In some construction or renovation agreements, you may encounter a clause much like the following:
- Title Passes in Construction Materials Upon Payment: All merchandise and construction materials sold to the Client under this Agreement or any applicable Statement of Work (the “Materials”) shall remain the property of the Contractor. The Contractor shall, in its sole discretion, have the right to remove the Materials from the client’s property, whether or not installed, until such time as the Compensation (defined below) is paid in full.
At first blush, this clause may seem innocuous and might even make sense to you. After all, it’s pretty rare that you get ownership of anything until you’ve paid the full price for it (e.g. leased vehicles, mortgaged homes).
However, consider that realistically, larger construction and renovation jobs are broken down into smaller projects, and payments are often made in instalments.
Consider this example. Suppose you are installing new cabinets in your property and payments are made on a scheduled basis. The cabinets have already been affixed and all that remains to be done is the painting and finishing touches. Your final instalment (for the painting) remains outstanding. The contractor, because they retain ownership in the materials until you make that final payment, could theoretically show up to your property and repossess the cabinets. You don’t want the contractor to be able to remove your cabinets just because you didn’t pay for the painting!
Thus, it stands to reason that ownership in materials (particularly for larger jobs which are paid for in instalments) ought to pass once the cost for those specific materials is paid for by the property owner, and not only when the entire renovation is paid for in full. When you see this clause in a contractor agreement, be wary, and point it out to your legal counsel to determine whether (or how) to push back!
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