Inspection Professional Service Agreements

Reviewing E&O claims from inspectors reinforces our recommendation that all inspectors use a professional services agreement (PSA). What’s more, we recommend that it be presented to the client for review and executed prior to an inspection. Most inspectors are conscientious about obtaining a signed PSA before commencing work. Many obtain executed PSAs via email or facsimile days before the actual site inspection.

However, we often see questionable PSAs. Is it time to review and update yours?

Reviewing, updating and making corrections to your PSA will not only protect you, it also will help your clients know what to expect by explaining the scope of the inspection, specifically what items will and will not be inspected. An effective PSA must include this information. If you buy Errors and Omissions insurance, your insurance company may have a basic PSA template that a local attorney can customize to comply with your state’s requirements.

Although it is not a complete list of what should or should not be included in a PSA, here are some common errors and inconsistencies we often find:

1. Using a generic contract (PSA) that has not been customized to include the particular laws in the state where the inspector is doing business. If you are using a generic PSA, study your state’s laws regarding inspectors to ensure your PSA is consistent with those laws. We have seen PSAs with stipulations that are contrary to state law, such as a statute of limitations that is inconsistent with that provided by law in the inspector’s state.

2. Lacking notices required by state law. Many states that regulate home inspectors require specific notices be included in the PSA and sometimes in the report. Requirements are more than guidelines. Requirements must be followed. Additionally, if your state requires inspector disclosures (such as of qualifications or association affiliation), be sure to have the disclosure document acknowledged by the client. Always keep the original versions of signed documents. Provide clients with a copy for their records and include a copy with the inspection report.

3. Keeping in a specific paragraph that ends with “not legal in state of ____.” If a provision is not legal in your state, delete it from your PSA. Leaving it in confuses clients.

4. Being inconsistent within the PSA. Don’t say one thing in one part of the PSA; then contradict that provision later on.

5. Failing to identify a specific Standard of Practice (SoP). We see PSAs that merely say, “The inspection will be performed per the Standards of Practice.” You need to identify the specific SoP. If your state has a codified standard, you need to identify it as the SoP. Generally, as an alternative, it is acceptable to identify a state SoP and an association’s SoP, including a statement similar to the following: “Where_____   association and state SoPs differ, the state SoP will prevail.” Consult your attorney for the preferred wording. Additionally, if your PSA states that the SoP is provided, be sure to include it — best as an “appendix” or “exhibit” item. If you say in your PSA that the SoP is available, be sure to say where it is available.

6. Improperly identifying applicable law. For example, if you include a venue clause, also called a forum selection or consent to jurisdiction clause, be sure to identify the law of the state where you inspect as the applicable law.

7. Using an arbitration clause improperly or an inadequate arbitration clause. We recommend including an arbitration clause for dispute resolution in PSAs; however, some states prohibit arbitration clauses. Other states require that the client initial or otherwise affirmatively indicate his or her consent to arbitration as dispute resolution. You should consult your attorney to determine which rules apply in your state.

8. Identifying a single entity as arbitrator. We do not recommend identifying a single entity as the arbitrator — the entity might cease operations, as Construction Arbitration Services, Inc. (CAS) has done. If your contract identifies CAS as the arbitration service, you should update the contract.

The following arbitration clause language has been suggested by some legal experts. Please note: You should have this language reviewed by an attorney familiar with the laws in your state so that, if necessary, it can be customized to conform to state law. We recommend not using this clause without having it reviewed by an attorney knowledgeable about the applicable law in the state where you perform the inspection. Typically, an arbitration clause must be at the end of the contract and sized at least in a 12-point font.

DISPUTE RESOLUTION — ARBITRATION CLAUSE

Any dispute, controversy, interpretation or claim including claims for, but not limited to, breach of contract, any form of negligence, fraud, or misinterpretation arising out of, from or related to, this contract or arising out of, from or related to, the inspection or inspection report shall be submitted first to a Non-Binding Mediation conference and absent a voluntary settlement through Non-Binding Mediation, to be followed by final and Binding Arbitration, if necessary, as conducted by Construction Dispute Resolution Services, LLC or Resolute Systems, Inc., utilizing their respective Rules and Procedures. If you would like to utilize the Mediation or Arbitration services of another dispute resolution provider other than one of those so stated, please submit your recommendation to us for our consideration. If the dispute is submitted to Binding Arbitration, the decision of the Arbitrator appointed thereunder shall be final and binding and the enforcement of the Arbitration Award may be entered in any Court or administrative tribunal having jurisdiction thereof.
NOTICE: YOU AND WE WOULD HAVE A RIGHT OR OPPORTUNITY TO LITIGATE DISPUTES THROUGH A COURT AND HAVE A JUDGE OR JURY DECIDE THE DISPUTES BUT HAVE AGREED INSTEAD TO RESOLVE DISPUTES THROUGH MEDIATION AND BINDING ARBITRATION.

CLIENT INITIALS X____________ (Required in TN and others)

 
Some inspectors prefer to handle their own claims and complaints. If you refund the fee, or any part of the fee, do not rely on a notation on the refund check; get a signed release. Additionally, if you perform or have someone perform any repairs, get a signed release. Do not assume the client will go away and not complain about another issue. Do not assume that because you did not get paid or because you refunded the fee, that you are safe from any further exposure. Get a signed release. Below you will find release language recommended by some experts. As with the arbitration clause, you should have this release language reviewed by an attorney familiar with the laws in your state and customized, if necessary. Do not use this language without having it approved by a knowledgeable attorney. Have all releases signed by the claimants in the presence of a notary and verified by the notary.

