Connecticut General Assembly
|
 |
|
February 4, 1998 98-R-0196
TO:
FROM: Dan Duffy, Principal Analyst
RE: Home Improvement Contractor Registration
You asked for (1) a summary of home improvement contractor registration statutes, (2) a summary of the statutes relating to new homebuilders, and (3) the implications of requiring home improvement contractors and new homebuilders to be licensed.
A copy of a 1995 bill requiring both home improvement contractors and new homebuilders to be licensed is enclosed.
SUMMARY
Home improvement contractors must register with the Department of Consumer Protection (DCP). To register, a contractor must identify himself and pay annual fees. There are no other requirements. A registered contractor must use written contracts that meet state requirements and participate in the Home Improvement Guaranty Fund. Among other requirements, contracts must include start and completion dates and a notice of a consumer’s three-day right to cancel. The guaranty fund exists to reimburse consumers who are financially hurt by a registered contractor’s actions under a contract.
Registered home improvement contractors are subject to a wide range of enforcement mechanisms. DCP may investigate their alleged violations of home improvement law. It can suspend or revoke a contractor’s registration and impose fines. The Attorney General’s Office can seek restraining orders. Both agencies can act against contractors under the Connecticut Unfair Trade Practices Act (CUTPA) because violations of home improvement law are statutorily deemed to be CUTPA violations. Further, violations may be punished under criminal law.
New homebuilders are not subject to administrative regulation or criminal prosecution. They must comply with the terms of the New Home Warranty Act. This act creates statutory one-year express and implied warranties that the home conforms to the sales contract, is free of faulty material, is built according to sound principles, is fit for habitation, and complies with the building code.
Bills were proposed in 1995 to require both home improvement contractors and new homebuilders to be licensed. All applicants for a license would be required to pass an exam demonstrating their proficiency. Both proposals left most features of the current home improvement law unchanged. For example, home improvement contractors and new homebuilders would have been (1) required to use contracts meeting state requirements and participate in the guaranty fund and (2) subject to the various enforcement mechanisms. Former DCP Commissioner Schaeffer supported the licensing proposals. She argued that licensing would be a way to ensure that contractors were knowledgeable and proficient. She stated that implementing a licensing program would cost the same as operating the registration program.
Industry representatives opposed both bills. They said the proposals would be expensive and difficult to implement. They argued that consumers would be better served by better enforcement of the registration law and through public education campaigns.
No one addressed the separate question of whether new homebuilders should be subject to administrative regulation.
HOME IMPROVEMENT CONTRACTOR REGISTRATION
Registration
Connecticut requires home improvement contractors to register with the DCP. Under home improvement law, a “contractor” is someone who owns or operates a home improvement business, or who makes or offers to make home improvements. A “home improvement” is defined as including the repair, replacement, remodeling, alteration, conversion, improvement, or addition to, a building or land used or designed to be used as a residence with six or fewer units costing more than $200. The law specifically includes sandblasting; waterproofing; and the installation of driveways, swimming pools, porches, garages, roofs, siding, insulation, solar energy systems, flooring, patios, landscaping, fences, doors, and windows.
A “home improvement” does not include (1) building a new home, (2) the sale of goods in which the seller does not arrange for their installation, (3) the sale of goods furnished for a commercial purpose, (4) the sale of appliances designed to be easily removable, or (5) any work performed by the homeowner (CGS § 20-419).
Registering
Home improvement contractors and salesmen must pay annual $60 registration fees to DCP. All registration fees are deposited into the General Fund. Contractors and salesmen are also required to participate in DCP’s Home Improvement Guaranty Fund. These fees are $100 for contractors and $40 for salesmen. (In total, contractors must pay $160 annually and salesmen must pay $100).
Exemptions
A “contractor” is not someone who earns $1,000 or less from home improvements during 12 consecutive months (CGS §20-419(3)). State-licensed professionals working in their field are exempt from the Home Improvement Act, as are government employees and schools offering vocational education program courses in home improvement (CGS § 20-428).
Home Improvement Contracts
All home improvement contracts must include certain provisions describing the contractor and the job. Contracts must (1) be written, (2) signed by both parties, (3) include the entire agreement, (4) be dated, (5) identify the contractor and state his address, (6) include a notice of cancellation rights, (7) include starting and completion dates, and (8) be entered by registered contractors or salesmen. The contractor must give the homeowner a copy. A contractor, in any ensuing litigation, may recover payment for the work actually performed if the contract is written and signed, includes a cancellation notice, starting and completion dates, and entered by a registered tradesmen (CGS § 20-429).
Home improvement contracts must comply with the requirements for home solicitation sales. The Home Solicitations Sales Act gives consumers three days in which to cancel a contract. Sellers must inform consumers of this fact by a notice printed in the contract and by a separate sheet that explains a consumer’s rights more fully (CGS § 42-135a).
Home Improvement Guaranty Fund
The Home Improvement Guaranty Fund is both a means of recourse for consumers who suffer harm from a contractor and a possible sanction for a contractor. It serves as a recourse because it reimburses people who cannot recover losses suffered from a contractor’s failure to fulfill a contract. It is a sanction because a contractor’s registration, and his ability to work, are made conditional on his repaying the fund for any money paid out on his account.
