United States: RE&C In Review: Compliance Pitfalls On Residential Remodeling Projects

Which Contractors Must Comply with the Consumer Sales Practices Act?

In a recent 11^th Appellate District Case, the court found that the Consumer Sales Practices Act (CSPA), not the Home Construction Service Suppliers Act (HCSSA) applies to the remodeling of an existing home.

The case originated as a consumer lawsuit filed by two individual Homeowners against the Contractors remodeling their house. The Homeowners brought claims for breach of contract, unjust enrichment, violations of the CSPA, and violations of the HCSSA. The Contractors sought, and won, judgement in their favor before trial on all of the Homeowner's claims.

The Homeowners subsequently appealed. First, the Homeowners argued that the trial court erred in ruling that the HCSSA, and not the CSPA, applied to the case because the contract and work involved the remodeling of an existing home, not the building of a new home.

Prior to the enactment of the HCSSA in 2012, all agreements between remodelers and homeowners were "consumer transactions" within Ohio Revised Code Chapter 1345. However, once the HCSSA was enacted, the definition of "consumer transaction" was amended to exclude "transactions involved a home construction service contract as defined in Ohio Revised Code section 4722.01."

A "home construction service contract," as defined in R.C. §4722.01, is a contract between an owner and a supplier to perform home construction services for an amount over $25,000. A "home construction service" is defined as the construction of a "residential building," which is defined as a one, two, or three-family dwelling.

To determine whether the HCSSA or the CSPA applies, the court analyzed whether "home construction service" includes remodeling. After reviewing the intent of the Ohio legislature when R.C. §4722.01 was enacted, the court found that "construction" should be interpreted as the creation of something new, different from the repair or improvement of something already existing. The court found that "home construction service" does not include remodeling and therefore the CSPA, not the HCSSA, would apply to the Homeowner's claims. This has huge implications because the CSPA has more stringent compliance requirements for written contract forms and stiffer penalties for contractors who do not comply with those requirements or who engage in prohibited business practices.

Must Contractors Comply with City Registration Requirements?

The Homeowners also challenged the trial court's ruling that their choice to remove the Contractors from the project was a breach of contract. The Homeowners argued on appeal that their decision should be supported because the Contractors lacked the necessary contractor registration, delayed their work, performed defective work, and were abusive.

The Homeowners argued that the Contractors' failure to register, where registration was required, voided the contract between the parties. The Contractors countered with sworn testimony that a local official told them they did not need to register.

The 11^th District Court found that other Ohio appellate courts had already decided similar issues. In one case, an architect was required to register due to an applicable statute. The architect was not registered, and the court found that he could therefore not recover for services rendered under the "illegal contract." In another Ohio case, a court held that there is a general rule that if a person is unlicensed, and engages in business which requires a license, any contract entered by that person is void and unenforceable.

Using these previous cases as a guide, the court found that a contract that violates a valid codified ordinance is illegal and unenforceable. For that reason, the court reversed the trial court's decision on this point. Notably, the court mentioned that if the contract is ultimately determined to be void by the trial court, the Contractors would not be barred from raising separate claims under equitable theories of recovery such as quantum meruit or unjust enrichment. Even so, contractors should be certain that they are registered with the local government before contracting for work in that area.

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