Disclosure Act Can Seriously Impact Idaho Builders and Developers

In July of 2002, the Idaho Contractor Disclosure Act (“Disclosure Act”) went into effect. Despite this law having been effective for almost four years, many Idaho contractors and developers are still unfamiliar with its requirements and unaware of the consequences of failing to make all mandatory disclosures. Non-disclosure is deemed an “unfair or deceptive act or practice” in violation of the Idaho Consumer Protection Act, which allows injured parties to bring lawsuits and the state attorney general to prosecute violators.

The Disclosure Act requires all “general contractors” to provide certain disclosures to homeowners and purchasers of residential property. A “general contractor” is broadly defined as (a) any person who enters into an agreement with a homeowner (exceeding $2000 in total value) for the construction, alteration or repair of residential property, or (b) any person who enters into an agreement with a buyer or prospective buyer (exceeding $2000 in total value) for the purchase of newly constructed residential property. This law plainly extends to all companies commonly referred to as general contractors as well as to virtually anyone usually thought of as a residential home developer.

Prior to entering into either of these agreements, the general contractor must provide the homeowner or buyer with a Disclosure Statement providing certain information related to lien releases, contractor liability insurance and surety bonding for the home or project. The Disclosure Statement must be in writing and must be signed and acknowledged as received by the homeowner or buyer. The specific information that must be disclosed is set forth with particularity in the Disclosure Act.

General contractors are also required to provide to the homeowner or buyer a second written Disclosure Statement within a reasonable time prior to the closing for purchases or within a reasonable time prior to making final payment to the general contractor for construction, alterations, or repairs. This Disclosure Statement must be signed by the general contractor and must list the business names, addresses, and telephone numbers of all subcontractors, materialmen, and rental equipment providers whom contracted directly with the general contractor. The general contractor does not have to list those companies whom supplied materials or performed work valued at less than $500 in value or those companies that did not contract directly with the general contractor. The purpose of this provision is to allow homeowners the opportunity to identify all potential lien claimants before closing on their purchase or making final payment to the general contractor.

All of the disclosures described above are mandatory and the failure to make any of them is a violation of the Consumer Protection Act (“CPA”). The CPA creates two separate mechanisms to penalize general contractors who violate the Disclosure Act. First, the Attorney General is charged with seeking penalties including injunctions, restitution and recovery of actual damages, orders for specific performance, and/or fines not to exceed $5,000. While these potential penalties are severe, it currently appears that they are only rarely enforced.

The CPA also grants injured homeowners or buyers a private right of action to sue for damages resulting from any act or practice it declares unlawful. This necessarily includes all violations of the Disclosure Act. Any homeowner or home buyer injured by a non-disclosure may bring suit to recover actual damages, or to seek a court order declaring the agreement to be void as a matter of law. This latter declaration would allow the purchaser of newly constructed residential property to recover all amounts he or she had previously paid and to walk away from the purchase and sale agreement as if it had never occurred. The injured homeowner or buyer may bring claims for punitive damages (up to $250,000) and to recover all of their attorney fees and costs should they prevail in their suit. In contrast, a general contractor who prevails by defending himself or herself in a suit of this nature cannot recover any attorney’s fees unless the court determines that the homeowner or buyer brought their action spuriously or for purposes of harassment.

Every residential construction company and developer in Idaho should have forms on hand and available for distribution to homeowners or home purchasers that make it easy to comply with the disclosure requirements. The disclosure requirements are too simple to justify non-compliance especially when the consequences of non-compliance are potentially so severe

Richard Stacey is an attorney with the law firm McConnell Wagner Sykes + Stacey PLLC practicing in the areas of complex business litigation and construction law. He is a member of the Association of Trial Lawyers of America, and he serves on the Executive Committee of the Board of Directors of the Boise State Alumni Association.

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