7 Ways for Landlords to Deal with Bad Contractors (And Why Hiring a Property Management Company is Best)
Construction projects and maintenance repairs take a lot of time and effort. With everything you need to do as a landlord, it’s nearly impossible to do it all yourself. Instead, you need to hire contractors to help you.
And that can be hard— because finding someone you trust is crucial.
A bad, cheap contractor skips important steps, if they complete the job at all, causing your property to fail inspections or frustrate tenants and costing you more in the long run. While you can hire more expensive ones who should be better, you still need to conduct background checks and read their reviews. Even with all that, there will be times where the contractor you work with:
- Provides shoddy workmanship
- Goes way over budget
- Encounters unexplainable delays
- Completely deviates from the plan
- Just disappears (often with your upfront payment)
So, how do you handle situations? What’s the best way to manage and hire good contractors and protect your real estate assets? Let’s take a closer look at your options.
How to Deal with Bad Contractors
Whether you’re flipping houses, rehabbing buy and hold properties, managing current rentals, or any other strategy in the real estate industry, you’ll inevitably work with contractors. Not every contractor is trustworthy. Luckily, you can still protect yourself and your assets from contractors who fail to deliver.
Before we get into the options available for you, remember to compile all paperwork first. Here are a few to keep within reach:
- Photos/video of the issues, before the work begins
- Signed contract with the contractor
- Photos/video at each stage of the project (highlighting anything that doesn’t live up to the expectations)
- Copies of all communication with the contractors
- Canceled checks and other evidence of payment
- Documentation of the contractor’s errors
Once you’ve prepared everything on this list, you can deal with any contractor issues in a smoother and more transparent way.
Option 1: Fire Them Immediately
There’s no need to dig deeper into the hole if you already see that the contractor is not working on the project properly. Waiting until they finish will only take more time in the end, because the new contractor has to do a complete overhaul. After all, it’s going to cost you even more money to undo the mistakes.
Show them the documentation you have, such as using unacceptable materials, falling behind on the agreed schedule, or failing to meet building codes. You’ll then send a return-receipt letter to them. This simply says that unless the mistakes are rectified, they will be in breach of contract, and you’ll terminate the project.
Use all the documentation you have as evidence as to why you want to terminate the contract. Be ready to hold and defend your actions because the contractor will likely push back and still demand payment. They may even challenge you in court if they see it as a breach of contract. Remember: Your best defense is to go back to the contract and point at the termination clauses.
Option 2: File a Claim (For Bonded Contractors)
Contractors may have a surety bond policy from an insurance agent that protects them in client disputes. In reality, these bonds protect you from incomplete or poor-quality work.
If you have a copy of the contractor’s surety bond, you can contact their insurance agent and file a bond claim. They’ll pay you to compensate for the losses, requiring the contractor to reimburse their mistakes.
You’ll want to get the copy before signing the contract, however, as the contractor will do their best to avoid getting charged. Unless you have a copy of their surety bond early on, they’ll likely ignore you once you start to argue over the work that’s carried out.
Option 3: File a Complaint to the State Licensing Board (For Licensed Contractors)
If your contractors are licensed, you can report the issues and disputes to the state licensing board. Of course, rather than risk their license, they’ll be compelled to fix the problems.
The bureaucracy name will differ from state to state, but a quick search online should reveal your state’s department of licensing and regulation. For example, Michigan landlords can contact the Department of Licensing and Regulatory Affairs, Bureau of Construction Codes via phone call at 517-241-9316 or their website at www.michigan.gov/bcc.
Get in touch with them and ask for the procedure for filing a claim.
Option 4: Call for Arbitration or Mediation (For Other Contractors)
For unlicensed contractors, you should include a clause in the contract that states a specific third party to act as a mediator in case of a dispute. Then, you can request arbitration or mediation from a third party. After you meet with the mediator and come to a solution, the contractor is then required to follow through and fix the problem.
The 2 options are similar but different:
- Arbitration: You and the contractor must follow the mediator’s recommended solution.
- Mediation: You and the contractor are strongly recommended to follow the mediator’s solution.
Some contracts will also have a binding arbitration clause where both parties will agree to resolve disputes by arbitration only instead of going to court. It’s a low-cost process where everybody presents their case to an independent authority who’ll make the final decision.
Should your contract have no such provision, you can request a hearing with the Better Business Bureau (BBB). The national nonprofit association provides mediation services even if neither you nor the contractor is a member of the organization.
