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Question DetailsAsked on 11/4/2015

How long can a contractor hold a deposit without doing any work?

We signed a contract with a local "reputable" contractor to complete repairs on our house after a tornado. We authorized the bank to pay him his required deposit. 3 months later, after no communication from him, he tells my wife that he is going to file the permit to begin work on our house. By the end of the short conversation, he told her that he thinks we should find a different contractor and that he is returning our deposit.

If work isn't completed in 6 months from the date we settled with our insurance company, we will lose value for depreciation. He held our deposit for half the allotted time to do the repairs and left us scrambling to find a new contractor.

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1 Answer


Clearly, you don't need me to tell you that waiting threre months without communication or any start of productive work was a mistake.

I am presuming from what he said that there is no chance of him completing the job within 3 months, if he would even take it on now. Sounds like there were some works between your wife and him if he was about to file for the permit when he/she called, but now says to get another contractor ? Or did he say because of the tornado damage in the area he is overbooked and just can't do it (which would help your case with the insurance company on getting an extension).

I would talk to the insurance company about a waiver on the repairs completion period - though I really doubt that they can legally charge additional depreciation (in addition to any already applied during the adjustment), because the depreciation is figured on the value of the item where the loss occurred (say maybe roof for instance) - cannot arbitrarily add additional depreciation after the loss is "adjusted" or valued by the insurance company, because that is the assigned vallue of the damage.

However, what can happen is if prices go up, they can refuse to pay a higher price (due to inflation) than originally agreed to or "adjusted" after the "repair period" - say 6 months I guess in your case - has passed.

Also talk to them about handling the refund - does it go back to the insurance company for them to reissue when you have a new contractor, or what - is illegal in many states to deposit a refunded contractor deposit in your own account.

As to legal time for contractor to hold deposit - some stataes do have time limits and also deposit $ or % (or both) limits - google for that or talk to your attorney if you get one on the case.

Be sure to do a written cancellation of the contract so you don't get stuck having two contractors under contract at the same time.

If you do lose value, assuming there was a firm completion date (less than 6 months from adjustment date) stated in the contract, you might have cause for a Small Claims Court case against him for any losses you do incur because of his failure to perform - of course, that means doing a contract cancellation now would be out of the picture because that lets him off the hook entirely - so a catch 22.

One other option - though likely to take more than the remaining 3 months too - would be to call his bond to get the work done by another contractor paid by the bonding company, though integrating that with the insurance company payments could be a nightmare.

Depending on how much the potential depreciation is, and whether they back down on that issue or not, you might or might not want to talk to an attorney specializing in residential/construction contracts on this.

One other factor that might rear its ugly head and would definitely need an attorney to hassle out if it happens: had this happen to a client on a large industrial job with hurricane damage once. If you fail to get the repair done in a timely manner the insurer might pull the stunt of saying since you did not get it repaired, it must not be needed or important to you or the house, so is not needed and hence they will not pay to repair it. Rare, but can happen, especially in areas with massive claims and they are looking to the bottom line of claim totals for the event.

Answered 4 years ago by LCD

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