To all of my clients who are rehabbers:
You may have read the recent Sunday Express News article regarding the new standards that might affect your business as a rehabber. While I thought the article was confusing and not very well written, I have had an opportunity to review the law that the article discussed, and there are some potential effects on our business as rehabbers. (the law is also confusing and not well written!) I have provided a link to the new legislation below, which should be read in conjunction with the law as it exists before September 1, 2007.
Below is a summary of the provisions most applicable to our efforts as rehabbers, but as with any legislation, my intent here is to make you aware that you need to explore this further. Any summary I could give here would necessarily omit certain salient points that could change the effect of the law dramatically on any given situation or project. So, please review the law itself with respect to your efforts and proposed projects.
The legislature, passed (almost unanimously) amendments to the Texas Residential Construction Commission Act, with the passage of HB 1038 (the bill is about 19 pages long and can be accessed at (copy and paste into your browser if the link doesn’t work):
www.capitol.state.tx.us/tlodocs/80R/billtext/html/HB01038F.htm
This is the act (title 16) that governs builders, their licensing, construction requirements, building c odes, dispute resolution, etc. While most of the changes and modifications deal with the composition of the commission, penalties, and other more mechanical aspects of the law, there are a number of provisions that contrast with prior law. (the opinion of most ‘consumer groups’ is that the legislature acted as a lackey for the builder’s industry because they focused mostly on the changes to the builders code).
Of most importance to rehabbers, is found in section 8 of the legislation, which adds a provision to section 401.005. This section previously provided a broad exemption from title 16 (the Residential Construction Commission act). Prior law exempted folks that built their own home and lived there a year before selling and also exempted homeowners who supervised, or arranged construction of improvements on a home they owned. For most rehabbers, this provided the exemption from all of the provisions applicable to builders.
the new law adds a paragraph that, while not providing an exemption to title 16, has the potential to pull rehabbers into the act. it provides: An individual who builds a home or a material improvement to a home and sells the home immediately following completion of the building or remodeling and does not live in the home for at least one year following completion of the building or remodeling is responsible as a builder under the warranty obligation created by this title for work completed by the individual. Responsibility under this subsection does not automatically require an individual to register under Section 416.001. The first question is what is a material improvement to a home. The legislation defines a “material Improvement” in section 6 of the legislation: “Material Improvement” means a modification to an existing home that either increases or decreases the home’s total square footage of living space that also modifies the home’s foundation, perimeter walls, or roof. A material improvement does not include modifications to an existing home if the modifications are designed primarily to repair or replace the home’s component parts.”Thus if you don’t change the square footage, the exterior walls aren’t moved, the foundation stays the same and you don’t change the roof, it’s not a material improvement. Likewise , if all you are doing is replacing or repairing the component parts of the home, it also not a material improvement. If you do any of these things, you need to provide the builders warranty and you are subject to being classified as a builder.
If you are exempt from the title under the section above, you will need to provide a notice when you sell the property regarding the absence of certain warranties. The notice is contained in section one of the new legislation.
The legislation also changed the definition of a builder in section 6 of the legislation (401.003 of the act) to add those persons who sell or contracts for the construction of or the supervision or management of the construction of a material improvement to a home (other than replacing a roof) or an improvement to the interior of an existing home where the cost of the work exceeds $10,000.00 (prior law was $20,000.00).
The legislation also defines, for the first time, “improvements to the interior of an existing home” [which] means any modification or installation of permanent fixtures inside the home. An improvement to the interior of an existing home does not include improvements to an existing home if th improvements are designed primarily to rep[air or replace the home’s component parts. Thus changing existing faucets is OK; putting in a new sink where none existed before includes you in the definition.
Why is this important?? It’s important because if this applies, you are classified as a builder and builders need to register, take continuing education,operate to building code standards, provide warranties etc etc..
What’s it all mean?? It seems(and this is just my opinion) that rehabbers who do minor rehabs, carpet, paint, change fixtures, fans, etc will be able to operate as beofre. Those rehabbers that change walls, add or subtract square footage, modify the roof, add additions, spend over $10 K, or make serious changes to a dwelling, will, at the very least, be required to provide the builder’s warranty (which can be provided by a separate warranty company- but not teh usual home warranty company mentioned in the TREC contract though). In addition, doing the extensive rehabs will likely result in a classification as a builder, requiring registration and all that entails.
On a macro level, it will mean that less houses will be rehabbed by non-builders. You can debate the policy implications of this all you want, but the effect is to require more regulation and (presumably) more competent licensed persons doing major rehabs.
Rehabbers need to be very careful with their projects and each project needs to be examined as to what is being done to determine if the warranties need to be given. If you have any doubt, it’s best to get the opinion of an attorney as to whether the project will fall under the Act.
I hope this was helpful to your business. Please give me a call if you have any questions about the new law or about any projects you start after September 1, 2007 that may fall under this new law.
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