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    Wisconsin Lawyer
    August 30, 2006

    Modernizing Wisconsin Residential Construction Laws

    New Wisconsin residential construction laws require consumers to afford contractors a right to cure construction defects before filing suit; fine-tune existing construction lien laws; and mandate licensing and continuing education requirements for residential contractors.

    Mark R. Hinkston

    construction site Residential construction is a multi-billion dollar industry in Wisconsin, with more than 20,000 new homes built annually and many more home improvements performed each year. This boom has proliferated cutting-edge construction methods and an influx of many new contractors. Growth and innovation in the residential construction industry led to a desire to resolve construction defect disputes short of litigation, modernize applicable lien laws, and heighten regulation of residential contractors. As a result, the Wisconsin Legislature's 2005-06 session produced three new laws that will affect homeowners and contractors and the attorneys who represent them. All three bills were signed into law on March 27, 2006.

    Foremost among the legislation is 2005 Wisconsin Act 201, known as the "Right to Cure" Act, which becomes effective Oct. 1, 2006. It establishes procedures that are designed to resolve complaints about alleged construction defects by requiring consumers to notify contractors of alleged defects and give contractors an opportunity to cure defects by making repairs or paying money. Consumers may not initiate litigation or arbitration unless they provide the notice of claim and the contractor fails to respond, rejects the claim, or makes an unacceptable settlement proposal.

    The two other new residential construction laws are: 2005 Wisconsin Act 204, which significantly revises Wisconsin's construction lien laws; and 2005 Wisconsin Act 200, which mandates annual continuing education for residential contractors, requires previously uncertified residential contractors to take an examination for licensure, and jeopardizes the ability of contractors that engage in financial malfeasance to obtain necessary financial certification to procure building permits.

    Right to Cure Act

    Background and Applicability. In the past, there were no specific procedural guidelines in Wisconsin law to resolve residential construction disputes short of filing suit. Builders' groups lobbied to make Wisconsin one of a growing number of states to enact a law to afford contractors an opportunity to timely repair defects. The Wisconsin Legislature's primary goal was to facilitate resolution of construction defect disputes without litigation by implementing a system that requires contractors and consumers to attempt to systematically address problems before commencing a court action or arbitration.1 In March, Wisconsin became the 28th state to enact a contractor "right to cure" (also known as "right to repair") law.2

    In general, Wisconsin's new Right to Cure Act requires homeowners and other specified claimants to give contractors written notice of alleged construction defects and an opportunity to cure them as a prerequisite to filing suit. It is comprised of two new statutes. Section 101.148, entitled "Contractor notices," requires contractors to supply consumers with notice of the defect claim procedures before, and at the time of, contracting. Section 895.07, entitled "Claims against contractors and suppliers," contains those claim procedures. The Act states that the term "construction defect" means the definition of "defect" contained in a warranty or, if there is no warranty, a deficiency resulting from defective material, violation of applicable codes, or failure to follow accepted trade standards for workmanlike construction.3

    The Right to Cure Act applies to written or oral contracts to construct a new dwelling or remodel an existing one. It applies to any premises used as a home or residence and includes existing structures on or adjacent to the dwelling, such as driveways, sidewalks, swimming pools, patios, garages, and basements. Thus, it does not apply to nonresidential (commercial) construction. It excludes maintenance or repair work. It also does not apply to a situation in which the consumer alleges a construction defect as an affirmative defense or counterclaim in a suit initiated by a contractor.

    Section 101.148, the contractor notice statute, refers to "contractors" and "consumers," collectively defined as persons who enter into an oral or written contract to construct or remodel a dwelling.4 Yet section 895.07, the claims process statute, refers to "claimants" and "contractors."5 This difference in terms likely resulted because the drafters recognized that to limit the reach of section 895.07 to "consumers" (as defined in section 101.148) would ignore that in some situations the original contracting party may not be the party ultimately bringing a defect claim (for example, when a house is sold to a subsequent owner who discovers defects). Thus, "claimant" means a dwelling's owner, tenant, or lessee who has standing to bring suit relating to a construction defect against a contractor or supplier. The term also includes homeowners' and condominium associations that have such standing.

