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Beware of the Owner's Statutory Right to Cancel Certain Residential Repair and Remodel Contracts

June 2021

Laurie R. Hager
503.243.1661 x 220
Published in the OSB Construction Law Section Newsletter, Spring 2021

Residential construction contractors typically deal with consumers as their clients.  As a result, residential contractors may be subject to the myriad of laws enacted to protect consumers.  Some of the consumer protection laws are included in the contractor related statutes (in Chapter 701 - regarding contractors; and in Chapter 87 - regarding construction liens).  Other consumer protection laws are found elsewhere.  A recent trial court decision has brought focus on the intersection between residential repair and remodel contractors and the Oregon Home Solicitation Sales Act (ORS 83.710, et seq) ("HSSA").

The HSSA applies to goods or services that are purchased primarily for personal, family, or household use.  It specifically includes "repairs, alterations or improvements upon or in connection with real property."  ORS 83.010(12)(hereinafter "residential work").  Thus, work performed by residential repair and remodeling contractors is within the general purview of this act.  The HSSA imposes certain requirements for "home solicitation sales" of such residential repair and remodel work.  The law confirms that a contract for construction of a new house is not a home solicitation sale.  ORS 83.710(2)(c).

The HSSA provides that a contract for residential repair or remodel work is a home solicitation sale if: (1) the seller (i.e., the contractor) solicits the sale, even if invited by the buyer (i.e., owner); and (2) the construction contract is signed at a place other than the contractor's permanent place of business.  ORS 83.710(1)(a).  The statute confirms that the owner's home or a neutral location does not constitute the contractor's place of business.  It is not uncommon for a residential contractor to meet with its client at the owner's house or at a local coffee shop or restaurant to sign contract documents.  Thus, it is likely that many residential repair or remodel contracts are considered "home solicitation sales" and, therefore, subject to the HSSA's provisions regulating these contracts.

While there are some exceptions to the HSSA's requirements that are not relevant to this discussion, the HSSA requires that home solicitation sales include a contract in writing signed by the client owner, and requires that the contractor provide the owner with a fully executed copy of the contract when the owner signs it.  Under ORS 83.730, the HSSA also requires certain other details to be included in the construction contract.  Significantly, one of the requirements is that the contract include a notice of the "buyer's" (owner's) right to cancel the contract within three business days after the date the owner signs the contract.  The statute also provides two specific forms of notice which must be included in the contract.  ORS 83.730(1)(b) and 83.730(2).

If the notice is not provided when required, the owner client may have the unfettered right to terminate the construction contract at any time, notwithstanding any inconsistent termination provision in the contract.  If that happens, the owner can avoid paying the contractor anything under the contract, even after work has been performed.  ORS 83.750(3).  The statute even requires the contractor to return, within 10 days from the owner's cancellation, any payments that the contractor received from the owner under the contract. ORS 83.740(1).

Given the potential downside of not providing the HSSA notice of right to cancel, residential repair and remodel contractors may want to err on the side of caution and include the notice to cut off the contractor's HSSA exposure, even if it is not certain that the contract will be subject to the HSSA.  While that might result in giving the notice sometimes when not required, eliminating the risk on a larger scale may be worth it.  Besides, if an owner decides to cancel the contract within three business days of signing (whether it has a statutory right or not), that is likely a red flag that performing the work for this owner would have been perilous anyway.

Contractors may be able to mitigate the effects of the potential cancellation by waiting until after the three-business day cancellation period ends before starting work or purchasing materials, assuming the contract allows for such delay.

Laurie Hager is a Partner at Sussman Shank LLP and is the Chair of the firm's Litigation Group. Contact Laurie at lhager@sussmanshank.com  or (503) 227-1111.

Related Practice Areas

Construction

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