Kitchen Contract Canceled After an Expired License Is Discovered
A remodeling contractor signs a $52,000 kitchen contract with a homeowner in her living room after a three-hour sales presentation. The form says 'all sales final,' has a vague scope ('kitchen remodel per plan'), no license number, and no cancellation notice. The homeowner pays a $15,600 deposit by check. Two days later she learns the contractor's residential builder license expired two months ago and the electrical subcontractor is unlicensed. The contractor pulled no permit; the homeowner was told to pull it as an owner-builder. Demolition started yesterday. On day four the homeowner emails that she cancels and wants her deposit back. The contractor has spent $3,200 on cabinets ordered in her name and $1,100 on dumpsters and demolition labor. The contract contains an arbitration clause and a clause saying the deposit is nonrefundable. The homeowner asks what her rights are and whether she must pay for work done.
1. Does the homeowner have a right to cancel on day four, and can the contractor keep the nonrefundable deposit?
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The first issue is whether Michigan's home solicitation sales law applies. It generally covers consumer sales of $25 or more solicited at the buyer's residence and gives the buyer a short cancellation period, commonly three business days, with a required written cancellation notice. A contract signed in the living room after a high-pressure presentation fits that pattern. The 'all sales final' and nonrefundable deposit clauses do not override the statutory cancellation right.
Day four is outside the ordinary three-business-day window, so the answer turns on the missing notice. If the contractor failed to give the required cancellation notice, the buyer's cancellation right may be extended, and a cancellation on day four can still be timely. The vague scope and missing license number are separate contract problems. The homeowner should send a written cancellation that states she is canceling under the home solicitation law, keep proof of delivery, and stop any further work.
On the deposit, the nonrefundable clause is not a reliable defense. The contractor must account for the $15,600 and return the unused portion. The contractor may argue for an offset for uniquely ordered cabinets and demolition already performed, but that argument is weakened because the contractor was unlicensed and the work was not permitted. The homeowner should not agree to a deduction without a written accounting. The safest advice is to demand return of the deposit, preserve the contract and texts, and file a complaint with the state licensing agency.
2. What licensing and permit violations are present, and what exposure do they create for the contractor and homeowner?
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The contractor's residential builder license expired two months before signing, so the contractor was unlicensed when it contracted and started work. Michigan requires a residential builder or alteration contractor license for this type of residential work. An unlicensed contractor can face administrative fines, a cease-and-desist order, and license denial or discipline. It may also be barred from suing to collect compensation for the unlicensed work, which changes the negotiating position on the $52,000 contract.
The electrical subcontractor is also unlicensed. Electrical work is separately regulated, and an unlicensed electrician exposes the homeowner to failed inspection, unsafe work, and no insurance coverage. The contractor cannot cure that by calling the electrician a helper.
The permit problem is equally serious. The contractor told the homeowner to pull an owner-builder permit. That exemption is for a homeowner doing the work personally, not for a contractor's crew. Pulling a permit under false ownership can lead to a stop-work order, inspection failures, and possible fraud exposure. The homeowner may also have a claim against the state residential builder trust fund if she can show a loss from the contractor's conduct. The contractor should stop work, renew or obtain the proper license, have a licensed electrician take over, and correct the permit before any further demolition.
3. How should the contractor handle the $4,300 already spent and the demand for a refund?
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The contractor should not continue work after a written cancellation. It should stop the crew, secure the site, photograph the condition, and preserve the contract, payment records, cabinet order, dumpster receipts, and texts. It should then send a written response that acknowledges the cancellation and provides an accounting rather than repeating that the deposit is nonrefundable.
The accounting should separate unused deposit funds from money actually spent. The cabinets are the strongest offset argument if they were ordered specifically for this kitchen, cannot be returned, and the homeowner approved the order. The dumpster and demolition labor are weaker because demolition began before the cancellation period ran and before permits were in place. Even those costs may not be collectible if the contractor was unlicensed when it contracted.
The contractor should return the undisputed unused balance promptly and state that any offset is conditional. It should not use the arbitration clause to delay a refund; arbitration is a forum for a dispute, not a license to keep money. The contractor should also consult a Michigan construction attorney because the unlicensed status may bar collection entirely. Going forward, the contractor should use a written contract with a clear scope, license number, cancellation notice, change-order procedure, and deposit terms that comply with Michigan law.