RELEASE
FOR THE SOLE CONSIDERATION OF (dollar amount spelled out AND 00/100 ($0,000.00) DOLLARS, RECEIPT AND SUFFICIENCY OF WHICH IS HEREBY ACKNOWLEDGED, THE UNDERSIGNED DOES HEREBY AND FOR MY/OUR/ITS HEIRS, EXECUTORS, ADMINISTRATORS, SUCCESSORS AND ASSIGNS RELEASE, ACQUIT AND FOREVER DISCHARGE

A. (Inspectors Name); AND

B. (Your Company Name); AND

HIS, HER, THEIR OR ITS AGENTS, SERVANTS, SUCCESSORS, CO-INSURERS, HEIRS, EXECUTORS, ADMINISTRATORS AND ALL OTHER PERSONS, FIRMS, CORPORATIONS ASSOCIATIONS OR PARTNERSHIPS OF AND FROM ANY AND ALL CLAIMS, ACTIONS, CAUSES OF ACTION, DEMANDS, RIGHTS, DAMAGES, COSTS, LOSS OF SERVICE, EXPENSES AND COMPENSATION WHATSOEVER, WHICH THE UNDERSIGNED NOW HAVE/HAS OR WHICH MAY HEREAFTER ACCRUE ON ACCOUNT OF OR IN ANY WAY GROWING OUT OF ANY AND ALL KNOWN AND UNKNOWN, FORESEEN AND UNFORESEEN DAMAGES AND TO THE CONSEQUENCES THEREOF RESULTING OR TO RESULT FROM A HOME INSPECTION CONDUCTED AT OR NEAR THE PROPERTY LOCATED AT (Inspection Address), ON OR ABOUT (Inspection Date).

IT IS UNDERSTOOD AND AGREED THAT THIS SETTLEMENT IS THE COMPROMISE OF A DOUBTFUL AND DISPUTED CLAIM, AND THAT THE PAYMENT MADE IS NOT TO BE CONSTRUED AS AN ADMISSION OF LIABILITY ON THE PART OF THE PARTY OR PARTIES HEREBY BEING RELEASED IN THAT SAID RELEASES DENY LIABILITY AND INTEND TO MERELY BUY THEIR PEACE.
THE UNDERSIGNED HEREBY DECLARE AND REPRESENT THAT THE DAMAGES SUSTAINED MAY BE PERMANENT AND PROGRESSIVE AND IN MAKING THIS RELEASE IT IS UNDERSTOOD AND AGREED THAT THE UNDERSIGNED RELIES WHOLLY UPON THE UNDERSIGNED’S JUDGMENT AND/OR THE ADVICE OF COUNSEL AS TO THE NATURE, EXTENT AND DURATION OF ANY SAID DAMAGES AND THE ENTERING INTO OF THIS RELEASE IS MADE WITHOUT RELIANCE UPON ANY STATEMENT OR REPRESENTATION OF THE PARTY OR PARTIES HEREBY BEING RELEASED OR REPRESENTATIVES OF SAID PARTY OR PARTIES.

THE UNDERSIGNED DO FURTHER HEREBY DECLARE AND REPRESENT THAT NO PROMISE, INDUCEMENT OR AGREEMENT NOT HEREIN EXPRESSED HAS BEEN MADE TO THE UNDERSIGNED AND THAT THIS RELEASE CONTAINS THE ENTIRE AGREEMENT BETWEEN THE PARTIES HERETO AND THAT THE TERMS OF THIS RELEASE ARE CONTRACTUAL AND NOT A MERE RECITAL.

THE UNDERSIGNED AGREE AND HEREBY DECLARE THAT THE TERMS OF THIS RELEASE HAVE BEEN COMPLETELY READ AND ARE FULLY UNDERSTOOD AND VOLUNTARILY ACCEPTED FOR THE PURPOSES OF MAKING FULL AND FINAL ADJUSTMENT AND SETTLEMENT OF ANY AND ALL CLAIMS, DISPUTED OR OTHERWISE AS BETWEEN THESE PARTIES, THIS RELEASE BEING EXECUTED FOR THE EXPRESS PURPOSE OF PRECLUDING FOREVER ANY FURTHER OR ADDITIONAL CLAIMS.

IN WITNESS WHEREOF, EXECUTION OF THIS RELEASE HAVING BEEN MADE THIS ____DAY OF ___________________, 20_____

As you can see, it’s extremely important to keep your business documents accurate and up to date. Maybe it’s time to contact a local attorney who is knowledgeable about home inspections? If you don’t know one, ask other inspectors. If they don’t know one, contact us. We usually can recommend several professionals. One more benefit of legal PSA review: Now the attorney you retain is conflicted out from ever representing a client claiming you were negligent and making a monetary demand!

Disclaimer: This article is designed to be informative only and is not to be considered legal advice. Consult an attorney knowledgeable about the laws in your state for review and approval of your PSA.