Tips for Landlords: Contractor-Related Legal Issues - dummies

Tips for Landlords: Contractor-Related Legal Issues

By Robert S. Griswold, Laurence Harmon

Although you may perform most maintenance and repairs yourself or have maintenance personnel to handle most of these duties for you, some maintenance and repairs require the expertise of a licensed contractor, such as an electrician or plumber.

Whenever you hire someone to work for you, you’re taking on a legal risk. The contractor may sue you for anything from nonpayment to unsafe conditions that resulted in a costly accident. Before hiring a contractor, know the legal risks and take steps to minimize those risks.

Hiring licensed, bonded, and insured contractors

Whenever you need an outside contractor to perform maintenance or repairs or to install products, make sure that your contractor is licensed (if your state or municipality licenses contractors) and is bonded and insured:

  • Licensed: A licensed contractor has training in the field and usually must prove a certain level of expertise to a state licensing board. In many states, in order to be licensed, a contractor must also be bonded and insured. Most states and many local municipalities require that building contractors be licensed. If you operate in a state that licenses building contractors, you can check out your state’s licensing board(s).

  • Bonded: A bonded contractor’s work is guaranteed by a third party (the issuer of the bond). If the contractor fails to perform the work, performs substandard work, fails to obtain a required building permit, fails to pay subcontractors, or conducts other behavior that could potentially make you liable for the costs, you can file a claim with the bond issuer for compensation.

    To find out whether a contractor is bonded, asked for the name and contact information for the bond issuer and the contractor’s bond number. Call the bond issuer to verify that the contractor is bonded and to make sure the bond amount is sufficient for covering the cost of the project.

  • Insured: Contractor insurance shifts the costs of any accidents to the contractor’s insurance company instead of making you or your insurance company responsible. To ensure that the contractor has the proper insurance:

    • Have the contractor add you as an additional insured to his general liability policy.

    • Ask to see the contractor’s current certificate of insurance and then contact the insurance company to verify and to check whether the contractor will have adequate general liability coverage for the complexity and riskiness of the work involved.

    • Make sure that the written contract that you execute with the contractor specifically requires that the contractor has sufficient general liability insurance in effect at the inception of the work and throughout its duration, and that the contractor’s insurance is primary in the event of a claim.

Insure uninsured workers

Damages and injuries are, unfortunately, fairly common in the rental housing industry, particularly when site personnel do the work, simply because common repairs and maintenance occur frequently. Make sure that you have sufficient general liability and worker’s compensation insurance to cover the cost of potential instances of accidents, injuries, and negligence claims.

These policies protect against payments as the result of bodily injury, property damage, medical expenses, libel, slander, the cost of defending lawsuits, and settlement bonds or judgments required during an appeal procedure.

Consult with your insurance professional, but remember that worker’s compensation coverage is important even if you don’t have employees because most state laws make you as the property owner responsible should the contractor you hire not have coverage or their coverage is insufficient.

Get warranties to cover the work

Another inevitability in the apartment business is the fact that, even when landlords get background information and recommendations about contractors, sometimes the work is substandard. Reputable contractors, plumbers, and electricians provide ironclad warranties for service and will return to the property to fix any problems that arise, and do the work for free within a reasonable time, usually one year after the work was completed.

Nonetheless, getting a warranty for contracted work that covers both material defects and coverage against workmanship errors is good practice. Contractors must be willing to be held liable for all the work they do, including the materials they use, excluding any materials supplied by you, the landlord.

If a contractor is bonded, you have additional protection against substandard or incomplete work.