A homeowner who obtains a court judgment against a registered contractor or one who was registered within two years of entering the contract with the homeowner, may ask the DCP commissioner to be reimbursed from the fund. The restitution order may come from a suit brought by the homeowner, a civil suit brought by the state under the Connecticut Unfair Trade Practices Act (CUTPA), or a criminal proceeding brought under home improvement law. The request must be made within two years after the final judgment has been made or the time for appeal has passed. A homeowner can ask for the amount of the judgment other than punitive damages, minus any amount already recovered from the contractor. The homeowner must affirm that he has had a writ of execution served on the contractor and that the officer executing it stated (1) that there are no bank accounts or real property to satisfy the judgment, (2) that the amount realized from such accounts or property was insufficient to satisfy the damage portion of the judgment, or (3) the amount realized and the amount still due. A homeowner with a judgment from small claims court, which can be for as much as $2,500, is exempt from the affirmation requirements. Before paying from the fund, the commissioner must give the contractor an opportunity for a hearing to contest whether he already paid the homeowner.
Once the fund has paid a homeowner, he must assign his rights to recover the money to DCP. It may seek to recover it from the contractor, plus reasonable interest. The commissioner may revoke the registration of any contractor whose actions have caused a guaranty fund payment and make reinstatement conditional on repaying the fund. The commissioner may allow a contractor to register before repayment if he agrees to repay by a certain date (CGS § 20-432).
Required Acts
In addition to requiring all home improvement contracts to be written and contain certain provisions, the law requires a contractor to show his registration certificate when requested, state that he is registered, and include his registration number in all advertising.
Prohibited Acts
The law prohibits anyone from (1) presenting another’s registration certificate as his own; (2) giving false and material evidence to the commissioner to register; (3) impersonating a registered individual, (4) using an expired, suspended, or revoked registration; (5) making or offer to make home improvements without being registered; (6) representing that registration constitutes state-endorsement; (7) employing an unregistered salesman; or (8) failing to make a refund within 10 days if no substantial part of the work has been completed and more than 30 days has passed since the scheduled starting date (CGS § 20-427).
Enforcement Powers
DCP’s Powers. DCP may investigate and hold hearings on any matter related to home improvement. The commissioner may issue subpoenas; administer oaths; compel testimony; and order the production of books, records, and documents. He may seek enforcement orders in court (CGS § 20-424).
The DCP commissioner can suspend, revoke, refuse to issue, or refuse to renew a contractor’s registration and put a contractor on probation, issue a letter of reprimand, or require a contractor to post a bond (described below), as a condition of registration renewal (CGS § 20-422). He may take these actions for (1) conduct likely to mislead, deceive, or defraud the public or commissioner; (2) engaging in untruthful or misleading advertising; (3) failing to reimburse the guaranty fund for money paid because of his actions; (4) unfair or deceptive business practices; or (5) any violation of home improvement law (CGS § 20-426).
The commissioner may require a $10,000 bond. It must run to the state for its use and that of anyone who has a cause of action against a contractor who failed to comply with relevant state law and to account for any money deposited with him. The DCP commissioner may release the bond 12 months after the contractor stops being registered if there are no pending claims. The law provides that the bond is not to be construed to require a surety company to complete a home improvement contract. Surety companies issuing such a bond must inform DCP within 30 days after a bond’s expiration or termination (CGS § 20-426a).
DCP can impose civil fines for (1) working without being registered, (2) willfully employing or supplying for employment an unregistered individual, (3) willfully and falsely pretending to be qualified, (4) working after a registration has expired, or (5) violating home improvement law. The penalties are up to $500 for a first violation, up to $750 for a second violation, and up to $1,500 for subsequent violations. Higher penalties are incurred only if the second or subsequent violations occur within three years of the preceding violation (CGS § 20-427).
Attorney General’s Powers. The law authorizes the attorney general, at the DCP commissioner’s request, to seek court orders temporarily or permanently restraining a contractor from violating home improvement law (CGS § 20-424).
Connecticut Unfair Trade Practices Act
By law, all violations of home improvement law are also CUTPA violations. Under that act, the DCP commissioner may investigate complaints, issue cease and desist orders, order restitution in cases involving less than $5,000, enter into consent agreements, ask the attorney general to seek injunctive relief, accept voluntary statements of compliance, and issue regulations defining what constitutes an unfair trade practice. The act also allows individuals to bring suit. Courts may issue restraining orders; award actual and punitive damages, costs, and reasonable attorney's fees; and impose civil penalties of up to $5,000 for willful violations and $25,000 for violating restraining orders (CGS §§ 42-110a to 42-110q).
Criminal Penalties
Violations of most home improvement law provisions are class B misdemeanors and subject the violator to a penalty of up to six months in prison, a fine of up to $1,000, or both. Someone who fails to refund the amount paid for a contract within 10 days commits a class A misdemeanor and is subject to a penalty of up to one year in prison, a fine of up to $2,000, or both, if (1) no substantial portion of the work has been done, (2) more than 30 days have passed since the scheduled start date, and (3) the total cash price of the improvement is more than $10,000 (CGS § 20-427(c)).
