Many contractors believe that putting an arbitration provision in their construction agreement is a good practice. While the benefits of arbitration are increasingly questionable, the arbitration provision remains a common component of many construction contracts. For more on whether the arbitration provision is right for you, please read this article: Arbitration Provision in Construction Contracts: Is it right for you?
However, pursuant to G.B.L Section 399-c, mandatory arbitration provisions in construction contracts for residential home improvement are void. This is a little known fact to many contractors. Because the provision is void, it is better to not include it any of your residential home improvement agreements. The reason is that the provision is void at the option of the home owner/consumer. By keeping the provision in your contract, you risk giving the right to arbitrate solely to the home owner. Should you chose to litigate, the home owner can force arbitration. Should you chose to arbitrate, the home owner can chose to void the provision and proceed to litigation. Putting this much power in the home owner's hand is likely not what you intended and can lead to a significant increase in your initial legal costs and you fight the home owner over the course of dispute resolution to pursue.
Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law. He can be reached at (631) 752-7100 or email@example.com