    "Suppliers" also are addressed in the new law, primarily in the context of contractors' contribution claims against suppliers that may be at fault for the alleged defects. However, the Act applies only to door and window suppliers.

    Contractor Notice to Consumers. Under section 101.148, before entering into a contract, a contractor is required to deliver to a consumer a brochure prepared by the Wisconsin Department of Commerce (DOC) that explains the process of handling construction defects under section 895.07. The brochure is available on the DOC Web site.

    Section 101.148 also requires contractors to provide consumers a written notice that alerts consumers of their obligation to follow the notice and right to cure process before filing a lawsuit against a contractor or door or window supplier for defective construction. The statute provides recommended language for this "Notice Concerning Construction Defects." (See Figure 1). The notice language must be conspicuous and may be included in the contract. In situations in which oral contracts are used, the notice must be provided in writing as soon as reasonably possible after the oral contract is formed but before the work is commenced.

    Notice and Opportunity to Repair. The flowchart marked as Figure 2 summarizes the right to cure process set forth in section 895.07. "Days" in section 895.07 means working (or business) days.6

    At least 90 days before commencing any action against a contractor or door or window supplier relating to a construction defect, a claimant must give the contractor or supplier written notice of the alleged defect and an opportunity to repair it. The notice must "contain a description of the claim in sufficient detail to explain the nature of the alleged defect and a description of the evidence that the claimant knows or possesses, including expert reports, that substantiates the nature and cause of the alleged construction defect."7

    Contractor Response. Under section 895.07, a contractor has 15 days to serve the claimant with a written response to the claimant's notice. The contractor's response may take one of several forms: 1) a written rejection of the claim specifying the reason for rejection and including a comprehensive description of all evidence the contractor knows or possesses, including expert reports, that substantiates the reasons for rejection, as well as any settlement offer received from a supplier; 2) a written offer to remedy the defect at no cost, with a description of the construction that is necessary to remedy the defect and a timetable to complete the work; 3) a written offer to settle by paying money; 4) a written offer that includes a combination of repair and money; or 5) a proposal for inspecting the dwelling. If the contractor rejects the claim or does not respond within 15 days, the claimant may commence an action against the contractor without further notice.

    If the contractor makes an offer to repair or pay money (or a combination of the two), the claimant has 15 days to accept or reject the offer. If he or she rejects the offer, within 15 days the claimant must serve a written rejection notice on the contractor, specifying the reasons for the rejection. The claimant is to alert the contractor to any items omitted from the contractor's offer and if the claimant considers the offer unreasonable, he or she must specify why. The contractor then has five days to respond by serving a written supplemental offer to repair or remedy the defect or a notice that no additional offer will be made. If no supplemental offer is made, the claimant may proceed with an action without further notice.

    Mark R. HinkstonMark R. Hinkston, Creighton 1988 cum laude, practices with Knuteson, Powers & Quinn S.C., Racine.

    If the contractor makes a supplemental offer, the claimant is to respond within 15 days. If the claimant rejects the offer, the rejection notice must specify the reasons for the rejection and the basis for any contention that the supplemental offer is unreasonable. The claimant may then bring an action without further notice.

    If any offer or supplemental offer is accepted, the claimant is to provide the contractor with reasonable access to the dwelling to allow the contractor to perform the repair work per the contractor's proposed timetable. If the contractor does not repair or remedy the defect per the settlement offer and timetable, the contractor will not be penalized but the claimant may proceed with an action without further notice.

    Inspection and Testing. Sometimes a contractor will want to inspect the dwelling and conduct testing to assess a defect claim. Under the new law, if the contractor makes a proposal for inspection, within 15 days of receiving the proposal, the claimant is to grant the contractor reasonable access to the dwelling to inspect it, document alleged defects, and perform any testing needed to evaluate fully the nature, extent, and cause of the claimed construction defects and the nature and extent of any necessary repairs or replacements.

    If destructive testing is required, the contractor is to give five days' advance notice to the claimant and any suppliers against whom a claim is asserted. Within a reasonable time after testing, and at its own expense, the contractor is to return the dwelling to its pretesting condition. If additional testing is needed, the contractor is to deliver notice that such testing is needed and the claimant shall provide reasonable access to the dwelling. Within 10 days after all inspection and testing, the contractor shall serve on the claimant a notice of rejection or make an offer to repair, pay money, or repair and pay money.

