If you are demonstrating and executing contracts in the consumer's home, you have to make sure you do a number of things required by the Federal Trade Commission:

  • Provide the buyer with a copy of the executed contract — which must contain the date of the transaction and the name and address of the contractor — at the time it is signed.
  • Orally inform the buyer of his or her right to cancel the transaction.
  • The contract must contain, in immediate proximity to the buyer's signature lines, a “notice of the right to rescind,” which must be in at least a 10-point bold typeface, and read basically as follows: You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right.
  • You must provide each buyer with two copies of a cancellation form, which must contain specific language required by the FTC and must be in at least a 10-point bold typeface.
  • Many contractors don't know that every state has its own version of the FTC's regulations; make sure that you comply with your own state's rules and regulations regarding the buyer's right of rescission. Some states, such as Pennsylvania, Ohio, and Colorado, may waive state compliance if you have FTC compliance.

    Other states have different disclosure requirements. In Delaware, the notice of the right to rescind must be printed in a different color than the rest of the contract. New Jersey and the District of Columbia require different language than the FTC, as does Michigan, which also requires the notice of the right to rescind and the rescission form to be at least two point sizes larger than the contract's text. Some states, such as North Dakota, have even more restrictive rights of rescission than the FTC.

    Yet there are a number of exceptions to both state and federal rescission rights that you may be able to take advantage of. For example, in most states, if you are signing contracts in a showroom, an office, or in an actual store, you do not need to provide a right to cancel. And, if you are financing the sale, you may not need to provide a right to cancel the sale, since the financing has its own right to cancel. —D.S. Berenson is the Washington, D.C., managing partner of Johanson Berenson LLP (www.homeimprovementlaw.com), a national law firm specializing in the representation of contractors and the home improvement industry. He may be contacted at 703.759.1055 or info@johansonberenson.com. This article is for informational purposes only and should not be construed as legal advice.