This is The Pro Perspective from Houzz Pro, where homebuilders, designers, and industry experts share their views on running a modern firm.

Liza Hausman: Hi, everyone. If you're not yet a believer that a well-written contract is your best path to managing expectations, avoiding disputes, and protecting your business from litigation, today's conversation will likely change your mind. In this episode, I speak with Karalynn Cromeens, an attorney and expert in construction law, about the importance of getting your contracts right.

Liza: Hi, everyone. Welcome to The Pro Perspective. I'm Liza Hausman and I'm feeling really fortunate today to have Karalynn Cromeens here today to share her expertise with all of us. Karalynn's an attorney, owner and managing partner of The Cromeens Law Firm, and an expert in construction law, something that's always a hot topic in our community. Welcome, Karalynn.

Karalynn Cromeens: Oh, thank you so much for having me.

Liza: I know, today, we're going to focus on how contracts and other techniques can help with dispute prevention and mitigation because obviously, prevention would be ideal. Before we dive in, we thought it would be a little fun to ask you. I noticed that you described yourself as sparking change in the construction industry. I'm curious, what change would you like to see most in the industry?

Karalynn: Well, really, my main goal is to reduce litigation and disputes and by doing that through contract clarity and managing expectations because I've been in through disputes, both owner side, residential side, commercial. A lot of the times that you spend years and hundreds of thousands of dollars in litigation that if something would have been done better on the front end, it wouldn't have happened. Going through that experience is very traumatic and makes people want to not join the industry. It shouldn't be that way. I'm really trying to make a smoother transition, make sure everybody can work together smoothly, and then it's an enjoyable experience.

Liza: Love it. What do you think has to happen for that to be the case? What's one thing everybody can do to help with that?

Karalynn: I think, especially in residential construction, a contractor comes into a situation with a certain how things are going to go. An owner comes into this situation with how things are going to go as well. Usually, those two things right off the bat don't match. If we don't take the time to say, "Hey, this is an HDTV," there's going to be issues. There's going to be timeline struggles. There's going to be things that we have to deal with.

If we address those things up front when they happen, they're not such big issues. If we don't get on the same page of what's going to happen on this project, that's when we get into disputes because, like I said, people watch HDTV or their brother-in-law told them it should only take this long and this is how it should go. Then we run into disputes if we don't manage those properly.

Liza: Makes a lot of sense. I guess is there one thing that is currently changing the construction law landscape? I know people are talking about AI. Is there anything that's part of an interesting new twist these days?

Karalynn: Well, I think AI and technology in general, there are so many things. I think construction has been late to the technology game. Still, a lot of people use paper, everything. Then when they end up with me, it's banker boxes full of information that I have to sort through. Now, there's platforms where you can have all your information, have everything, so it's easily accessible.

I think AI is absolutely changing everything because you can see what it's going to look like before it's done, right? I think that's huge to see more and more issues before they actually come to fruition on the job. I think, yes, it's definitely changing the industry. I think people can be stuck in their ways and are slow to change. Transitioning to that, you're going to have to move, we're going to get left behind, is where we're headed.

Liza: Got it. I feel like you're giving a nice plug for Houzz Pro because we're obviously on the same page in terms of, "Hey, you got to make all that stuff digital so you can track what's happening and make it easy to hand over in case there's an issue," but we can talk more about that later. Let's dive into the meat of what we're going to talk about today. I think area one in terms of contracts and covering yourself legally. Are there essential causes every construction contract should include to protect both parties? I thought one of the interesting things that we had talked about earlier is that you mentioned clients often don't realize that contracts cover both the professional they hire as well as themselves.

Karalynn: Yes, it works both ways. First of all, even contractors who don't have a contract are pretty good at having a scope of work. Having that right off the bat is the essential. What are we doing, how are we doing it should all be included in the scope of work, and then specifically saying if it's not in the scope of work, it's not included in the contract, right? I think that's essential that we have everything included in there.

I think probably one of the next things after that would be payment terms. If we're going through these milestones, what's going to happen? Then sending an invoice when we reach that milestone because an owner can see that there's progress, but they might not know that we're at that milestone. If you don't invoice them and let them know and along with that, having in there, if I don't receive payments within five days, I have the right to stop working.

