The Ohio legislature recently removed consumer remedies arising under most home construction services contracts from the operation of the Ohio Consumer Sales Practices Act, Ohio Revised Code § 1345.01 et seq. (the “CSPA”) by creating a separate statute, found in Ohio Revised Code § 4722.01 et seq., so long as construction service contract:  (i) exceeds $25,000; and (ii) performed by a construction service supplier carrying at least $250,000 in liability insurance.  The change was effective as of August 31, 2012.

Background. The CSPA was designed to protect a consumer from predatory merchants and service providers, like an unscrupulous auto mechanic, furnace repairman, etc.  From a purely practical standpoint, several elements of the CSPA simply do not fit construction.  For example, the CSPA requires on-the-spot estimates, which was designed for getting an estimate for car repair, furnace repair, or something that could reasonably be estimated over the counter.  This is not practicable in construction (whether new or remodeling).  Designs need to be drawn, materials need to be priced, subcontracts need to be bid, etc. 

Thus, the CSPA was never meant to be applied to home construction, until a consumer creatively argued that the CSPA should apply to home construction before a Green County Appellate Court in Keiber v. Spicer Constr. Co. (1993), 85 Ohio App.3d 391, 395, 619 N.E.2d 1105.  This ruling runs contrary to a prior Ohio Supreme Court ruling finding the CSPA not applicable to real estate transactions.  Brown v. Liberty Clubs, Inc. (1989), 45 Ohio St.3d 191, 193, 543 N.E.2d 783.  The Appellate Court in Keiber reasoned that the sale of a new home has an element of the sale of land, but also an element of the sale of construction services and products.  This distinction has been both rejected¹ and followed² in Ohio, thus creating a split of authority.

The New Statute/Chapter 4722.  The new statute, created through House Bill 383, as amended³, creates a new Chapter 4722 to govern “home construction service contracts”.  New section 4722.01(D) of the Ohio Revised Code defines a “home construction services contract” as:  “…a contract between an owner and a supplier to perform home construction services, including services rendered based on a cost-plus contract, for an amount exceeding twenty five thousand dollars.”  Also, a “supplier” or “home construction service supplier” is defined as “…a person who provides home construction services for compensation and who maintains in force a general liability insurance policy in an amount of not less than two hundred fifty thousand dollars.”

In other words, to be exempt from the CSPA and covered by the new statute, the contract must exceed $25,000 and the supplier needs to carry $250,000 in coverage.

Yet, the new Chapter 4722 has several protections very similar to the CSPA.  For example, Chapter 4722 allows investigations and remedies by the Attorney General⁴.  Also, Chapter 4722 permits consumers to elect between an action for rescission of the transaction within a reasonable period of time⁵ plus economic damages not to exceed five thousand dollars ($5,000), or an action to recover all economic damages⁶.  Chapter 4722 also allows a consumer to pursue an injunction to prevent violations of the Chapter⁷.  Further still, any such actions will not prohibit the consumer from pursuing any cause of action under any other theory of law⁸.  Attorney fees could be awarded to the consumer if the home construction service supplier has knowingly committed an act or practice that violates Chapter 4722, but also could be awarded to the supplier if the owner maintains a groundless action under Chapter 4722 or in bad faith.

One disappointment is that the new act permits the rescission remedy, similar to that in the CSPA.  Given the value of a new home construction contract, this can be a crippling remedy.  However, those in the trade are thrilled to have gotten this far in creating a separate statute to govern consumer oriented construction actions.  One step at a time.

