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Understanding the Right to Rescind in construction contracts

Construction can be a difficult thing to get the timing down for. You have a lot of moving pieces coming together, and any snag can throw a job’s progress off by weeks or months.

The costs associated with construction jobs means that contracts need to be binding. Getting out of one is a difficult proposition for homeowners. There are a few exceptions to this, including:

The Right to Rescind

This clause is a federally-mandated three-day out clause provided by the Federal Trade Commission (FTC). The FTC requires that every home improvement contract must include this clause. The Right to Rescind allows a homeowner to cancel any contract within three business days for any reason.

The idea behind this is to limit buyer’s remorse, especially for large bids like home remodels or roofing jobs. It allows a customer some time to sleep on the bid and to research pricing for similar bids around the area.

If he or she finds that they cannot afford the service, or that their budget doesn’t allow for it, they can exercise this right. It allows customers a chance to back out of something they’re not completely comfortable with.

Mutual benefits

Although the clause may seem to only help the customer, it has some positive benefits for construction contractors as well. It gives customers with doubts a way out, which can save you time and hassle in the long run.

Imagine ordering materials for a new kitchen remodel and then having the customer attempt to back out. It would cost you a lot of money and time to deal with this change of heart, and you may be on the hook for labor costs during the delay. With the Right to Rescind, a finicky customer can back out before you’ve committed resources towards his or her project.

Contractor obligations

If a customer exercises the Right to Rescind, then as a contractor, you must refund their entire deposit (assuming there is one) within 30 days. You cannot take any part of the deposit for costs associated with bidding for materials or lining up labor. The Right to Rescind allows for a full deposit refund.

When it doesn’t apply

Obviously, any time after the three business days, a customer cannot rescind. If you signed a contract with a customer in your place of business, then the Right to Rescind does not apply.

Your own place of business is the only exception to this right. If you decide to sign a contract at a business expo or a convention, then the customer has the Right to Rescind. It also applies to any contract signed in the customer’s home. The only time it does not apply is in your place of business.

Navigating construction contracts

Construction contracts can be difficult to navigate. They need to account for a lot of moving pieces, and expensive materials and labor.

If you need help writing, updating or defending a construction contract, a skilled construction law attorney can help.

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