That's another one too, because if you don't build that right in, you don't actually have that right. You want to make sure that they know that this is when we're going to invoice. This is when payment's expected. We can stop working if you don't pay us. Then usually, if you don't pay within 10 or 15 days, we're going to take you off the schedule. You have to wait for our next opening to get back on. Just being up front about that process, right?

Liza: Yes.

Karalynn: I think another important one that contractors don't think about in the beginning is the punch-out process, right? Telling the owners what that is and what it looks like and for a few things, right? One of the main things that I've dealt with angry homeowners in the past is that sometimes when the product's going on, you move to another phase. The phase you just finished isn't 100% done. They can see all these little things that are annoying them and they don't really say anything. It builds up.

If you don't tell them, "Hey, there's this process at the end," when we walk through everything and you're going to tape it and tell me what I need to fix and let them know that, "Hey, I know we're not 100% done," but there is a process for getting all these little things that you want to correct at the end. Then also, that helps the homeowner say, "Hey, we're going to do this punch-out walkthrough list once." You're going to sign off on it. I'm going to do it and then it's final payment, right?

Liza: We're done. [chuckles]

Karalynn: There's no more never-ending punch list. You say, "Hey, if you still have issues afterwards, I can still handle it under warranty claims, but I don't honor warranties and still unpaid and full." Just being up front about that whole process, I think, is hugely helpful of, like I said, managing expectations and letting them know that, yes, we're moving on, but we still know that there is these minor issues that have to be corrected.

Liza: That makes a lot of sense. Again, that expectation-setting piece is so important. Often, we talk to folks and the people who do it well actually include communications like, "Here's how we're going to communicate," or, "Here's when and how. Here's what counts as after-hours and you won't hear from me until tomorrow." There are so many things that can really help with that expectation-setting process.

Karalynn: Absolutely.

Liza: I wanted to ask about cancellation clauses. Is that something that you recommend?

Karalynn: Yes. First, most states require that the owner have the three-day right to cancel with no penalty, right? That's usually because of high-pressure sales that you have a three-day right to cancel on most states no matter what. After that, if the owner cancels the contract, it's technically a breach of contract, right? They've breached the contract just by canceling it. You're, as a builder or the remodeler, entitled to damages for that breach of contract. Those damages would be the profit that you made on the job.

What I try to do in my contracts is I set up a cancellation fee. Yes, you can cancel. Here's what it's going to cost and have it be your profit. You can stagger it as if they cancel at different phases of the job or anything like that. It, number one, lets the owner know that they can't just walk away, right? A lot of owners don't understand that once you sign the contract, it is a binding agreement. They can't just cancel for any reason. It protects you because if they do, the amount that you're owed is built in as opposed to if they cancel, then you have to sue them.

Then you have to prove your damages. Just right there in the contract, if they cancel, here's the amount that you owe. Take it seriously when they sign the contract. If they want to get out, they know how much it's going to cost. I've had contractors be in the middle of the project. The owner, in the middle of the project, find someone else to finish it for cheaper, and they don't realize that there are some-- and so they just fire them. I'm like, "Wait, they can't do that."

Liza: [chuckles] I've heard those crazy stories too. "No, not going to be cheaper." [chuckles]

Karalynn: No, not in the long run. Being upfront about that so that they realize that there is some penalty to doing that.

Liza: Got it. I guess, how do you recommend talking about it? Do you say, "Hey, this is pretty standard industry practice"? Is there any language that you recommend folks use for that discussion?

Karalynn: No. Here's the thing about contracts too. Especially when we draft our contracts, plain English is better. You have to have the three-day right to cancel and you have to have things in there like that. California has a whole lot of other things that has to be in a residential contract. That's all in bold print. Besides that, the part that you should write should be in plain English.

When you're going over the contract with the owner before they sign, you might say, "Hey, this is in here. This is industry standard." This is going to protect me if you cancel. Now, all of a sudden, I have this huge gap in my schedule, right? I've laid everything out. I have everything ready to go. Now, you're going to cancel. I'm going to be damaged by that. Just being upfront, I want to plan on us having a successful relationship, but here's my boundaries.

Liza: It's helpful to walk through the actual contract. Do you find that you make a bulletpointed talking point list like, "Hey, here's the section"? Bottom line is you can't cancel without penalty because, obviously, even if you're putting it in plain English, more language in there, and then maybe you can put into a conversation. What do you think is fair or right?