    Contribution Claims Against Door and Window Suppliers. Section 895.07 also details a contractor's obligations to window and door suppliers against whom contribution claims are made.8 The section does not apply to a contractor's right to seek contribution, indemnity, or recovery from any other supplier.9

    The Act mandates that a contractor intending to make a contribution claim against a window or door supplier must serve the supplier with a written notice of the original claimant's claim and the contractor's own contribution claim within five days after the contractor's receipt of the original claim. Contractors must follow the same notice procedures as those imposed on claimants to put the supplier on notice of the contribution claim, including notifying the supplier of the defect and affording it the opportunity to repair the subject windows or doors. The supplier has 15 days within which to reject the claim, serve a written offer to repair or pay money (or a combination of the two), or request an inspection.

    In cases involving a contribution claim, the contractor will have 25, not 15, days within which to respond to a claimant's initial notice. The contractor is to forward any response from the supplier to the original claimant and include in its written response rejecting a claim any settlement offer received from a supplier.

    Consequences of Noncompliance. If a claimant proceeds with litigation or arbitration without giving notice and a right to cure, the new law requires the judge or arbitrator to either dismiss or stay the proceedings. If the claimant received a brochure and notice from the contractor but failed to give the contractor notice and an opportunity to cure, the action will be dismissed without prejudice. If a claimant did not receive the brochure and notice, the action is to be stayed pending compliance with the notification requirements.10

    Some critics of right to cure laws stress that their protections may be somewhat illusory. For example, under Wisconsin's new law, contractors are not penalized for failing to provide the initial brochure or notice. Contractors also are not penalized for ignoring claims or reneging on agreements with claimants that arise from the right to cure process. Likewise, claimants are not required to respond to or accept any offer from a contractor. In other words, the law imposes no penalty on claimants who do nothing more than give the required notice and an opportunity to repair or remedy the alleged defects. However, while the law imposes no penalty, claimants who reject reasonable settlement offers may nonetheless face in ensuing litigation the affirmative defense of failure to mitigate damages.

    Practical Considerations for Consumers. As the new law is implemented, there are certain points that consumers should consider, generally with respect to their assessment of defects, delivery of the defect notice, and timing of repairs.

    First, although claimants are not required to hire a construction expert to identify and analyze defects, it may be necessary to do so in situations involving complexity beyond the ken of the normal person. This is especially true because the claimant must provide "a description of the claim in sufficient detail to explain the nature of the alleged defect."11 Another reason that an expert may be helpful is that claimants often do not have and cannot obtain necessary documents from the contractor relating to the project (and there is no requirement under the new law that the documents be produced).

    Second, claimants should be as thorough as possible in detecting defects and notifying contractors of all defects because if additional defects are discovered after an initial notice has gone out, the claim process must start anew as to the newly discovered defects. A construction defect discovered after an initial claim notice has been provided to a contractor may not be pursued in an action until the claimant complies with the notice and right to cure process as to the new defect.12 There may be some consolation for claimants facing statute of limitation issues who need to supplement their defect claim because the law provides that the limitation period is tolled during the notice of claim process (provided that the limitation period did not expire before service of the initial notice of claim).13

    Third, some confusion may exist as to when a claimant must use certified mail to send notices to a contractor and when regular mail will suffice. This is due to the interchangeable reference to "serve" (or service) and "deliver" (or delivery) in the two statutes comprising the Right to Cure Act. Both Wis. Stat. sections 101.148(2) and 895.07(2) reference that the claimant is to "deliver" the initial claim notice to the contractor. "Deliver" is defined in Wis. Stat. section 101.148(1)(c) as depositing the notice in the U.S. mail or with a commercial delivery service or personally giving the notice to the contractor. There is no certified mail requirement. Yet confusion comes in because Wis. Stat. section 895.07(2) also provides that the contractor's response deadline is within "15 days after the claimant serves a notice of claim."14 "Serve" or "service" means "personal service or delivery by certified mail, return receipt requested" to a last-known address.15 Confusion also may occur because while claimants may not need to send their initial claim notice by certified mail, they apparently must send written notices rejecting a contractor's settlement offer by certified mail, since Wis. Stat. section 895.07(2) requires them to "serve" the contractor with such notices (again, "service" by mail under that statute means certified mail). In view of the potential confusion, it seems prudent to err on the safe side and use the stricter mode of certified mail for all communications with the contractor during the claim process.

