Underground deals dangerous for homeowners

The Winnipeg homeowner thought the renovation price looked like a great deal. The contractor said he was "in the neighbourhood" anyway and would waive the seven per cent Goods and Services Tax on the job. The estimate for the work, which involved replacing gutters and painting the exterior, was much lower than quotes from other companies.

In what would prove a costly mistake, the homeowner went with the deal -- and joined Canada’s underground economy. It was only when the contractor walked away before the job was finished, deposit in hand, that the homeowner realized that he didn’t have a legal leg to stand on. The verbal contract had been structured to avoid paying taxes and was therefore null and void.

And the homeowner was lucky to escape with just a poor and unfinished job. Since the underground contractor did not have Workers Compensation Board coverage, or any liability insurance, the homeowner could have literally lost his house had a worker fallen from the roof, for example, and launched a lawsuit.

Underground renovation work has mushroomed in Canada since the introduction of the Goods and Services Tax in 1991, which slapped a 7 per cent tax on both labour and materials. While it is hard to nail down the exact size of the secretive market, the Renovators Council of Canada, representing professional renovation companies, estimates that up to 40 percent of home repairs and improvements are now being done "under the table" in some markets. Other studies peg Canada-wide underground renovations at 14 percent of total spending. In any event, it represents a multi-billion dollar share of the $25 billion spent annually on home renovations.

The problem has become so pronounced that, since March of 2000, Canada Customs and Revenue Agency requires that businesses whose principal activity is construction must report the name, address, amount paid, and Goods and Services Tax (GST) registration number or Business Number of their subcontractors. This hasn’t really helped much, though, since underground operators specialize in erasing any paper trail.

The real fight against the underground, therefore, has to start with the homeowner.

Don't make the mistake of falling for the "deal" that could turn into a real nightmare, exposing you to lawsuits, financial liens or liability for workplace accidents or injuries.

Make sure you get proof of protection from these risks. Ask the contractor for insurance and Workplace Compensation certificates. Make sure your written contract spells out who is responsible for getting building permits and approvals. And because most homeowner's fire and liability insurance doesn't cover construction-related risks, contact your insurance company before construction begins, inform them about your renovation project and make arrangements for any additional coverage needed.

Always get a written contract that states what work will be done, what it will cost and how payments will be made. Never agree to anything before you have it in writing.

A contract is important for a number of reasons. Without one, there is little you can do if the work is of poor quality or incomplete. You risk being charged far more than you expected. And it's unlikely that you can enforce any warranty or after-sales service promises.

Also, a proper written contract gives you specific legal protection should your contractor go bankrupt or fail to pay for the materials and labour that go into your project. Without this, you could face liens and have to pay suppliers, even if you already paid the contractor. Without the proper municipal permits in place, the homeowner can be forced to have work removed or altered after it is completed.

Professional contractors always provide customers with a clear, written contract. If any contractor knocks on your door with a cut-rate, no-tax, no-paper deal it may represent the most expensive mistake you could ever make.

By: Frank O'Brien
October 18, 2001

Copyright 2001 Inman News Features
Distributed by Inman News Features