their contract's arbitration clause conforms to state law requirements. "The important thing is that if there is statutory language required by your state, you're obliged to provide that to the owner."