January 29, 2012 | You worked the prospect and turned it into a quote. You worked the quote and turned it into a sale. You got a start check and ordered materials. Now the guy calls and says’s “I’ve changed my mind, I’m not doing the job, I want my money back.” Can he do that? The answer is maybe. When it comes to legal advice, an attorney is the best way to go to help shed some light on the Right of Rescission. It seems to vary a little from state to state but one thing seems common all over. The customer usually has three business days to change their mind, so if you close the sale on Thursday, they are supposed to notify you by Monday night. Some could argue that the three business days start the moment you sign, so if it is 7 PM on Thursday, then it might not be up until Tuesday night at 7PM. Ambiguity on agreements is a distracting and often costly issue for deck builders.
When writing the verbiage for your contracts make sure you include a Right of Rescission clause that has clear instructions on how to exercise the rescission. Details on how long the period lasts, what the steps are to notify, and how the repayment will take place. I like this simple statement: In the event the purchaser decides to rescind this contract, the purchaser must notify the contractor within three business days of signing the contract. Three business days commence on the next business day following the date of signing. Delivery of notification of rescission and a copy of this contract must be made in writing and delivered to the contractor’s place of business no later then 5PM on the day of the deadline. The contractor shall have three business days to return payment once rescission is properly exercised. Rescission and payment return terms may be subject to state and federal laws.
Some states allow you to add a waiver of rescission period to your contract that you can ask the customer to sign if they want to get started sooner. Also, some states do not enforce a rescission if the contract is signed in your office as opposed to their home.
As for the funds you collect at the signing, sitting on a check from a customer for up to five days waiting out the rescission period is best practice. You can’t keep any of the money for cancellation fees or anything like that unless your state law says you can. Consider holding off on ordering so you don’t get stuck with materials you don’t need. Rather then depositing the funds and using them as cash flow, spending them on something or waiting, consider a higher interest money market account. Deposit the funds and collect interest on your money until the rescission period is over and you need the funds. You will always have the funds prepared to return this way. This really pays off if you have a longer lead-time on your projects.
As a contractor, explaining the fine print is way outside of your job description. Unfortunately, as a business owner, it is necessary. Make it part of your sales pitch and get some positive reinforcement for it. I added it to mine and made the clause a discussion point in the payment and terms portion of my sales presentation. I found that having these details as part of the overall presentation made a better-informed customer and helped close deals on the professional contractor premise. You may even see a drop in rescissions if you do this. That said, if you have enough of them that you are concerned, you may need to look at more than the fine print. Good Luck and thanks for reading.
If you have subject ideas or comments, please send them to me at davidelenbaum@gmail.com.
