When I’m working with a group of contractors, I often ask how many are providing a Right of Rescission form with their contracts. In an earlier class with over 20 attendees, only four raised their hand. Many contractors aren’t even aware of the document or realize its importance.
If you are selling your services to a homeowner, you are required by federal law to provide two copies of the Right of Rescission notice explaining they can change their mind and cancel the contract within three business days. If they change their mind, all they have to do is mail you one copy of the cancellation form, postmarked before midnight of the third business day.
Some refer to it as the cooling-off rule, and it’s been around for years. It’s designed to protect homeowners from flaky contractors and door-to-door salesmen. If you have a free evening, watch the 1987 movie Tin Men (it’s not family-friendly). I was tutored by tin men when I started in the business way back when; it was a good education in what not to do. You’ll see a lot of things in that movie typical of the “tin men” approach to business.
The cooling-off period is required by federal law. If you break it by not providing the appropriate forms in the appropriate manner when a contract is signed, your client can break the contract even if you’ve already performed the work. Don’t miss that phrase: even if you’ve already performed the work. You performed the work for free, and will probably get to pay legal fees as well.
There are many states with stricter requirements for the Right of Rescission, and you have to follow those state laws where applicable. If your state hasn’t passed a law implementing their own version of the Right of Rescission, you are bound by the federal law.
This obviously applies to remodeling and renovation contractors, but it also applies to specialty contractors working directly with homeowners. The only exception is repair and maintenance work; you can read details and exceptions on the federal rule here.
Gang, this item can take you right out of business in a hurry. If you are providing a Right of Rescission form when you sign a contract, good on you. If not, you need to get started.
We prefer to solve problems, not create them. Unfortunately, if you aren’t using the Right of Rescission form, we’re letting you know that you have a problem we can’t solve.
We can’t provide a copy of the form; you need to find the one that applies to your location. It needs to be a two-part form, and it needs to be provided with your contract, but separate from it. If you’re a member of an association, they should be able to help. You can find a few online here and here but I can’t vouch for whether they meet all requirements of the federal law or your state law. We don’t have language in our contract writer for this form, but you might want to look at Craftsman’s Contract Writer for your state.
If you sign a contract and don’t include the required paperwork, when a fight develops you could lose any claim you may have to be paid for the work you’ve done. And please, don’t try to avoid this requirement by not using a contract.
Look at it another way: presenting that form to your clients doesn’t just follow the law, it shows them that you’re a competent business owner. You know what you’re doing, and you’ll do it right. It’s worth the time to educate yourself and your staff about the federal requirements for the Right of Rescission, as well as your state laws.
The knowledge and experience Michael Stone gained in his 60+ years in construction has helped thousands of contractors improve their businesses and their lives. He is the author of the books Markup & Profit Revisited, Profitable Sales, and Estimating Construction Profitably, and is available for one-on-one consultations.
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