Many home improvement contracts contain a mandatory arbitration clause. Prior to
signing a contract, it is important that you know what arbitration is and what it means for you. By entering
into a contract that has an arbitration clause, you may be giving up important rights, such as going to court
and being able to present your evidence to a judge or having a Guaranty Fund hearing before the Home
Improvement Commission in the event a dispute arises between you and the contractor.
What is Arbitration?
Arbitration is a process for settling disputes related to the contract. Many contracts contain a
mandatory arbitration clause. Arbitration is usually conducted by a person who is not a judge or an
organization that provides arbitration. Typically arbitration that is required by a contract can be either
appealed to a court for review or converted into a legal judgment following a petition to the court.
The Maryland Home Improvement Regulations require that a mandatory arbitration clause in a home
improvement contract contain the following information:
- the name of the person or organization that will conduct the arbitration;
- whether any mandatory fees will be charged to the parties for the arbitration and list the fee schedule;
- whether the arbitrator's findings are binding; and
- a disclosure that a claim against the Guaranty Fund will be stayed until completion of the mandatory
In addition, the MHIC Regulations require that each party to the contract sign their initials and write
the date next to any mandatory arbitration clause contained in a home improvement contract.
Arbitration Clause Is Enforceable Even If It Does Not Comply
Please note that even if an arbitration clause does not comply with the MHIC requirements, it
nonetheless is enforceable between the parties. MHIC has the discretion to take regulatory action against
any contractor who uses a home improvement contract that contains an arbitration clause that does not meet
the MHIC requirements.
MHIC and Arbitration
When MHIC receives a complaint or claim against the Guaranty Fund based upon a contract that contains an
arbitration clause, the parties will be notified that they must submit their dispute to arbitration prior
to proceeding to a Guaranty Fund hearing.
Even though MHIC will stay a claim against the Guaranty Fund because of the arbitration clause, the
parties still have the option of participating in MHIC's free and voluntary
mediation program. If the parties are able to resolve
the dispute through mediation, then MHIC will close the complaint.
Effective March 2011, each complaint that is based upon a contract that contains an arbitration clause
is a public record and is part of the contractor's complaint history.
If the homeowner prevails at the arbitration proceeding and files a claim against the Guaranty Fund,
MHIC may issue an award from the Guaranty Fund in favor of the homeowner and against the contractor based
upon the arbitrator's decision. If the arbitrator's decision is not clear or lacks a specific finding of
"actual loss" as defined in the Home Improvement Law, then MHIC may schedule an administrative hearing
based on the Guaranty Fund claim.
If the contractor prevails in arbitration, then MHIC will dismiss the homeowner's Guaranty Fund claim.
However, MHIC still may pursue regulatory charges against the contractor regardless of whether the Guaranty
Fund claim was dismissed.
The information contained in this flyer is not legal advice. If you have questions regarding
arbitration, you may want to consult an attorney. MHIC staff cannot provide legal advice.
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