How Much Should You Pay to a Contractor for a Deposit?

The deposit that is paid to a contractor during a renovation project is generally used to purchase materials that will be needed to complete the work and it also serves to measure the seriousness of your approach.

Although it is easy to understand why contractors request deposits, customers must still be protected from the risks that come with giving money before the work is fully complete. In the following paragraphs, we will cover what you need to know about home renovation project payments and any red flags to look out for.

Giving a Deposit for a Renovation Project

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Is It Ok to Give a Contractor a Deposit?

Yes, it's absolutely fine to give a contractor a deposit. In the vast majority of cases, a deposit will be both expected and required for any work to be done. However, it's important to not dish out just any amount at any time. Keep reading to understand more about the process.

A Legal Vacuum

Unfortunately, there is no law setting out the amounts that can be paid by the client hiring the contractor for their project. However, some recommendations are provided to consumers in order to avoid any problems with incomplete or unsatisfactory work.

Paying a Deposit at the Beginning of the Work

Things to Check Before Hiring a Contractor

Before construction begins, make sure you complete all the proper verifications about the contractor you want to hire. You can investigate their reputation on the internet, ask for referrals, check the Better Business Bureau (BBB) and determine whether their licences are valid (if applicable). In certain provinces, trades are regulated and you can check with the relevant organizations to know whether the licences are still in effect.

Our advice on how to find the right contractor for your renovation project will also provide more ways to ensure that you are working with a qualified, reputable contractor.

Making a Payment Several Months in Advance?

If a contractor asks you to make a deposit more than two months in advance, find out if they have a trust account. This account will make it possible to recover the sums in case of problems. The cheque must be made in the name of the company and not in the name of the contractor. However, in the field of renovation, few contractors have such an account.

A Typical, Standard Deposit

Make a First Deposit That Is as Small as Possible

The first deposit, the one made at the beginning of the work, must be as small as possible. Specifically, it is recommended not to pay more than 25% of the total value of the work at this stage, or to pay an amount that covers the expenses associated with the purchase of materials, which the contractor must often do before starting work.

Also, note that a payment by credit card or cheque is preferable to cash payment, as you automatically have proof of the transaction. If you pay cash, you will need to request a receipt.

Furthermore, be sure that taxes are included in the price and detailed on the written contract. Without proof of payment, you will likely have problems in court if you ever have to make a claim.

Pay the Rest of the Sum in Instalments

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With regards to the remaining amount to be paid, this money should be sent in instalments at the end of each stage of the process. A fixed sum will be paid after each step, and the amounts will be established before signing the contract. Work with the contractor to determine the value of each payment, and this can be done by evaluating the importance of each step with regard to the final result.

Be Careful Before Paying the Final Deposit for the Job

Like the first deposit, the last payment should represent 10 to 15% of the total value of the contract. This is a guarantee to ensure that the work will be completed in accordance with the agreement and that the contractor will finalize the work. Before making the last deposit, inspect the job site. If you are satisfied, you can then sign a certificate of completion.

If you are uncomfortable with certain aspects, hold back the payment of the last deposit until the required corrections are made.

Check That the Sub-Contractors Have Been Paid

If you hired a contractor for a large-scale job, the project may involve subcontractors. You should know that the deposits paid over the course of the work will probably be used to pay them. In the event that they do not get their due, they could come back against you and ask for a legal mortgage on your property in order to get their money back.

To prevent such a situation from happening, ask for proof (i.e. a receipt) from your contractor that the payments have been made.

Until you receive this proof, you should retain up to 15% of the value of the work. You will be able to pay this amount after a 30-day period has passed, which is the maximum time for filing a legal mortgage application by a subcontractor.

Further Clarification:

A Contract Concluded Over the Phone

If your contract was concluded over the phone or the internet, a merchant is entitled to ask you to pay a deposit only if your payment is made by credit card.

A Contract with a Door-to-Door Salesperson

Before going further, let us specify that a travelling salesperson is one who sells their services in an area outside their place of work. Moreover, if a renovation contractor comes to your door, you must know that they will be considered a travelling contractor in the eyes of the law if they work as a salesperson or if they install roofs, thermal insulation, siding or doors and windows. Check to see if the company has the necessary permissions to act as a door-to-door salesperson (this will be province-specific).

In some provinces, when you sign a contract with a door-to-door salesperson, there are specific rules for deposits. For example, in Quebec, the contractor is not allowed to request a deposit before the end of a 10-day period following the signing of the contract. The reason behind this law is that you legally have up to 10 days to cancel your contract.

If, however, materials have been delivered to you, the contractor may request a deposit. However, in the previous case, be aware that you are always entitled to cancel the contract, even if the work has been started or even completed before the end of the ten-day period.

What to Do With the Deposit If a Renovation Project Is Cancelled

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If you have provided for it in your contract, it is possible to recover a portion of the deposit in the event that the contract is cancelled for any reason.

How Long Can a Contractor Keep My Deposit If I Cancel?

In Quebec, contractors' deposit retention periods vary based on contract circumstances.

As previously touched upon, for contracts made in person with itinerant merchants (door-to-door salespeople) for specified services, like doors or insulation, you have 10 days post-contract reception to cancel. If canceled within this timeframe, reimbursement must occur within 15 days of sending the cancellation form or letter.

If cancellation results from issues like the lack of valid permits or missing contract details, you can cancel within a year of signing, expecting reimbursement within 15 days.

Online or phone contracts' cancellation terms differ. Generally, if work hasn't commenced within 30 days of agreed-upon dates or a written contract isn't provided within 15 days, you can cancel.

Upon sending a cancellation notice, reimbursement is expected within 15 days. Failure to refund within this period allows a chargeback request via credit card within 60 days.

Are You Having Trouble Recovering Your Deposit?

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