Option 5: File a Suit in Small Claims Court
Alternatively, you can take things to small claims court if your contractor is taking too long to finish the project or if they went way over budget. Neither of you needs an attorney for representation, but there is a ceiling to the amount that the plaintiff can sue (the limit varies by state).
In Michigan, for example, the maximum amount you can sue for is $6,500. No matter the amount that you actually have a valid claim for, the cap remains for all situations.
Filing these claims is straightforward, especially since it has designed it for anybody to do without an attorney. Simply call up your jurisdiction’s courthouse and discuss what forms you need to file. You’ll pay a few dollars to open a case, then the judge will ask you both questions, and you’ll walk out with resolved issues.
Option 6: Hire an Attorney for a Lawsuit
If mediation isn’t an option and you want to claim an amount higher than the state’s limit, then you can hire an attorney and prepare for a full-fledged lawsuit against the contractor.
This option is expensive, time-consuming, and leaves you vulnerable to countersuits. It should certainly be your last resort, often only necessary if the project at hand is an expensive one and you have a strong case. You don’t want to spend $100 to $300 per hour on an attorney only to realize that you don’t have enough evidence to support your claims.
Ensure that you hire an attorney who is an expert in state statutes and has the experience and capability to find weaknesses in the contract. Unlike other hearings (e.g., with the BBB), the contractor can’t opt-out of a lawsuit. If they disappear out of thin air, you can try to collect the money from a state contractor recovery fund or the bond the contractor initially posted (required in several states).
Option 7: Leave Negative Reviews
If all of 6 of the options above fail and you’re at a loss, the last thing you can do is to simply post negative feedback on public review websites. For example, you can file a complaint with the following:
- Better Business Bureau (BBB)
- The Franklin Report (for certain cities)
- Your state contractor licensing board (which might make the review public)
It won’t help you get your money back, but you can prevent other landlords like you from getting into the same problem that you have. If you can’t get paid, at least pay it forward.
The only catch is that the contractor may sue you for libel. State laws vary widely, but a big or well-known contractor with deep pockets will certainly defend their ground and might force you to spend thousands just to protect yourself with the truth—so we recommend exercising caution if you go this route.
At the end of the day though, it’s best to avoid hiring bad contractors in the first place.
And the best way to do that is by working with experts you can trust to do that work for you. That’s where a property management company cna step in and take a load off your shoulders.
How a Property Management Company Handles Contractors
Many landlords and real estate investors hire a property management company to manage their properties, who then also handle all the repairs, maintenance, and renovations that require working with contractors.
This especially makes sense for rental landlords with a large rental property portfolio who constantly need to work with contractors for property upkeep. Plus, they’ll help you with other property management tasks like getting the right tenants and collecting monthly rent. It’s the easiest way to prevent serious legal matters across the board.
Here’s a quick overview of what you can expect from a property management company, in terms of handling repairs and maintenance of rental properties:
A property management company will always work with licensed and insured third-party vendors and contractors, so you’ll never be liable for anything. Since they’re handling many rental properties (even beyond the ones you entrust them with), they’re always working with contractors. You can be confident that you’ll get competitive rates, quality service, and complete documentation of all things carried out.
Whether that’s a burst pipe, a broken heater in the winter, or blocked drain pipes, a property management company will arrange for emergency services to address the issue at any time. They’ll also have a long list of vetted contractors to reach, serve the tenants, and protect the property from getting seriously damaged.
Identifying Tenant Neglect
Property management companies are professionals, experienced and knowledgeable enough to determine what issues are due to tenant neglect and misuse. This way, you won’t have to pay for fixes that you’re not responsible for—the property management company will have the tenant fix their own mistakes at the tenant’s expense.
Authorized Repair Limit
A property management company will work within the limit that you’ve both agreed upon, so they can sanction repairs within that amount and that amount only. As they work with contractors, anything that goes above the limit will require your permission. This way, the company can address fixes quickly, keep tenants happy, and guarantee budget protection.
Work with Quality Contractors and Managers to Protect Your Properties
When it comes to hiring contractors, you can work with contractors yourself or partner up with a property management company. Either way, it’s important to do your best to avoid bad contractors to keep your assets safe. We hope you’ve found this article useful in handling your real estate properties.
Don’t let any lousy contractor ruin your properties, deplete your profits, and damage your hard-earned assets. Remember, there’s always a solution to handling any difficult situations.
As always, our team of property managers is always here to help. Should you have more questions or concerns that you’d like to get our input on, contact our team today!