NEW HOME BUILDERS
The statutes establish certain express and implied warranties when a builder sells a new single-family home or condominium unit. They last for one year. Both express and implied warranties protect the original purchaser and cover the dwelling itself and any structure or fixture that is part of it. Neither the sales contract nor the deed itself may exclude or modify either warranty. But they may be excluded or modified with a written document signed after the sales contract is signed which states the exclusion or modification in detail (CGS §§ 47-116 to 47-121).
The express warranty is that the residence will conform to any related written affirmation or promise, any written description, including plans and specifications, and any sample or model that is made part of the basis of the agreement. Formal words, such as “warranty” or “guarantee,” are not necessary to create an express warranty. On the other hand, a simple statement of the value or the house and other improvements or a statement purporting to be an opinion do not constitute a warranty.
The implied warranties are that a home is free of faulty material, built according to sound engineering principles, built in a workmanlike manner, and fit for habitation. Implied warranties do not apply to any condition that an inspection would reveal to a reasonably diligent purchaser. There is an implied warranty that the house and other improvements are reasonably fit for the buyer’s purpose if he, either expressly or through implication, makes known the particular purpose for which the improvement is required, and relies on the seller’s skill and judgment.
There is an implied warranty from the seller that the home complies with the building code. The warranty begins when a municipal building official issues a certificate of occupancy for a single-family home.
DIFFERENT REGULATORY SCHEMES
The law subjects home improvement contractors, but not new homebuilders, to administrative regulation. Both types of contractors may be sued to enforce the contract. Home improvement contractors may also be sued under CUTPA and are subject to criminal penalties. New homebuilders may be sued under the New Home Warranty Act.
The Federal Trade Commission examined the issue of administratively regulating occupations in 1990. It generally advised states to be cautious when deciding to regulate an occupation. It found that regulation is appropriate when competitive market forces do not result in an optimal combination of price, quantity, and quality. This can happen when consumers cannot judge the quality of the service provided (The Costs and Benefits of Occupational Regulation, Cox and Foster, 1990). A homeowner who hires a contractor to build a new home or to make a home improvement rarely has the requisite construction knowledge to judge the contractor’s performance.
LICENSING PROPOSALS
Two bills in 1995 would have required home improvement contractors to be licensed. One of these would have also required new homebuilders to be licensed (SB 33 and HB 6822). The General Law Committee did not report either bill. Advocates and opponents of the two bills give reasons for and against the licensing proposal. Former DCP Commissioner Schaeffer contrasted registration and licensure programs.
An Act Concerning Licensing Home Improvement Contractors (SB 33)
The bill would have required home improvement contractors to be licensed rather than registered. Licensure means that all applicants would have to pass an examination on the construction, safety, health, and lien laws of the state and on the general business practices of home improvement.
The exam would have been prepared by DCP or a national testing service. The commissioner would have the power to conduct whatever written, oral, or practical examinations necessary to test an applicant’s knowledge.
The DCP commissioner would have been empowered to adopt regulations establishing classes of licensure.
DCP Commissioner Schaeffer spoke in favor of the bill, which she requested. She testified that there were more complaints about home improvement than any other field. (There are still many home improvement complaints. There were 1,270 in 1997). She said that “Licensing and testing…is a way to insure that contractors going into the home improvement business can demonstrate some knowledge of the law and proficiency in the field” (General Law Public Hearing, January 31, 1995). She contrasted registration and licensure. Registration “does not require anything from contractors except the payment of a fee and doesn’t provide consumer with any information as to the qualifications or proficiency in home improvement.” She later spoke about the cost of converting the existing registration program to a licensure program. “I might point out…that the cost of a licensure versus registration program are negligible and as a matter of fact, there might be no increase at all.” She explained that the only additional cost would be the cost of the exam, which would be paid by contractors as an examination fee.
Industry representatives opposed the bill. Richard Goodman, speaking for the Connecticut Swimming Pool Association, said that the bill would “cost a fortune.” He said that it would be difficult to design different tests for all the different fields of home improvement, ranging from swimming pool installation to roofing. Richard Derr, speaking for the Remodeling Contractors Association, said that the problem was inadequate enforcement of the existing registration law. He reiterated Goodman’s point that the implementation of the testing requirement would be complex. William Ethier, representing the Homebuilders Association of Connecticut, said the number of home improvement complaints could be reduced if registration enforcement was improved and consumers better educated. Ethier made the point that many new homebuilders are also remodelers.
An Act Concerning the Licensing of Home Building Contractors, and Home Improvement Contractors, and Specialty Contractors (HB 6822)
This bill would have required homebuilders and special contractors to be licensed and home improvement contractors to be licensed rather than registered. This bill was substantially similar to SB 33, except for the fact that it would have required new homebuilders to be licensed.
Industry representatives again spoke against the bill. Richard Davis, representing the Remodeling Contractors Association, said that his association opposed the bill for the same reasons it opposed SB 33. Alan Hanbury, a member of the same group, said that the bill constituted over-regulation. Three other contractors reiterated their industry’s objections.
DD:pa