This is the story of how a piece of paper saved a design/build company.
Home Equity Builders of Great Falls, Va., was asked to do a kitchen addition at the home of a local couple. Jeff Rainey, president of HEB, sent the clients information about the company and the design/build process then met with them for 45 minutes. Later, he mailed them a design agreement based on a preliminary budget. The couple had ample time to check Rainey's references, said he checked out, and signed the agreement. As required, they paid a 5% deposit based on the budget. Rainey and company held two more meetings with the clients.
During this process, the couple signed a letter of intent. “We tell [clients] that this is what we use to hold an opening on our construction schedule,” Rainey says. The clients paid another 5%, bringing their total paid deposit to about $11,000.
But Sharon Rainey, company vice president, sensed trouble. When they set up the design meeting, the clients asked the designer to meet nights and weekends. “We made this accommodation. That was our first mistake,” she says. “When a client is difficult to work with at the very beginning, it's probably going to get worse from there.”
Client product choices added to the budget. An existing screened porch would have to be dealt with if the addition were to be as large as the couple wanted. The couple set a $150,000 limit. The plans came in at $176,000. They cut the addition by 2 feet; Jeff suggested design options. The clients “approved everything the whole way,” Sharon says. “The final price came in at $156,000 and the client said no.” They walked away and filed suit.
Their claim? That “under the first [design] agreement, the company fraudulently induced them into the contract,” says Chris Craig, the Raineys' attorney.
The clients gave their testimony, and Craig made a motion to strike. The judge threw out the allegations regarding the first contract, making it clear that in the court's view, each of the contracts — the design agreement, the letter of intent, and the construction agreement (a stage the couple never got to) — was a separate contract and that the Raineys had fulfilled their obligations on the design agreement. But the letter of intent needed to be looked at.
“In a contract, both sides have to give something up,” Craig says. “In the homeowners' case it was money. They alleged the Raineys weren't giving up anything.”
But Jeff and Sharon were able to show that they had set aside time in their schedule, organized subcontractors, and started getting bids. The judge dismissed the rest of the case.
The Raineys, of course, are much relieved. The situation lasted for six months, they lost a week of office work, and they had to scramble to fill the hole in their schedule. More important, they had worried about losing their good reputation.
But instead they found that the “letter of intent can be a viable, stand alone document remodelers can use to protect themselves,” Sharon says. “A document that says [we] are going to get ready for construction and [the client] is going to pay us for our efforts for mobilizing for [their] project.” Jeff says they're working on further strengthening the company's existing letter.
Sometimes the pen is mightier than the saw.