    Finally, there may be emergency situations when defects need to be repaired immediately. Yet claimants should exercise caution when assessing whether to fix a defect before giving a contractor an opportunity to cure. Under the law, a claimant may make immediate repairs to a dwelling to protect the health and safety of its occupants.16 Thus, in nonemergency situations not threatening life or limb, claimants who jump the gun and have other contractors do repair work without first allowing the initial contractor to repair the defect may be barred from pursuing legal action because they have in effect destroyed the contractor's "right to cure."

    Practical Considerations for Contractors. Some contractors may view the Right to Cure Act and its brochure and notice requirements, and the pre-suit claims process itself, as onerous. However, the new law poses an opportunity for contractors to review and, if necessary, tweak or overhaul their written agreements. Toward this end, although the law does not require that the notice to the consumer be included in the contract, and allows contractors to provide the notice via a separate writing, it is prudent to include the notice to consumers in the contract. When amending their contract forms to comply, contractors' counsel also may wish to ensure that the contracts, as applicable, include required lien notices,17 notice of a consumer's right to cancel under the Wisconsin Consumer Act,18 and the content prescribed by the Wisconsin Home Improvement Trade Practices Code.19

    The Right to Cure Act provides that after service of the initial notice of claim, a claimant, contractor, or supplier may agree to alter the notice of claim process.20 Contractors should be aware that any agreement to alter the process must be in writing. If contractors put the agreement in writing, they should be careful to avoid using language that is so broad that it violates Wisconsin laws prohibiting the inclusion of contract language exonerating the contractor from negligence or waiving a consumer's claims.21

    Like the claims procedures for consumers, contractors making a contribution claim must give a supplier written notice and an opportunity to cure as a prerequisite to filing suit. Like consumers, contractors could end up waiving their claim if they do not honor the suppliers' right to cure. Contractors should recognize that they have a short deadline of five business days to notify the suppliers of a contribution claim. Contractors should attempt to work in concert with suppliers in addressing consumers' claims, because the new law provides that the supplier and contractor are to use their best efforts to coordinate their responses to consumer claims and contribution claims.22

    Practical Considerations for Suppliers. Like contractors, suppliers technically have no legal obligation to respond to a claim once they receive notice. Suppliers should be aware, however, that if they do respond and their offer is accepted but they do not follow through, the contractor may pursue the contribution claim in circuit court and "may also file the supplier's offer and contractor's acceptance in the circuit court action, and the offer and acceptance create a rebuttable presumption that a binding and valid settlement agreement has been created and should be enforced by the court."23 A similar penalty does not apply to contractors if they renege on an offer accepted by a claimant. Claimants are not allowed to file a contractor's offer and acceptance if a contractor reneges.

    Contractors, door and window suppliers, and consumers alike should not be cavalier or indifferent concerning the impact of the Right to Cure Act. In view of the new law's potential benefits of facilitating communication, promoting settlement, and eliminating contractor surprise, it behooves attorneys who consult with residential construction parties to understand the procedures under the new law so they can advise their clients accordingly.

    Construction Lien Law Changes

    2005 Wisconsin Act 204 made several changes to existing construction lien laws set forth in subchapter I of Wis. Stat. chapter 779. The changes, based on recommendations by the Lien Law Committee of the State Bar's Construction and Public Contract Section, represent the most significant revisions to the lien laws in several decades.24

    The Act became effective on April 11, 2006. While the Act provides that it "applies to improvements that visibly commence on the effective date of this subsection [April 11, 2006],"25 it is reasonable to assume that the law applies to improvements that visibly commence on or after April 11, 2006. It also is reasonable to assume that the prior lien laws would apply to lien claims relating to improvements commenced before April 11, 2006.26

    Changes were made in all lien contexts, affecting commercial, residential, public, and private projects. Several changes apply to residential construction and fall under two categories of changes: linguistic and procedural.

