Benefits of Written Contracts for Vacation Rental Properties

Vacation Rental Property Improvement Project

Do you need a contract for your next home improvement remodeling project? The short answer is, yes. With the exception of emergencies, when the scope of the work is clearly defined and you’re in a hurry, insist on a contract for any work done on your home.

How many horror stories have you heard (or experienced yourself) of projects not meeting an owner’s expectations because of the presence of a verbal contract instead of a written one? Did the person not hear you or misinterpret what you said? Was there some level of a language barrier? All these can contribute to work not being done the way you wanted.

You don’t have to have a formal lawyer-approved document loaded with legal jargon; instead, have a written agreement that outlines:

  • your expectations
  • how the contractor plans to fulfill them
  • clear guidelines for payment

This should apply whether it’s a brand-new contractor you found on the internet, a referral from a friend or acquaintance, Angie’s List (or similar websites), or a contractor you’ve had a previous relationship with.

A good rule to remember is: If it’s not in writing, it never happened!

Why You Need a Contract

Why is a contract so important? Nearly anyone involved with a home/property improvement project - contractors and homeowners alike - can recount a story or two about good projects that turned sour because the homeowner and contractor worked under different assumptions. These misunderstandings would never have happened if a contract had been drawn up before the job got under way.

The Contract Process
After nailing down the scope of the work and the price during the design and bidding phase, the contractor (or homeowner) writes a contract that formalizes exactly what each promises for the quoted price.

Depending on the size of the job and the contractor you’re working with, they may have their own agreement form. That is normal. If they don’t or you’re trying to hire a handyman, grass cutter, or some other unlicensed or unskilled worker, you’ll want to provide them your agreement. No matter the size of the job, the contractor should give you a day or two (preferably a week) to look over the contract, have an attorney review it, ask questions, and make changes if necessary. Both you and your contractor should agree to everything in the contract before it is signed.

If a contractor rushes you in any way or exerts pressure on you to read and sign the contract as soon as it’s presented, or if he proposes working with no contract at all, you should consider working with someone else.

What a Contract Should Include

Scope of the Work
All contracts should explicitly state all the work to be done. Each part of the job should be explained, including framing, electrical, plumbing, sheathing, siding, roofing, and all finish work. If blueprints or other design plans exist, the contract should refer to them. This section should be written in clear layperson’s terms. Question anything you don’t understand.

Scope of work should cover:

  • what materials you intend to salvage and reuse
  • areas in which you will supply the labor
  • what will be an extra charge
  • how payment will be handled for extras (repairing a broken faucet, leaky pipe, faulty outlet or broken window, etc.)

Most contractors will be happy to take on this extra work for a fee, and it’s usually a bargain for the homeowner, since workers, tools, and materials are already on site.

In this section, the contractor should make you aware of known problems, such as a cracked sidewalk that will be repaired as part of the agreed-upon price. Write this section if your contractor does not.

There are code-required minimums for many materials—such as framing lumber, sheathing, and electrical components. But be sure to specify your choices when you want material that’s beyond what codes call for or is a higher grade than is commonly used.

The contract should also specify the brand names, model numbers and colors of appliances, lighting and bath fixtures, and the name and grade of building materials, like roofing and finish lumber.

If some items are not specified at the time the contract is written, the contract should list the specific spending allowances. For example, you may want to set aside $3,000 of the budget for appliances or $200 for a light fixture in the powder room. Make your contractor aware of the quality level you expect; always ask whether your allowances are sufficient.

Job Duration
A contract should state the start date for work, which is easy to determine. Many homeowners also want to bind the contractor to a finish date. A contractor will rarely agree to an end date, especially if there’s a financial penalty. You can expect a target end date, and a good contractor will come as close as possible to it.

Before deciding to “stand hard” over an ironclad finish date, remember that you can give the contractor an incentive to finish the job and move on by withholding final payment until the project is completed. They’ll likely have outstanding bills they want to cover with this final payment, which may be as much as a third of the total.

Also, remember that a completion date can force the contractor to cut corners to finish on time. Years from now, you won’t recall a slight delay, but you’ll have to live with rushed issues forever.

Work Practices | Building Techniques + Cleanup
A contract should specify application or building techniques, especially if they vary from standard practice. For example, if you want old shingles carted to the curb by wheelbarrow instead of having a dumpster placed on your lawn, make that clear. If you want paint brushed on and not sprayed, specify that in writing. Cleanup is KEY! Make sure to be specific as to what you want done and where! With disposal costs running higher each year, be sure it’s clear who’s responsible for debris.

Change Orders
A change order is an authorization for work beyond the scope of the contract. You may decide once the job is in progress that you want a pocket door instead of a swinging door or an extra window in the kitchen. Or perhaps you wanted that tree removed totally and not just moved to another part of the property. Only you can approve change orders, which are then billed on a “cost-plus” basis (labor + materials + markup). A contract should specify up front the change order labor rate and the markup and how they are billed. Make sure this section states that you will pay only for pre-approved work.

How money changes hands should be carefully stipulated in the contract, with an outline of payment methods. Most contractors bid a firm price, and the money is released in “stage draws,” where payment is due when certain milestones of the job are completed. If a contractor wants all the money upfront, you may want to find someone matter their “sob story” for needing money now. Make clear that the final payment will be issued only after all inspections and change orders are done and the final punch list/inspection has been completed.

The contract should require the contractor to present proof of insurance for general liability insurance and workers’ compensation (if the contractor has employees) before the job starts. The contract should also require the contractor to verify insurance and workers’ comp for their subcontractors.

Other Considerations
A contract clause should indicate who, if anyone, can use your phone. Also, if you don’t want workers using your bathrooms, say so in the contract, though you’ll end up paying to bring a portable toilet on site.

Finally, it should be clear who’s responsible for damage to your walks, driveway, and yard. Don’t assume, for example, the contractor will repair any damage to your lawn. They may be assuming you knew that heavy equipment would harm it.

Is The Work Done Right?
Most contractors can’t provide a flawless job, and you can always find mistakes in their work. Questions over who fixes these problems can easily escalate into hard-to-resolve disputes if you can’t find an objective guide that indicates the job has been done within acceptable limits. You may want to have an arbitration clause in your agreement as no one wants to go to court. Each party can agree on an independent 3rd party to weigh the merits of the dispute and make a binding ruling.

Hiring someone to work on your vacation rental property can be a daunting experience. Finding them, then vetting and checking references, and getting them to your property can take a lot of time. Why not do it right? For your convenience, we have a blank and generic contractor agreement we’d be happy to send you - all you have to do is ask!

If you have any questions, or need any help, please give us a call at 865-505-0210 or email us at [email protected] .