November 15, 2008
The cons of one-sided contracts
By Rob Kennaley
McLauchlin & Associates
In the seminars and tutorials we give in relation to contracts, contractors will often tell us that their clients agree to clauses which substantially assign most of the risk associated with the work to the owner. When asked whether or not we think this is a good idea, we sometimes struggle to provide a complete answer to the question.
It might seem from the contractor’s perspective that attempting to obtain as many rights as possible under a contract, and attempting to transfer as many obligations and risks as possible to the owner, would be a good thing. This, however, is not necessarily true.
First, from a business perspective there is probably no better and faster way to make a client lose confidence in your professionalism and service than to ask him or her to sign a ridiculously one-sided contract.
It is one thing to ask a client to assume risks or obligations that a client might reasonably take on, for the right price. Thus, for example, a winter maintenance contractor might want the contract to say, in legal terms, “I’m happy to do your work but, for the money you want to pay and given your wish to limit my use of ice melting products, you will have to assume all the risks associated with a slip and fall.” But it is something entirely different, however, to expect the client to assume risks or obligations that he or she could not, ever, reasonably agree to assume.
We were recently asked by an owner to review a contract which had been presented to him for signature by a landscape contractor, in relation to a large-scale residential project. Suffice it to say, we were shocked at what the contractor actually expected the client to sign.
Among other things, the contractor expected the owner to:
Most contractors and their residential clients, of course, understand that it is the contractor, and not the client:
To suggest that the owner should oversee and manage the work, and assume responsibility for any deficiencies or code violations is, of course, ridiculous. It is also nonsensical to suggest that the homeowner should review and/or develop policies for health and safety on site and then train the workers to ensure that those policies are followed. Yet this contractor, in an overzealous effort to have a bullet-proof contract, wanted his client to accept these obligations. You can imagine what the owner’s reaction was when we explained the true meaning of this contract.
You might assume that this contractor was of the “fly-by-night” variety, looking to take advantage of unsuspecting homeowners. I don’t, however, believe that this is the case. We understand, in fact, that the contractor does very good work. Rather, I think the contractor has, in his own mind, separated the role of the contract from his role as a contractor and businessman. We think it’s a mistake to do this.
The risk of losing the confidence of potential clients does increase as we move into an economic downturn, when work will become more and more scarce, and clients become more and more demanding. The risk, of course, should also be of great concern to those contractors who rely on word-of-mouth referrals.
It should also be understood that, even if your client agrees to sign such a one-sided contract, it may not help you in a court of law. There is no question that a judge who wants to avoid the application of a particular clause can, usually, find a way to do so. There are many legal principles available to the court in that regard, which we will not review here.
There is also probably no better and faster way to make a judge dislike you than to allow him or her to think you are in the business of taking advantage of unsuspecting and trusting homeowners. From this perspective, as well, the use of an unrealistically one-sided contract should be avoided.
Robert Kennaley is a former landscape design build contractor and an honourary member of Landscape Ontario, who now practices construction law in Toronto. He can be reached at (416) 368-2522 or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.
McLauchlin & Associates
In the seminars and tutorials we give in relation to contracts, contractors will often tell us that their clients agree to clauses which substantially assign most of the risk associated with the work to the owner. When asked whether or not we think this is a good idea, we sometimes struggle to provide a complete answer to the question.It might seem from the contractor’s perspective that attempting to obtain as many rights as possible under a contract, and attempting to transfer as many obligations and risks as possible to the owner, would be a good thing. This, however, is not necessarily true.
First, from a business perspective there is probably no better and faster way to make a client lose confidence in your professionalism and service than to ask him or her to sign a ridiculously one-sided contract.
It is one thing to ask a client to assume risks or obligations that a client might reasonably take on, for the right price. Thus, for example, a winter maintenance contractor might want the contract to say, in legal terms, “I’m happy to do your work but, for the money you want to pay and given your wish to limit my use of ice melting products, you will have to assume all the risks associated with a slip and fall.” But it is something entirely different, however, to expect the client to assume risks or obligations that he or she could not, ever, reasonably agree to assume.
We were recently asked by an owner to review a contract which had been presented to him for signature by a landscape contractor, in relation to a large-scale residential project. Suffice it to say, we were shocked at what the contractor actually expected the client to sign.
Among other things, the contractor expected the owner to:
- control the worksite and protect the contractor’s materials;
- ensure the contractor installed his work in accordance with the Ontario Building Code;
- assume the obligations of the “constructor” for the purposes of the Occupational Health and Safety Act;
- purchase a “builder’s risk” insurance policy to cover contractor mistakes;
- add the contractor to the homeowner’s property insurance policy, to again cover contractor mistakes;
- and ignore the holdback provisions of the Construction Lien Act (which you cannot do).
Most contractors and their residential clients, of course, understand that it is the contractor, and not the client:
- who must assume responsibility to control what happens in the performance of the work;
- who must assume the responsibility to perform the work in accordance with standards of good workmanship and the building code;
- who must ensure that the contractor’s equipment has been properly maintained and is safe and that all workers on the site follow all applicable safety requirements;
- and who must have insurance in place to cover his own mistakes.
To suggest that the owner should oversee and manage the work, and assume responsibility for any deficiencies or code violations is, of course, ridiculous. It is also nonsensical to suggest that the homeowner should review and/or develop policies for health and safety on site and then train the workers to ensure that those policies are followed. Yet this contractor, in an overzealous effort to have a bullet-proof contract, wanted his client to accept these obligations. You can imagine what the owner’s reaction was when we explained the true meaning of this contract.
You might assume that this contractor was of the “fly-by-night” variety, looking to take advantage of unsuspecting homeowners. I don’t, however, believe that this is the case. We understand, in fact, that the contractor does very good work. Rather, I think the contractor has, in his own mind, separated the role of the contract from his role as a contractor and businessman. We think it’s a mistake to do this.
The risk of losing the confidence of potential clients does increase as we move into an economic downturn, when work will become more and more scarce, and clients become more and more demanding. The risk, of course, should also be of great concern to those contractors who rely on word-of-mouth referrals.
It should also be understood that, even if your client agrees to sign such a one-sided contract, it may not help you in a court of law. There is no question that a judge who wants to avoid the application of a particular clause can, usually, find a way to do so. There are many legal principles available to the court in that regard, which we will not review here.
There is also probably no better and faster way to make a judge dislike you than to allow him or her to think you are in the business of taking advantage of unsuspecting and trusting homeowners. From this perspective, as well, the use of an unrealistically one-sided contract should be avoided.
Reasonable contracts
From a business perspective, we recommend that, particularly in the residential context, contractors develop contracts that are reasonable and fair to both sides. One way to do this is to seek the advice of those who know what clauses are historically standard in the industry. Doing so may also make it easier to justify the contract to your client. There are, of course, certain risks and obligations which contractors may want to transfer to the owners, on the understanding that the transfer of those risks and obligations shall generally affect the contract price. For the reasons discussed above, however, it is in our view a mistake to overreach in your contractual expectations.Robert Kennaley is a former landscape design build contractor and an honourary member of Landscape Ontario, who now practices construction law in Toronto. He can be reached at (416) 368-2522 or at kennaley@mclauchlin.ca. This material is for information purposes and is not intended to provide legal advice. Readers who have concerns about any particular circumstance are encouraged to seek independent legal advice in that regard.