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Restoration Contractors Face Strict Contract Requirements

To avoid ROC discipline, contractors that perform restoration work would be wise to ensure that their form contracts comply with Arizona law.

The massive hail storm that tore through the Valley in October 2010 not only caused $2.7 billion in property damage; it also gave birth, within days, to a cottage industry of “hail storm damage repair.” Hundreds of contractors, including storm-chasers from out of state, descended on storm-damaged neighborhoods with offers to repair roofs, air conditioning units, windows, and other storm damage; waive insurance deductibles; and assist homeowners in making claims on their homeowner’s policies.

Due to the volume of work and the severity of the damage, it was not surprising that hundreds of disputes arose, ranging from claims of faulty workmanship and abandonment of a project to bad faith denials of an insurance claim. (See the October 3, 2011, Arizona Republic article, “After 2010 Phoenix-Area Hailstorm: Damage and Disputes”).

Contract Requirements

To help protect Arizona homeowners from being victimized again by shady operators, in 2012 the Legislature passed a new law, A.R.S. § 32-1158.02 (Residential Construction Contracts), which established a number of new requirements for contracts for the “residential repair or replacement of damage resulting directly from a catastrophic storm.” The statute mandates a number of disclosures in storm damage repair contracts, including:

  • a statement, in bold, 10-point type, regarding the owner’s cancellation rights;

  • a notification that the contractor has not advised the owner that the loss will be covered by insurance; and

  • a statement that the owner is responsible for payment for work performed should the insurer deny all or part of the claim.

The 2012 statute also:

  • limits down-payments to no more than 50% of the total contract price;

  • requires that refunds be provided within ten days of the date the contract was canceled;

  • mandates that any change orders be in writing and signed by the homeowner;

  • creates additional disclosure requirements for estimates made by the contractor “in anticipation of making an insurance claim”; and

  • sets forth the circumstances under which a contractor can negotiate with an insurer on behalf of an owner.

Punishment for failing to comply with A.R.S. § 32-1158.02 can be severe, with the contractor’s license subject to suspension or revocation for non-compliance.

It is important for contractors to note that the 2012 statute’s disclosure requirements are in addition to the already lengthy disclosure obligations set forth in A.R.S. § 32-1158.

ROC Vigilance

With this in mind, the new enforcement policies recently implemented by the Arizona Registrar of Contractors (ROC) have resulted in an uptick in disciplinary actions against contractors whose form contracts do not comply with A.R.S. § 32-1158, and it is anticipated that the ROC’s new-found vigilance in this regard will extend to the newer statute as well.

Contractors that perform restoration work, whether on a full- or part-time basis, should avoid getting caught in the storm by taking the simple of step of having their form contracts audited for compliance with A.R.S. §§ 32-1158 and -1158.02. Sacks Tierney construction attorneys are available to assist with any contract review needs.