The Importance of Contract Priority for Residential Contractors

When residential contractors take on a project where the homeowner secures bank financing, contractual challenges often arise. One frequent issue is the conflict between the contractor’s agreement and the additional contract required by the bank. Contractors often ask, “Which contract takes precedence if there is conflicting language?”

The unfortunate truth is that, unless specified, both contracts will govern. This leaves room for uncertainty and potential disputes later in the project. For contractors, this is more than just a legal gray area; it’s a risk that can impact how disputes are resolved and even jeopardize the profitability of the project.

This blog post will break down why clear contract language is important, the issues surrounding conflicting terms between agreements, and how to protect your interests by ensuring your agreement takes priority.

Understanding the Issue of Multiple Contracts

Projects that involve bank financing for homeowners often require the signing of two separate agreements:

1. The Contractor’s Agreement – This represents the terms and commitments agreed upon between the contractor and the homeowner. It typically includes details about pricing, timelines, payment schedules, scope of work, warranties, and arbitration (in case of disputes).
2. The Bank’s Required Agreement – The financial institution financing the project may require a separate agreement that often presents conflicting terms or additional obligations. This is part of their internal risk mitigation processes but may overlook provisions crucial to the contractor.

Why Does This Create Problems?

The consequences of having two agreements without a clear statement of priority can be significant. For example:

• Conflicting Dispute Resolution Provisions: If your contract has an arbitration clause, but the bank’s contract allows the homeowner to choose between arbitration or litigation, disputes may sideline your preferences.
• Schedule or Scope Conflicts: Disparities between the two agreements related to work timelines or scope could lead to disagreements about deliverables.
• Payment Terms: Payment structures in your agreement may not align with the terms dictated by the bank’s document, leading to potential delays or misunderstandings.

Real-World Example:

One of our contractor clients faced this exact scenario. Their contract with the homeowner specified mandatory arbitration for dispute resolution. However, the homeowner and contractor also signed a bank-required agreement that gave the homeowner the choice between arbitration and court.

When a dispute arose, the court determined that because neither agreement specified which contract controlled, the homeowner could opt for litigation. This outcome contradicted our client’s intent and created a far more time-consuming and costly process.

To avoid such outcomes, contractors need to take proactive steps to protect their agreements and their businesses.

How to Protect Your Business with Clear Priority Language

The best way to ensure your contractor agreement governs the project is to include specific language that explicitly states it takes precedence over any other agreements signed by the homeowner. This proactive measure reduces the risk of conflicting interpretations and creates clarity for all parties involved.

Key Steps to Protect Yourself

1. Include a Contract Priority Clause:

Your agreement should have a clause that states it will control in the event of any conflict with additional agreements. For example:

> “This Agreement shall prevail and take precedence over any other agreements, including but not limited to those required by third-party entities, in the event of any conflicting or inconsistent provisions.”

By including this language, you provide a legal basis for resolving discrepancies.

2. Consult an Attorney Before Finalizing Your Agreements:

A construction or contract law attorney can help you identify and address potential areas of conflict. They can also guide you through any necessary revisions to incorporate a robust priority clause.

3. Review the Bank’s Contract Before Signing:

Whenever a bank requires an additional agreement, make sure to review its provisions thoroughly. Consult your attorney to identify any conflicts with your contractor agreement.

4. Educate the Homeowner:

Many homeowners don’t understand the significance of the contracts they sign. Take the time to explain how your agreement protects both parties and why it’s essential to establish its precedence. Open communication can minimize resistance to including a priority clause.

5. Maintain Consistency Across Agreements:

Regularly update your contract templates to include priority language and ensure other sections (e.g., dispute resolution, payment terms) remain consistent and enforceable.

Addressing Common Concerns from Homeowners

Homeowners may express hesitation about signing a priority clause, especially if they feel bound by bank requirements. Contractors can address these concerns by explaining:

• Why Priority Benefits All Parties: A clear priority protects both the contractor and the homeowner by reducing confusion and the potential for disputes.
• It’s Not About Removing Protections: A priority clause doesn’t eliminate homeowner rights but ensures smoother project management without delays caused by conflicting terms.

Providing transparency and reassurance will help you maintain trust while protecting your business.

Why Acting Now is Crucial?

While dealing with contract language may not seem like the most exciting aspect of your work as a contractor, it is one of the most important. Without clear agreements, you leave the door open for legal disputes, misinterpretations, and financial losses.

At The Cromeens Law Firm, we understand the challenges contractors face in protecting their rights and securing their businesses. By working with experienced professionals to draft strong contracts—including priority clauses tailored to your needs—you can avoid costly pitfalls and focus on delivering quality work for your clients.

Need Legal Assistance With Your Residential Contract?

When working on projects involving bank financing, both the homeowner and contractor must ensure mutual understanding of their legal obligations. However, as a contractor, it’s essential to safeguard your interests by creating agreements that clearly outline which document takes precedence.

Take control of your projects by drafting contracts that work for you, and ensure your contract governs when conflicts arise. If you’re unsure where to start, contact our team today to review your documents and incorporate robust priority language.

Protect your business from the unexpected. Consult with The Cromeens Law Frim to create contracts that ensure clarity, consistency, and control.