Karalynn: I think going over the highlighted points like that, change order, payment schedule, just walking them through that, because sometimes they don't even read it and then we're in real trouble because they just sign it. They're like, "Okay. Sign, sign, sign," and they don't read it. It really can't manage the expectations. That's not your fault as a builder. You can say it before we send the contract over, "Here are some things I want you to know," or how to schedule a contract-signing meeting where we can go over it before you sign and you can ask me any questions.

Liza: Do you find those conversations sometimes happen even pre-contract phase like even in the earlier days of like, "Hey, here's what I'm all about. Here's what it's like to work with me"?

Karalynn: I agree, yes. With the good contractors, absolutely, because they don't have anything to hide and they want to be upfront. I think once I have the experience of going through it a couple of times that it's better to do it that way. Everybody's afraid like, "I have this big contract. Nobody's going to sign it." Not really if you go through the important points.

Liza: Makes sense. Obviously, you do want to walk away from anyone that's going to be trouble. Better to get it out there. I know some design-build firms. They do two separate phases and two separate contracts of a design phase and there's a contract for that. Then if they're happy, they can sign the construction phase for that design work. It sounds like it's probably something that's healthy for the builder as well. Because if the design phase is unpleasant, it seems like it's got warning bells going off. They could cut ties with that homeowner at that point. Is that an experience that you've seen?

Karalynn: Yes, that's what I tell my guys is if we're doing a big project, the design phase-- and here's the other thing too. A lot of contractors do all that design work or a portion of it or we'll be at designer meetings or meet with people without charging for it, hoping to get the job, right? It's kind of, "Let's do this. You can get compensated for your work." It doesn't have to be anything overly expensive, but we are going to get paid for your work. At the end, the plans are theirs. You can decide if you want to move on with them or not, but that also, you're getting a chance to work with these people, see how you're going to work together.

I have a new book coming out on residential contracts called Trust Your Gut. I call it that because almost every contractor I've been in litigation with is like, "I knew from the beginning I shouldn't have taken this job." It's like a first date. It doesn't get any better. Trust your gut. Listen to it because that's what everybody says at the end of the day. I'm like, "Yes, there were signs." If you do the design phase, especially on a big project, it'll let you get comfortable working with somebody, or if you don't, if you're not going to work with somebody.

Liza: Any good examples of what those signs are? Have you experienced them?

Karalynn: Yes, so overly demanding like refusing to sign the design contract and making you meet with designers and all of that kind of stuff and just going beyond the scope, multiple site visits without being considerate of your time, right? They could have a list of questions, but they forget. They don't want to talk over the phone, so you have to come out several times. Questions about the contract are good. Minor revisions maybe, but if they want to rewrite your contract, probably not a fit. You can just tell from dealing with somebody if they value your time or if they think you're worth it or if they're treating you--

Liza: Interchangeable, yes. That makes a lot of sense. All right. One last contract, I guess, question is, how often should contracts be updated?

Karalynn: Okay, so I think a contract is a living, breathing thing. In your business, there are things that are going to happen. You'd be like, "I don't want to do that again," so I'm going to add it to my contract. I have remodelers that have had homeowners had cracks in their driveway. They blamed it on the trucks and they wanted a new driveway.

They added to their contract, "We're not responsible for any cracks on driveway because we have heavy trucks coming in and out. That's going to be part of it." I think in that respect as you learn things and as things become important to you, you add it to your contract. Now, as far as state laws updating, every five to six years is probably more than enough because, usually, they don't update, especially this area doesn't update that often.

Liza: I guess you find people come to you when there's been a trigger like, "Oops, my contract needs to cover something that happened that I don't want to happen again."

Karalynn: Exactly.

Liza: Makes a lot of sense. All right. As we think about contracts, obviously, are all the ways to set expectations, try to prevent disputes. Let's talk a little bit more about that and just communication in general. I think we already talked a bit about how builders use the contract to manage expectations at the start of the project. When they also use it throughout the project, then do you find that it's helpful to refer back to it if things come up in the course of the project?

Karalynn: Absolutely. It kind of outlining, "Was this included in the scope or not or this could be an extra change order?" Just like the change-order process, how is that going to happen, and walking through that? I think touching back to how things are going to operate, it's always a good idea, especially having a well-written contract.

