Renee Schwerdt

Construction law attorney Renee Schwerdt is the owner of Plumb & True Legal, a law firm serving contractors, architects, vendors, and others in the construction industry, and author of the blog, Level Up.

Buyer’s Remorse and the Right to Cancel a Contract

Be careful not to run afoul of federal cooling-off regulations

August 05, 2016

You’ve just received a call from a homeowner who wants to cancel the contract he signed a month ago. And he wants his 10 percent deposit back. Now what?

The Federal Trade Commission’s Cooling-Off Rule gives buyers a right to cancel purchases of $25 or more for a full refund until midnight of the third business day after the sale. In addition, many states have passed their own laws to expand consumer protections beyond the FTC’s rule. Changes to Maryland’s Door to Door Sales Act that went into effect this June, for example, extend the “cooling off” period from three business days to five (seven business days if the homeowner is 65 or older). The law also now requires that a home improvement contractor obtain a signed written acknowledgment from buyers that they have been informed of their cancellation rights.

When Does the Law Apply?

The FTC Rule does provide some exceptions. The cooling-off period doesn’t apply to sales that are: 

  • The result of prior negotiations at the seller’s 
  • permanent place of business where the goods are regularly sold;
  • Needed to meet an emergency; or
  • Made as part of the buyers’ request for the seller to do repairs or maintenance on their personal property. (However, purchases made beyond the maintenance or repair request are covered.)

What Are the Signature and Notice Requirements?

Federal and state laws require sellers to provide consumers with both notice of their rights and cancellation forms. Under the FTC Rule, the seller must tell the homeowner about the right to cancel at the time of sale. The seller also must give “each buyer” two copies of a cancellation form and a copy of the contract or receipt. The contract or receipt should be dated, show the name and address of the seller, and explain the right to cancel, usually in language prescribed by law. Again, some states, such as Maryland, have made the law even more stringent.

What Counts as a Business Day?

There is some variation among the states about what constitutes a “business day.” Under both the federal law and Maryland’s law, for instance, a “business day” means any calendar day except Sunday or the following business holidays: New Year’s Day, Washington’s Birthday, Memorial Day, Independence Day, Labor Day, Columbus Day, Veterans’ Day, Thanksgiving Day, and Christmas Day. Delaware and Hawaii, however, do not count Saturday as a business day.

What Happens if You Don’t Follow the Law?

Failure to follow notice requirements in home solicitation laws can have serious consequences. In some states, such as Indiana, the three-day right-to-cancel period doesn’t start until a consumer is given proper notice. Theoretically, this means that in a situation like the one at the beginning of this article, the consumer could cancel a contract after the project is completed and get back all of the money paid to the contractor.

In practice, however, some courts in similar situations have allowed contractors to recover some or all of their earnings under an equitable claim such as quantum meruit, which allows for payment for the value of the services provided in the absence of a valid contract. Some states also have criminal consequences for sellers who fail to follow the requirements of home solicitation laws. 

Word to the Wise

Remodelers would do well to ensure that their contract documents include all of the required language and that all salespeople understand their obligations to provide notice and copies of specific documents at time of sale. The added paperwork may be painful, but it’s nothing compared with the cost of noncompliance. It also makes sense to hold off incurring any job-related costs, especially for special-order materials, until the cooling-off period has expired.

This article is for informational purposes only and is not intended to serve as a substitute for consultation with a legal professional.

Comments

I signed a contact with a flooring company 6/28. They sent agreement and addendum via email (e-documents). In the contract it states a payment plan of getting a deductible of $1000 then a 50% payment of the total balance and then the remaining balance upon job completion. No payment was given. And I don't see anywhere in the contract or a separate notice informing me of my cancellation rights. (I'm just finding this law online now as I do some research after being given the possibility of taking this to court by their Director of Operations. ) They were suppose to deliver materials on the 11th (I believe) and commence work on the 13 and 14th. No materials were delivered and why would they be if I hadn't given them any money. In fact, they were waiting on word from me as to when I would be paying. The Director of Operations calls me today after reading my email and tells me material has been ordered and received at their location and they can't do anything with it and gave me 3 options: a) I decide to move forward with the project with them, b) I pay for materials and find another installer, or c) he takes us to court to collect. I thought I did everything right (given my limited "knowledge"). I was under the assumption the deductible payment is what would give them the "Go" to start ordering materials and basically let everyone know we were financially invested. If I were in a contracting business, there would be no way I would order materials without any upfront money. So, who's right? So far, nothing in this contract has been followed; Not the dates, not the payments. In the contract it does say:

For the material purchased and installation work performed pursuant to this Agreement, the Customer shall pay the Contractor the sum of: [dollar amount]

and

3. BREACH OF CONTRACT

ALL SALES ARE FINAL:
No refund or return will be given on products.
REFUNDS:
Full refund will be given to the service portion of the contract if cancelled before starting date. If job is cancelled after commencement, customer is liable for service costs incurred by Contractor up to the date of cancellation notification.

However, no payment was ever given. No dates were kept. No labor has been performed.

So what happens now?

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