Category Archives: Contractors

Liquidated Damages: Know How to Use Them!

I’m working on a rehab right now for our second rental property.  It’s nothing too extensive – mostly just cosmetic.  I’m using a smaller contractor to do the repairs and painting.

And it’s just not working out.

Has that happened to you before?  I don’t have a lot of experience doing rehabs, but I do have a fair amount of experience with contractors.  Most of my family on both sides are small business owners, and my grandparents owned an interior design store.  My mom says that she always heard my grandpa say that “you can find a contractor who does good work, has reasonable prices, and shows up on time – but not one who does all three”.  It’s the running joke, isn’t it?

So this contractor was the first two.  He’s reasonably priced and has done great work so far, but has not done what he said he would do.  I’ve had to practically stalk him to get him to show up or answer my questions.  He and his guys have gone completely MIA several times.

I. Just. Don’t. Understand.

Last week I sat down to talk about when his work would be complete.  The contract stated it would be done the 18th and it was already the 20th – and he had at least 2/3 of the work to go!  He promised it would move faster than I thought, but then I heard they were letting a helper go and it would be ONE GUY working on the house.

Eventually we faced off and I canceled the contract based on his (several counts) of breaching the contract.  He wanted to be compensated for his work.  I said that considering that I’ve already paid him 40% of the contract price and that he’d done about 30% of the work, I thought we were square.

Obviously not.  He had his attorney call me, he was going to place a mechanic’s lien and sue me, etc. etc. I’m fighting the panicky feeling I fight when anyone male or in authority (or, Lord have mercy, both) is upset with me.  But I just couldn’t see how he wanted more.

After an afternoon of ill-will, angry words and non-sequitur lines of argument – I relented.  I just wanted a happy Thanksgiving, you know?  I ran over to the house and left a check for him for $400 more than I think I should have paid him.

The reason I’m forced to do what I don’t want to do is because of this little bitty clause I left out of our contract.  Liquidated Damages.  My lawyer says that if isn’t spelled out in the contract what happens when he misses a deadline or otherwise breaches the contract, it’s difficult for me to win in court (in Oklahoma at least).

So learn from me.  Whether you’re getting work done on your personal home, a rental property or doing a flip:

1) Have a contract.  Don’t go on a handshake.  Write down every single expectation you can think of. Exactly which materials will they use?  Exactly which work do you expect them to do (be as specific as replacing outlet covers)?

2) Spell Out Payments.  Will he get a deposit?  Progress payments?  Will you hold back 15% for touch ups after they finish painting?  Will labor be paid separately from materials?  Can you use a check?

3) Include Liquidated Damages.  Spell out exactly what will happen if he doesn’t do what he says he will do and vice versa.  Will he be fined a certain dollar amount every day he’s late?  Do you reserve the right to hire another contractor to finish the work after a certain period of delay?  Can you backcharge him for the difference?  Can you cancel the contract without recourse if he fails to meet any part of it?

These things will go a long way with a difficult contractor.  Remember that the law favors the “little guy”, which I assumed was me but, unfortunately, is him.  My attorney reminds me that the judge sees him as a struggling individual living day-to-day with mouths to feed, while I’m an LLC, sitting pretty with cash to burn on contractors.  That might be true in some cases, but not many that I’ve heard of and certainly not mine.

So go to the trouble to make a detailed contract, and be willing to deal with the awkwardness of discussing expectations at the beginning of the relationship.  In the middle of a disagreement, reminding him of what you both agreed to in writing is so much better than dealing with an angry contractor, his attorney and work left undone.

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