Liza: Let's talk a little bit about difficult conversations. This is always a hot topic and people are always interested in this. I think maybe experience and practice do help, but I think one example is I think a lot of folks sometimes just roll over onto dispute because they're worried about getting paid. Even if it's in the contract, they're still uncomfortable having the conversation or uncomfortable saying no. Do you have any advice on handling some of those difficult conversations?

Karalynn: Absolutely. I can tell you from my experience that don't give things away in your contract. Here's why is that once you start doing that, you open the door. Then they keep asking and they keep requesting for free things and you keep giving it to them. Then the free things that you do, they don't like, and then you've got to go redo them. It becomes where that you're like a doormat. They don't value your time.

If you're not going to stand up and say, "Hey, this is what we agreed to. I would love to do that for you, but here's what's going to cost extra." You don't have to be mean about it or anything, but just being upfront about it. Every time we get into that cycle of, "Well, I'm going to do this because he asked me to," and not get a change order for it, something changes psychologically in the relationship where you've let your boundary down. Now, they're going to see how far they can push it. Like I say, there's lots of places for charity. Your construction contract is not one of them. [laughs]

Liza: I love that. I think that's a great way of saying it. I also think being willing to be transparent, explaining why it costs you money, explaining where the costs are so that you're not just saying, "Oh, I'm being difficult," or, "I'm not willing to do this. I'm willing to do anything, but here's why the materials cost me money. The time cost me money. The crew cost me money," here's why so that they have the facts. Sometimes people just need to understand.

Karalynn: Exactly that. You're not going to pay my guys to come out here. My business has to make money. I can't be out here doing things for free. That's to say like if a dispute happens and there's something that needs to be corrected or something that you did wrong, my best advice is let's have a conversation about it, and then follow it up with an email, "Okay, we had this thing that went wrong. Here's the correction steps we're going to take."

That way, it's in writing that, yes, there was an issue and here's how we corrected it. Once we get into these disputes, all of the things you thought were resolved are going to come back up. Unless we have a paper trail to say, "Yes, this was the issue and here it was resolved," and I sent you an email and never heard anything back, so I figured it was resolved, it will just come back again. Then it's your word against theirs.

Liza: Phone calls are great. Relationship-based, have that a conversation by phone if you're comfortable, but then you always have to say, "Hey, just got off the phone with you, wanted to confirm. Let me know if any of this was misunderstood.

Karalynn: It's like if you have your platform, I'm sure you can message your clients in there and have it all in one place or save the emails to their job file, so it's always there, but just something in writing.

Liza: Makes a lot of sense.

Karalynn: I'm a lawyer. It makes my life so much easier that everything is in writing just to follow up.

Liza: Yes, I know we talk about Houzz Pro and our software. It's the central source of truth because you're documenting everything, whether it's job site documentation with photos or emails and texts that are going back from the client or getting signed or client approvals and what you're going to order or buy, having all of that in one place.

Karalynn: Absolutely.

Liza: You can always refer back to it and say, "Hey." You can see this yourself. I don't have to dig it up and send it to you all over again. I think that documentation is such a great way to keep everybody on the same page.

Karalynn: Pictures on the timeline of the job, that really is the best evidence is the timeline of the project or the job as it's going on, right?

Liza: That schedule, yes.

Karalynn: At that point, there's no disputes. We've got nothing to hide. Everything is going the way it is, whatever way that is. At the end, that's when things try to get changed or we have a complete timeline. It's really hard to go against that.

Liza: Yes, right. Plus, the daily logs, you've got, "Hey, this happened. Here are the photos. This was installed. Here's what's behind the walls." All of that is a big safety net for any company.

Karalynn: Absolutely.

Liza: I give my two cents too, but when a client leaves a negative review, how do you recommend your clients handle that?

Karalynn: From a legal perspective, there's not a whole lot I can do in the court system about it, right? There are some things you can build into your contract. I've had some clients add, "Before you leave a negative review, we have to go to mediation," or something like have some kind of discussion before they can leave the negative review. I do think a lot of homeowner clients use that as leverage to get something that they want because they know how powerful it is.

It puts you between a rock and a hard place. What I tell my clients, you're like, "Put something like that in your contract." After that, your money is better spent trying to get more positive reviews than trying to fight about a bad one, right? In the court system, there's not a whole lot we can do to take those down. If they're fake and they're not real people, yes, maybe. If somebody have a client telling their side of the story, you can put up your response, be respectful, and say, "This is what happened."