    Linguistic Upgrades. Numerous changes were made to synchronize and modernize wording. For example, the terms "general contractor" and "contractor" are changed to "prime contractor."27 Reference to those who supply materials is changed from "materialmen" or "material suppliers" to simply "suppliers."28

    The Act expands the definition of "improvement," which previously was defined as including "any building, structure, erection, fixture, demolition, alteration, excavation, filling, grading, tiling, planting, clearing or landscaping which is built, erected, made or done on or to land for its permanent benefit." "Repairing or remodeling" done on or for the land's benefit is now added to the list. The Act eliminates the requirement that the improvement be done for the land's permanent benefit.29

    The Act also revises the definition of "prime contractor" to specifically include "construction managers" and "other service providers."30 Finally, references to "plans and specifications" have been added to confirm the item's status as a lienable activity.31

    Procedural Upgrades. The Act also makes several procedural changes. Under previous law, prime contractors that failed to give the requisite 10-day lien notice could be saved and still claim a lien if subcontractors and suppliers had been paid and no subcontractor or supplier served a lien notice.32 This payment requirement was problematic because on large projects, lien claimant prime contractors would be forced to satisfy the lien claims of subcontractors or suppliers even if they did not hire them.33 The new law specifies that the savings provision applies when the prime contractor claimant's own subcontractors or suppliers, as opposed to all subcontractors and suppliers on a project, are paid and have waived their lien rights.34

    Under prior law, lien notices could only be served via hand delivery or by registered mail. The new law expands the service options to allow service by "personal delivery, delivery by registered or certified mail, service in a manner described for service of a summons under s. 801.14, or any other means of delivery in which the recipient makes written confirmation of the delivery."35

    To make a lien claim, a claimant must file the claim for a lien with the circuit court within six months after the claimant last performed work or furnished materials. Although the lien claimant previously was required to deliver to the owner a notice of intention to file claim for a lien at least 30 days before filing the lien claim, a lien claimant was not required to serve the owner with the claim for a lien once it was filed. The new law changes that situation, mandating that "a lien claimant shall serve a copy of the claim for lien on the owner of the property on which the lien is placed within 30 days after filing the claim."36

    Prior law allowed release of a lien if an owner filed with the clerk of court a bond or undertaking by two sureties. Now only one surety is necessary to "bond over" a lien.37

    Finally, under prior law the private project theft-by-contractor statute provided that personal liability for theft could be imposed on officers, directors, or agents of a corporation. The new law recognizes the increasing use of business formations other than corporations by expanding liability to representatives of other entities. It provides that in cases of theft by contractor in which the prime contractor or subcontractor is a corporation, limited liability company, or other legal entity except a sole proprietorship, such misappropriation also shall be deemed theft by any officers, directors, members, partners, or agents responsible for the misappropriation.38

    Contractor Education Act

    2005 Wisconsin Act 200, known as the Contractor Education Act, mandates the establishment of new continuing education requirements for residential contractors. Its passage was intended to crack down on substandard work and enhance as a whole the professionalism and competency of Wisconsin's residential contractors.39

    Under Wisconsin law, a contractor needs a certificate of financial responsibility from the DOC to engage in residential construction and get most necessary permits.40 To obtain the certificate contractors previously only had to meet certain insurance and bonding requirements. The DOC's new rules will require that to obtain a building permit for residential construction, in addition to obtaining insurance and bonding, a person also must annually complete at least six hours of continuing education relevant to the person's professional area of expertise and attend at least one professional meeting or seminar designed for both building contractors and building inspectors.41 Persons applying for a certificate of financial responsibility for the first time will have to pass a DOC examination on the required continuing education courses.

    The DOC will establish a contractor certification council to advise on the continuing education process. The continuing education aspect of the new law does not go into effect until Jan. 1, 2008. After that date, contractors will have to show proof of compliance with the continuing education requirements to the issuer of permits, and the DOC may suspend or revoke a certificate of financial responsibility if a contractor fails to comply with the continuing education regulations. The DOC also may suspend or revoke a building inspector's certification if the inspector knowingly authorizes issuance of a building permit to a contractor who has not complied with the new requirements.