Those in the residential construction industry should read through the statute as it contains several dos and don’ts.  For example, a construction service supplier may not condition any service on a consumer waiving any rights under the new statute⁹.  Also, each contract shall contain specific language pertaining to excess costs, unless the contract is a cost plus contract:

“EXCESS COSTS”

IF AT ANY TIME A HOME CONSTRUCTION SERVICE REQUIRES EXTRA COSTS ABOVE THE COST SPECIFIED OR ESTIMATED IN THE CONTRACT THAT WERE REASONABLY UNFORESEEN, BUT NECESSARY, AND THE TOTAL OF ALL EXTRA COSTS TO DATE EXCEEDS FIVE THOUSAND DOLLARS OVER THE COURSE OF THE ENTIRE HOME CONSTRUCTION CONTRACT, YOU HAVE A RIGHT TO AN ESTIMATE OF THOSE EXCESS COSTS BEFORE THE HOME CONSTRUCTION SERVICE SUPPLIER BEGINS WORK RELATED TO THOSE COSTS. INITIAL YOUR CHOICE OF THE TYPE OF ESTIMATE YOU REQUIRE:

….. written estimate ….. oral estimate”¹⁰

As expected, the new statute is full of references to prohibit deceptive conduct, which range from misrepresentation of what is safe, what building codes require and to disclose and proactively obtain approval on cost increases.¹¹

Also, the statute requires that all work be done in a “workmanlike manner”.  It is interesting to note that the new statute directs the Ohio Home Builders Association to promulgate minimum quantifiable standards to define what “workmanlike manner means.¹² As of the date of this publication, such standards have been promulgated and delivered to the Ohio legislature to consider.  This marks a shift away from Ohio case law, which fairly consistently defines workmanlike manner by standards of similar professionals in the community, toward a statewide standard.

The final version of the Bill can be viewed on-line through the Ohio legislature’s website.

For more information on how properly revise home construction agreements or to handle remedies under Chapter 4722, the CSPA or any other theories of liability, please contact the attorneys practicing in our Real Estate Practice Group.

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¹See, e.g. Kanu v. George Development, Inc., 2002 WL 31630745 (Lucas County)
“The Ohio Consumer Sales Practices Act, codified at R.C. 1345.01 et seq., defines a “consumer transaction” as “a sale, lease, assignment, award by chance, or other transfer of an item of goods, a service, a franchise, or an intangible, to an individual for purposes that are primarily personal, family, or household, or solicitation to supply any of these things.” R.C. 1345.01(A). Under Ohio law, the CSPA is not applicable to pure real estate transactions. Brown v. Liberty Clubs, Inc. (1989), 45 Ohio St.3d 191, 193, 543 N.E.2d 783; Worshil v. Smythe Cramer Co. (September 10, 2001), Stark App. Nos.2001CA00086, 2001CA00114. See also, Marshall v. United States Home Corp. (Feb. 27, 2002), Summit App. No. 20573 (“consumer product” as defined by CSPA does not include the construction of a new house which is more properly viewed as real property).  In the present case, appellants' CSPA claims were all related to the construction of a new home, and, therefore, were not covered by the CSPA. Moreover, even if any such claims were covered, appellants were deemed to have admitted in Request for Admissions No. 60 that “no breach of Consumer Sales Practices Act occurred.” Therefore, the trial court properly dismissed appellants' CSPA claims.”

²See e.g., Fine v. U.S. Erie Islands Co., Ltd., 2009-Ohio-1531 (Ottawa County) applying the CSPA to the sale and construction of a new residential condominium.

³Approved by the Ohio House of Representatives on February 15, 2012, passed by the Ohio Senate on May 9, 2012 with amendment, with House concurrence as to the amendment on May 16, 2012, and signed into law by Governor Kasich on June 1, 2012.

⁴ORC§§ 4277.06 and 4277.07.

⁵A reasonable period of time is not identified specifically, but stated in ORC§ 4277.08(B) as “…within a reasonable time after the owner discovers or should have discovered the ground for it and before any substantial change in condition of the subject of the transaction.”

⁶“[A]ctual economic damages” means damages for direct, incidental, or consequential pecuniary losses resulting from a violation of Chapter 4722 of the Revised Code and does not include damages for noneconomic loss as defined in section 2315.18 of the Revised Code. ORC§ 4277.08(E).

⁷ORC§ 4277.08(C).

⁸ORC§ 4277.08 (F).

⁹ORC § 4722.03(A)(4).

¹⁰ORC § 4722.02(B)(2).

¹¹ORC § 4722.03.

¹²ORC § 4722.01(G).