Besides that, if we have an open dispute, obviously, if we go to court or mediation, usually, part of the settlement is to take down those bad reviews so that they'll be taken down. Besides that, I would really focus on going out and getting more good reviews as opposed to trying to argue. Once you tell them that they have that power, then it's just going to get worse.

Liza: Yes, I think that's interesting. I guess two points I'll make. One is similar to what you did, which is it is important to tell your side of the story. We always recommend if you're not able to remove it, leaving it unresponded to is never a good idea because it doesn't look like you're paying attention. If you're like, "Oh, well, I took these 80 steps to address your issue. You wouldn't take any of that," then you look like you're very reasonable.

Having that very measured, reasonable response, I made every best effort, but you wouldn't come to the table, and all your other reviews are positive, then it's a blip. The other one I've heard some contractors do is they pick off the project saying, "Hey, at the end of this project, I want you to be able to leave me a glowing review." If at any time during this project, you feel like you can't do that, please let me know because I want to make it right. As opposed to as one way of just encouraging things, not the factor, obviously, it may still happen, but I think setting the expectation-- because I think you're right, having it in the contract, you start to get like, "Oh, they've got this power."

Setting the expectation of like, "I want you to be super happy," is more of a positive customer service, client service approach that I think we found a lot of folks are successful with because then they're like, "Okay, they want me to be able to leave a positive review." Some folks are uncomfortable giving the feedback. They're worried that Houzz Pro will stop working or something won't get done right. They're afraid to give any feedback during the course of the project. Maybe it'll slow down or something. Leaving that door open to take feedback, I think, is great.

Karalynn: I think that's a great approach. Just being up front, "I want you to be able to say this, so tell me if there's something you don't like or you're uncomfortable with." I agree completely.

Liza: I'm trying to think. The other things that happen are that, all of a sudden, you get a demand letter out of the blue or maybe not so out of the blue. How do you go from there to avoid litigation?

Karalynn: The first thing you do when you get a demand letter is make sure you have your whole file together. Usually, at that point too, I'll tell you, take the time to make a written timeline if you don't have everything already saved, but just how the project happened. In some states, there is a right for a contractor to respond before a lawsuit is filed. There's a whole process that you go through where you get to go inspect and make an offer. Before, they can have the right to sue you.

Then if they don't accept your offers, there's some limitations on what they can do in a lawsuit. I think more and more states are jumping on that bandwagon. That's good. I think that process can happen anyways even if your state doesn't allow it. The main thing that you have to do is respond. I recommend hiring a construction attorney to respond for you. If you can't, at least you respond with everything that happened because at least that response is in the record.

If you get sued, it's there that you responded, or you wanted to come out and finish, or you offered money, or something like that. The litigation process doesn't happen fast as long as you appear. If you don't appear, they will win by default. I've had several clients over the years just ignore the demand letters. They get sued. They ignored that. Then the constable shows or the sheriff shows up trying to take assets. The process will go very fast if you ignore it because you will get a judgment against you.

The best thing you can do is hire an attorney to do a response. Usually, what I tell my clients when they're in that phase, we're going to look at everything. We're going to make an offer that you're a little more uncomfortable. Make an offer that you're a little uncomfortable giving because here it is at the end of the day. If we can settle it now, it might cost you more than you want to give. You're not going to waste two years of your life, hundreds of thousands of dollars in litigation.

Your money and your time is better spent looking forward than dealing with stuff in the past. I really try to bring them to the table. Sometimes people are unreasonable and you just can't, but at least you can say that you tried. When you're two years into this, you'd be like, "I've tried this whole time to make these people happy and it just didn't happen." Like I said, the process doesn't go that fast as long as you don't ignore it. You definitely need to respond.

Liza: 100%. You mentioned the time and you mentioned the money. The third thing I'll add, I grew up with an attorney father. I heard this all the time when he was working with people. Just the mental aggravation and stress associated with it is also another reason to tell. It's like you want to be right. You want to get what you deserve and you want to punish them. Mentally, being able to just leave it behind and move on is often worth a whole lot in your life.

Karalynn: Yes, it's a special situation. Here's the thing is that you come into a situation thinking your story is the only story, right? Good attorneys can make your story look not so good. Not even that it was that way. The whole process of it, the discovery, the depositions, it's exhausting. The other thing you always have in the back of your mind is you don't know how it's going to end, right?