    Other aspects of the new law went into effect in April 2006. The DOC now may suspend or revoke a certificate of financial responsibility if a contractor constructs a dwelling without a required permit, is convicted of a crime related to the construction of a dwelling, or is adjudged bankrupt on two or more occasions.42 These higher standards for certification, when coupled with mandatory continuing education, will aid in separating competent and financially responsible contractors from those who lack the character and competency to responsibly engage in residential construction. Continuing education also will allow smaller-scale contractors (one- or two-person entities), as well as their larger-scale colleagues, to keep abreast of ongoing changes in residential construction law. In the past, larger-scale contractors perhaps had an educational advantage if they belonged to builders' trade associations that routinely update their members on new developments.


    Some people tout the new Right to Cure Act as establishing a process that will promote construction defect dispute resolution and thereby avoid the complexity and cost attendant to construction litigation. Other people believe that the Act's maze of deadlines and procedures may be counterproductive to that goal, because all parties may need attorneys to help interpret the Act. While it is true that contractors, consumers, and their attorneys may need time to become familiar with this law, its salutary effect of promoting dispute resolution short of litigation should outweigh any perceived burden of a learning curve.

    As with all new legislation there may be glitches and periodic need for judicial interpretation. In the meantime, the Right to Cure Act, the lien law changes, and the Contractor Education Act will have the laudable collective effect of modernizing residential construction law in Wisconsin.


    1 Press Release from State Sen. Luther S. Olsen, Consumers Win Under New "Right to Cure Law" (March 27, 2006).

    2 Michele Derus, Home Remedy for Disputes, Milw. J. Sentinel, March 1, 2006.

    3 Wis. Stat. § 895.07(1)(e). The Act does not override applicable warranty provisions. Wis. Stat. § 895.07(4).

    4 Wis. Stat. § 101.148(1)(a), (b).

    5 Wis. Stat. § 895.07(1)(d), (g).

    6 Wis. Stat. § 895.07(1)(L).

    7 Wis. Stat. § 895.07(2)(a)1.

    8 Wis. Stat. § 895.07(7).

    9 Wis. Stat. § 895.07(11).

    10 Wis. Stat. § 895.07(3).

    11 Wis. Stat. § 895.07(2)(a)1.

    12 Wis. Stat. § 895.07(5).

    13 Wis. Stat. § 895.07(9).

    14 See Wis. Stat. § 895.07(2)(e), (g).

    15 Wis. Stat. § 895.07(1)(j).

    16 Wis. Stat. § 895.07(12).

    17 See, e.g., Wis. Stat. § 779.02(2)(a).

    18 Wis. Stat. § 423.203.

    19 Wis. Admin. Code ch. ATCP 110 et seq.

    20 Wis. Stat. § 895.07(10).

    21 Wis. Stat. § 895.447; Wis. Admin. Code § ATCP 110.06(2).

    22 Wis. Stat. § 895.07(7)(d).

    23 Wis. Stat. § 895.07(7)(j).

    24 Kimberly Hurtado, Construction Lien Legislation Enacted, Construction & Public Contract Law News 1 (State Bar of Wisconsin Construction & Public Contract Law Section) (Spring 2006).

    25 2005 Wis. Act 204, § 76.

    26 Hurtado, supra note 24, at 3.

    27 Wis. Stat. § 779.01(2)(c), (d)(2).

    28 Wis. Stat. §§ 779.01(5); 779.02(2)(title), (a), (c).

    29 Wis. Stat. § 779.01(2)(a).

    30 Wis. Stat. § 779.01(2)(d)1.

    31 Wis. Stat. §§ 779.01(1)(b), (c), (e), (2)(e).

    32 Wis. Stat. § 779.02(2)(c).

    33 Hurtado, supra note 24, at 3.

    34 Wis. Stat. § 779.02(2)(c).

    35 Wis. Stat. §§ 779.06(2); 779.01(2)(e).

    36 Wis. Stat. § 779.06(1).

    37 Wis. Stat. § 779.08(1).

    38 Wis. Stat. § 779.02(5).

    39 Michele Derus, Contractors May Have to Build Onto Their Education, Milw. J. Sentinel, March 10, 2006.

    40 Wis. Stat. § 101.654(1), (2).

    41 Wis. Stat. § 101.654(1m)(b).

    42 Wis. Stat. § 101.654(5).

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