After 9/11, Kevin Taylor at Taylor Made Custom Contracting, in Jarrettsville, Md., had three clients ask to back out of their contracts several weeks after the three-day rescission period required by law. Taylor had no clause in his contract considering this issue, but he hadn’t yet provided any design services, nor had he ordered any materials. “We were very accommodating and gave them back their deposits,” he says.
Taylor had a simple fix, and most remodelers likely will be accommodating if clients have a good reason to rescind and if there hasn’t already been time and effort put into creating a design or making a materials purchase for the project. But to avoid any unpleasant outcome to a situation like this, D.S. Berenson, an attorney specializing in the construction industry and a REMODELING columnist, suggests including a “late-cancellation clause” in your contract.
The clause says that “you allow a customer to cancel the contract outside the rescission period and you will charge a late-cancellation fee, normally a percentage of the contract amount,” Berenson says. You can’t legally charge a punitive amount such as 50%, but 10% might be reasonable. You can use part of the customer’s deposit to pay the late fees. “Then the ball is in their court [if they want] to create a problem,” Berenson says. But he cautions that if you don’t have this clause in your contract, you shouldn’t attempt to collect a fee.
Having the clause reinforces your professionalism, and it can provide an opportunity to visit the clients in their home to discuss the clause, identify the problem, and even possibly salvage the job.
—Stacey Freed, senior editor, REMODELING.