Liza: Right.

Karalynn: At least when you make a settlement offer, you know how it's going to end. It's over. If not, it's up to you.

Liza: Having closure and having it quickly is often best all around.

Karalynn: Make the payments and say a prayer for them and move on.

Liza: [laughs] All right. I'm going to live my life for the right way and here we go.

Karalynn: Exactly.

Liza: We've talked about homeowners and managing them. Let's talk a little bit about subcontractors and risk management around subs. I know this has been a big area of legal focus for some time. Let's talk a little bit about what kind of subcontractor agreements should you have in place. How do you mitigate any risks there?

Karalynn: I think it's always a good idea to have a subcontract and for a couple of reasons. Mostly to limit liability, right? That's what we're working with on the sub. The first reason, obviously, we have insurance requirements in the subcontract. The first one is we're going to be added as additionally insured to the subs insurance. Here's why that matters is that only the insured can file a claim.

Say you're working on a job. I actually had this happen is a client hired a subcontractor. I think he was putting lights in the wine cellar and accidentally hit a sprinkler line. The sprinkler system for the fire protection went off. There was nobody to turn it off for the entire weekend. It flooded this brand-new house. My client was able to file on his subs insurance because he was added as additionally insured.

If he wasn't added as additionally insured, he could make a claim against the sub. If the sub wouldn't file a claim against his insurance, then he would have to file on his own insurance. It would be picked up by your own insurance, but it's just better to have the ability to do it on your own, right? You don't have to get them like the sub goes out of business or something like that. If something happens later on the line, you'll have the right to file on their insurance on your own behalf and not wait for them to do it.

The second thing is they're responsible for their own workers. Workers' compensation required. They have to have workers' compensation insurance. The fact that you have a subcontract proves that there's a subcontractual relationship, right? If you don't have that contract, what could happen is somebody could say that they're your employee if we don't have that contract. I've seen that happen all the time. Your workers' comp won't pick it up because you're saying they're not an employee. Your general liability won't pick up injuries like that.

You're really in a pickle with that. If one of your subs guys gets hurt on the job and they sue you and they sue the owner for personal injury, it can be a really big mess. Two, the other thing a subcontract should have is that the sub is not entitled to be paid until the owner approves of the work and pays you. That way, you're not having to pay out if work needs to be corrected or redone. What I set my subcontracts up, we do a master subcontract, which means the subcontractor only has to sign it once.

That has the insurance requirements. They only get paid once the owner approved to work, all of that stuff. Then for each project, you just issue them a work order or a PO. All the work they ever do for you will be under that master sub. They don't have to sign a new subcontract every time, but they're still under those requirements. Now, it still does. You'll have to, at least once a year, get new certificates of insurance to make sure that your files are updated. Once you have it there, it protects you, and then you're good to go.

Liza: If a sub goes out of business or no longer has insurance after the project, but you were added as an additionally insured on that project, will the insurance still cover it since it was insured at that time?

Karalynn: Yes. If it was covered at the time it was doing the work, that's the insurance that will apply. If he doesn't have it in the future, it doesn't matter. That's why I went to make sure we get everything updated either six months or every six months or once a year.

Liza: Yes, that you have their insurance information that you know it's up to date. Yes, that makes sense. Is there a process you recommend? I know we have a system for it, but for collecting those, that insurance information or enforcing the insurance requirements, how will you manage that practically?

Karalynn: It depends on what kind of system you have, setting yourself reminders to ask for it. Working for you can always withhold payment until the insurance requirements are met. To say, "Hey, I want to issue your payment, but I need your updated insurance before I can issue payment," is really the best way to make sure that you can enforce it and just staying on top of it. Your subs are representing you, so it's really good to try to have a document that sets forth your same standards, right? Make sure you're all on the same page.

Liza: Are there any other payment disputes other than the sub only getting paid when the homeowner approves the work that come up and how would you recommend managing those?

Karalynn: Another thing that comes up from time to time is if the owner tries to hire the sub directly, right? That's something we put in the subcontract. You can put it in your contract with the owner as well just to say, "Hey, all changes or all additional work go through me. You can't hire my subs." The sub can't be hired by the owner to try to cut you out of any additional work because I see that happen quite often too. It really depends. Usually, if you work with a sub for a while and it's not an issue, there really won't be a payment issue.

