In the January issue of Building Industry Hawaii, residential contractors were alerted to problems they may face if their written contract does not comply with Section 444-25.5 of the Hawaii Contractors’ Law. Hawaii law also provides certain positive rights to residential contractors. Many contractors are still unaware of these rights, which were created in 2004 when the Legislature passed the Contractor Repair Act, Chapter 672E of the Hawaii Revised Statutes.
This statute gives residential contractors the opportunity to respond to a claim of defective construction, and to resolve it, before a dispute develops into full blown (and expensive) litigation or arbitration. Under the law, before a homeowner can sue or arbitrate because of a residential construction defect, the homeowner must give the contractor a written
notice, describing the defects in detail, including the results of any testing that was performed.
After receiving a Notice of Claim, the contractor has 30 days to either deny the claim, or offer to settle the claim (such as by repairing the defect or paying money). As an alternative, the contractor can request an inspection of the premises, which the homeowner is required to allow. If an initial inspection reveals that more detailed testing is necessary, the contractor can request it, and the homeowner again must provide access to the premises. Within 14 days following the final inspection and testing, the contractor must then either reject the claim or offer to settle it. If the contractor misses any of these deadlines, it has the same effect as rejecting the claim.
If the contractor offers to settle, the homeowner has 30 days to accept or reject the offer (homeowners associations have 45 days to respond). Missing the deadline is, again, the same as rejecting the offer of settlement.
However, even if the contractor rejects the claim, or the homeowner rejects the offer of settlement, the homeowner is still not free to file suit. The Contractor Repair Act requires the parties to mediate the dispute, even if the contract did not call for mediation–a process by which a trained mediator assists the parties to settle their dispute.
If the homeowner files suit before all of this take place, the suit will be dismissed “without prejudice” (meaning the homeowner can file it again later). The exception is if the statute of limitations is going to run, in which case they can file suit, but the suit will then be stayed until the entire process is completed.
Key Steps for the Contractor
What should a residential contractor do if he or she receives a Notice of Claim?
- The contractor should advise the homeowner that they are going to exercise their rights under the Contractor Repair Act.
- The contractor should send its own Notice of Claim (including a copy of the homeowner’s notice) to any subcontractor whose work may be responsible for the homeowner’s claim. This brings the subcontractor into the process, which may assist in obtaining the expertise or funds needed to resolve the dispute
- The contractor should ask for an inspection before responding, and should come prepared with everything needed to document the condition. This will provide the contractor with important information before anything happens to change the status quo. It will also give him additional time to consider what offer he may want to make.
- If the matter does not settle, the contractor should proceed with mediation. Most construction disputes are resolved in mediation, at a much lower expense than following full-blown litigation.
- The contractor should consult his attorney to guide him through this process, especially if the matter proceeds to mediation.
One last point: The law requires the contractor to include, in their contract, a notice informing the homeowner of the existence of the Contractor Repair Act. The exact form and language of the notice is contained in Section 672E-11 of the law. Failure to include this notice is yet another act that constitutes a violation of Section 444-25.5 of the Contractors Law – which would render the contract void and unenforceable. If you have any doubts, review your residential construction and remodeling contracts to confirm that your contract complies with the law.