We’ve all heard horror stories about home improvement projects gone wrong. In fact, many of us have likely lived through renovations and the headaches they can entail, including delays, shoddy work, unacceptable messes and fights with contractors.

For most people, buying a home is the biggest financial investment they’ll ever make, and, understandably, homeowners want to keep their dream home feeling as fresh as the day they got the keys. But before you embark on a project to update your kitchen, spruce up your bathroom or switch out the paint and trim, it’s important to understand the legal issues you may encounter with a home improvement project.

Is a contract really necessary?

The simple answer is yes. Legal advisers strongly suggest homeowners sign a contract with any contractors that, at the very least, outlines the following:

• The scope of the work and total price
• The legal name of the parties and the physical address of the contractor
• The contractor’s license(s) and tax ID number
• The labor and materials being provided to complete the job
• The timeframe in which the project will be completed
• The homeowner’s responsibility, which may include the selection of fixtures, paint colors, etc.
• The days and times the contractor(s) will have access to the property.

North Andover, MA attorney Ramsey A. Bahrawy says it’s important to list the start and end date in the contract. “If the contractor does not substantially finish the work by the date stated in the contract, he can be penalized a specified amount for each day he is late,” Bahrawy says.

If the contractor will be using subcontractors, the contract should state that all contractors and subcontractors are registered, and their license numbers should be listed in the contract so a homeowner can inquire about them if needed, Bahrawy adds.

Chicago attorney John R. O’Brien, who has 30 years of experience in construction litigation, says the contract should also specify that contractors are independent contractors and not employees of the homeowner.

Confirm that workers are insured

“Each contract should also require the contractor to carry workers’ compensation insurance and show the homeowner proof of insurance,” O’Brien explains. “For larger jobs or more hazardous ones (like roofing), have the contractor get an endorsement on their workers’ comp insurance listing the homeowner as an additional insured.”

Call the insurer to verify that the policy is still in effect

If workers are injured while on the job, who is liable?

Injuries to independent contractors and their employees are generally not the property owner’s responsibility. However, exceptions could occur, such as if the owner told the contractor he would turn off the electric power to the work area and then didn’t, or if he told the contractor’s employee to use the owner’s rickety ladder. If the contractor or employee was injured in such a circumstance, the homeowners insurance policy likely would cover it, O’Brien says.

Bahrawy urges homeowners to call their insurance company to ensure their homeowners insurance covers such events.

Krista Dawkins, partner at Pyka Lenhardt Schnaider Zell in Santa Ana, CA says it’s wise to choose contractors who have their own workers’ compensation insurance. If they don’t offer workers’ compensation, it may mean they’re using laborers who are not legal residents of the state.

“A savvy homeowner would ask, ‘Do I want to run the risk of going with a cheaper, uninsured, fly-by-night operation because I have my own homeowners insurance, or spend more for a contractor that includes workers’ compensation insurance as part of his business plan and margins?’”

Make sure you’re covered for contractor damage or issues

Be sure every contractor has general liability insurance in addition to workers’ compensation insurance. Again, you can call the insurer to determine that the policy is in effect and get details of the type of coverage and deductibles.

Bahrawy says homeowners should also protect themselves from subcontractors or employees who have not been paid by the contractor. “That person can place a mechanic’s lien on the homeowner’s property to protect his or her right to payment. The contract should include a clause that will hold the homeowner harmless from claims by employees and subs.”

O’Brien says this would apply to any job that includes subcontractors.

Protect yourself against project problems

Dawkins gives this example of how a good contract saved her friend from further headaches during a project gone wrong.

When her friend embarked on a kitchen remodel, Dawkins advised her to have a strong indemnity, or hold-harmless agreement, that explained who would be responsible for what in the project.

The friend hired a reputable general contractor, but that contractor hired subcontractors to complete concrete-cutting work on the project. The concrete cutter carved a pathway for a new sewer line and inadvertently cut into a cable, causing sparks to fly.

“The general contractor wasn’t inclined to fix the problem,” Dawkins says. “However, the homeowner had the original contract, which outlined that it was the contractor’s responsibility to repair it because he was responsible for the negligence of his subcontractor … The contract saved the day.”