They're really willing to work with you, but it does happen. Obviously, in your contract with your owner, you're indemnifying them from any claims from the subs that you have to handle like lien claims or anything like that. Having a subcontract of saying, "Hey, you're not entitled to payment until this happens," is really a great key defense. If they're trying to file a lien or whatever and you say, "This hasn't happened yet. You're not entitled to payment," it's really a good way to resolve the disputes up front.

Liza: On the list of things that are new and developing, let's talk a little bit about climate change and natural disasters. I was recently at Harvard Joint Center for Housing Studies meeting. The whole topic of the meeting was climate change and natural disasters. It was very interesting because it's a subset of contractors that are like, "Yes, I'm all over this." Then others that are like, "This has no import on my business," and they're not really thinking about it. I'm curious with your view and obviously being based in Florida, what you're seeing out there. [chuckles]

Karalynn: Natural disasters, then you get into the question of insurance and the contractors that work as remediation contractors. First, most states, especially most coastal states, have specific requirements if you're an out-of-state contractor coming in to do work in their states. I would recommend if you're going to do that, know what those state requirements are because they have some pretty steep penalties.

You're not entitled to be paid for the work that you do. If you're coming in from a state that doesn't require you to be licensed and you have to be licensed, it's another thing you need to look into before you just jump into it. Some of them, you can't require deposits. Then the second part of that is dealing with the homeowner and the insurance company, right? As natural disasters arise, the contractor isn't entitled to payment from the insurance company directly. It has to go through the homeowner.

The insurance company doesn't have any requirement to pay the contractor directly, so just taking that into sight if you're going to start doing this type of work because sometimes homeowners can get large checks and not want to give them up. Unfortunately, we see that a lot of time in remediation work. I think with natural disasters happening more and more often, I think there's going to be tons of work, but we want to make sure we get paid for the work.

Liza: Right. What about the original contractor? I thought it was interesting. In North Carolina, it sounded like the state or county just turned a blind eye on the building codes people put in place to try to protect them, some of that. Is there any responsibility for the contractor if they got a pass, but they really didn't build it to the latest flood code or whatever there is? I'm curious, your thoughts on that.

Karalynn: Unfortunately, even if you went through and got everything inspected and everything passed inspections, if it's not built to code, you're still on the hook for it. The city or the state authorities that inspect those things have no liability. You can't sue them at the end of the day like, "They approved this." No, yes, there's no liability there.

Liza: That's interesting. [chuckles]

Karalynn: Knowing what those things are and that they're required and just being conscious of whether-- Don't get me wrong. You're going to fall back on, "Hey, they said it was approved," but that's not a defense if it's a construction defect, unfortunately.

Liza: It sounds like homeowners also should just be getting homeowners' insurance that is appropriate for their area, which is becoming very expensive but difficult. Yes, I know. Personally, it's difficult and expensive to get--

Karalynn: Exactly.

Liza: Four big takeaways from our conversation today. Be proactive in setting expectations, right? Put it all in the contract and walk your homeowners through it. Number two, document, right? Ideally use some sort of software systems. The documentation happens automatically for you and your team in the normal course of work because you have to remember every time to do something right. It becomes difficult, especially for teams. Respond, right? Whether it's demands or reviews, you don't want to ignore when you receive that feedback and then making sure the appropriate insurance for you and your sub your business is in, is in place. Anything that you would add to that list or any last piece of advice?

Karalynn: I think, obviously, construction's always going to be here. I think we do these steps. It'll be a more enjoyable experience for the builder because they love what they do and for the homeowner. I think it really helps make the industry run smoother.

Liza: Fantastic. Again, so appreciate your time and your advice on getting these things done right up front so that there's less litigation happening in the industry.

Karalynn: Absolutely.

Liza: It's painful for everyone involved. Terrific. Well, thank you so much, Karalynn. You're fantastic. We've got folks that are watching and folks that are listening. For the folks that are listening, Karalynn's got a great background, including the neon sign that says, "Get shit done," which I think we're all aligned with. Love it.

Karalynn: We all want to get shit done. [chuckles]

Liza: Yes, wishing everybody a productive "get shit done" 2025. [laughs]

Karalynn: Absolutely. Well, thank you so much.

Liza: Thanks, Karalynn. Take care.

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