Do All Construction Contracts Have to Be in Writing?
Construction contracts do not necessarily have to be in writing. All states in the U.S. have a law – generally known as a statute of frauds – that requires certain types of contracts to be in writing in order to be a legally enforceable agreement. As the name suggests, the statute is designed to prevent fraudulent claims, especially in the case of large contracts. If contracts listed in the statute of frauds are not in writing, they cannot be enforced. Construction contracts sometimes fall within the terms of a state's statute of frauds and therefore must be in writing in some instances.
The Statute of Frauds
The statute of frauds requires certain contracts to be in writing in order to be valid. The types of contracts that must be in writing are marriage, contracts for more than one year, land, executor/estate, goods that are $500 or more, and surety. Although state laws governing contracts vary, most states have laws that are in line with the general statute of frauds.
Although the statute of frauds does not cover contracts that are about construction, there are certain situations in which a construction contract can fall within the categories listed in the statute of frauds. For example, in Florida, the following types of contracts that might involve construction projects must be in writing:
- Credit agreements (i.e. construction loan financing);
- Contracts that cannot be performed within one year (such as major construction projects);
- Contracts for the sale of goods over $500 (any contract involving expensive construction materials); and
- Contracts for the sale of real property (contracts involving the sale of improved real estate).
In addition, written contracts for construction work frequently include clauses requiring that any modification of the original written agreement must also be in writing and stating that the written contract constitutes the entire agreement of the parties. Courts will generally uphold and enforce these clauses to defeat an owner or contractor's claims that there was a separate oral agreement that changed the terms of the written agreement.
Why It's a Good Idea to Have Contracts in Writing
Even if a construction contract does not fall under one of the categories that require it to be in writing, it's always a good idea to put a construction contract in writing. In fact, it's a good idea to put any agreement between two parties in writing. A written agreement provides clear terms that each side can refer to in the event of any doubt or disagreement. A written contract can easily reviewed by an attorney, who can point out any ambiguity or problematic areas contained within the contract. Finally, in the unfortunate event of a lawsuit, a written contract provides the court with a clear picture of each party's obligations under the contract.
Getting Legal Help
If you have questions or concerns about a construction contract your small business is drafting or entering into, you may want to meet with an experienced business and commercial attorney in your area.
For more information related to contracts, you can visit FindLaw's section on Business Contracts and Forms.