Home Improvement Contracts - The Arbitration Clause

Maryland law requires home improvement contracts to have the arbitration clause initialed presumably so that the homeowner will acknowledge and understand that he or she is giving up their right to pursue remedies in court and must have their disputes resolved via arbitration.

Case Handyman v. Scheule, 183 Md. App. 44, 959 A.2d 833 (2008) is an example of how courts will favor arbitration clauses in contracts. The clause must be signed/initialed, and it must state the entity or person who will conduct the arbitration, the fee schedule, whether it is binding or nonbinding, and that the arbitration will stay any claim against the contractor in the Maryland Home Improvement Commission. Construction disputes are typically arbitrated in accordance with the construction industry rules promulgated by the American Arbitration Association, www.adr.org.

What is arbitration? It is a less formal proceeding whereby a neutral party, usually a lawyer, is retained by the parties to the dispute and he or she makes the decision as opposed to a judge or jury. It is frequently touted as being a less expensive, more efficient method of resolving disputes. However, most arbitrators charge in the range of thousands of dollars per day, the rules of evidence are "relaxed" and there is no or limited discovery to allow you access to the opposing parties documents and witnesses. In short, although the idea is great in theory, it can be just as expensive as court in the long run.

If you are about to sign a construction contract, it is worth a few hundred dollars to have an experienced construction attorney review and comment on the contract before you sign it. If you have a construction dispute, the sooner you involve an experienced lawyer, the better off you will be.