How to Sue a Contractor for Breach of Contract: From Demand Letter to Lawsuit or Arbitration

Published: September 14, 2025 • Contractors & Employees, Dispute Resolution, Free Templates

You paid a contractor a serious deposit. They promised to start on a specific date, finish by another, and deliver work to a certain standard.

Instead, they disappeared, stalled endlessly, or did work so bad it might as well not have been done at all.

At that point, most people ask the same questions:

Is this “breach of contract” in a legal sense?
Can I get my money back, or force them to finish properly?
Do I need to sue, or will a strong demand letter be enough?
What if the contract has an arbitration clause?

This guide walks through the full escalation path, from gathering evidence and sending a demand letter to deciding between small-claims court, full-blown litigation, or arbitration. At the end, you’ll find a template demand letter you can adapt to your own situation.

What Counts as “Breach of Contract” by a Contractor?

“Breach of contract” is more than just disappointment. Legally, a contractor typically breaches the agreement when they:

Fail to perform work they are obligated to perform (for example, never starting the job after taking a deposit).
Perform work so poorly that it falls far below what was promised or reasonably expected.
Miss critical deadlines that are part of the bargain (especially “time is of the essence” deadlines).
Violate other key terms, such as using wrong materials, ignoring building codes, or walking off the job mid-project.

There are different levels of breach:

A material breach goes to the heart of the deal; it often lets you terminate, hire someone else, and sue for damages.
A minor breach (for example, a small delay that doesn’t really hurt you) may entitle you to compensation but not necessarily termination.

You don’t have to label the breach perfectly in your demand letter or lawsuit. What matters is the facts: what the contract says, what you paid, what the contractor did (or did not do), and how that harmed you.

Contents

Step One: Get Your Paperwork in Order

Before you threaten legal action, organize your file. Courts, arbitrators, and opposing attorneys all care about documents.

Collect and organize:

The written contract, proposal, estimate, or scope of work (even if it’s in email or text message threads).
Proof of payment: bank statements, credit card statements, checks, Zelle/Venmo receipts, or other transaction records.
All communication with the contractor: texts, emails, DMs, voicemails, and any written updates or excuses.
Photos and videos of the job site before and after, plus any defective work.
Any prior demand letters or complaint emails you’ve already sent.

If you spoke about key terms verbally (timelines, change orders, additional payments), write down a timeline in your own words while it’s still fresh. Dates matter: when they promised to start, when they actually started (if at all), and when they effectively abandoned the project.

This organized “litigation file” is the backbone of your case. It also makes it much easier and cheaper for a lawyer to help you if you decide to hire one.

Step Two: Read the Contract’s Dispute Clause (Court vs. Arbitration)

Before you decide where to sue, read the dispute resolution section of your contract.

Look for phrases like:

“All disputes shall be resolved by binding arbitration…”
“Exclusive jurisdiction and venue in the courts of [County, State]…”
“Mediation as a condition precedent to litigation or arbitration…”

If your contract requires arbitration:

You typically won’t file a lawsuit in state court first; you’ll start an arbitration with the provider named in the contract (such as AAA or JAMS).
Arbitration can be faster and more flexible, but it comes with its own filing fees and rules.
The arbitrator’s decision (“award”) is usually binding and can be converted into a judgment.

If there is no arbitration clause:

You are generally free to sue in a court that has jurisdiction (often the county where the work was performed or where the contractor does business).
For relatively modest amounts, small-claims court may be the most practical forum.

If the contract requires mediation before litigation or arbitration, take that seriously; courts and arbitrators can enforce those provisions and may pause your case until you comply.

Step Three: Decide Whether Small-Claims Court Is Enough

Many homeowner–contractor disputes fall squarely into small-claims territory. Each state sets a maximum dollar amount that small-claims courts can handle, often somewhere between a few thousand dollars and the low tens of thousands.

Small-claims court is designed to be:

Faster and more informal than regular court.
Cheaper, with lower filing fees.
Easier to navigate without a lawyer, though you can still consult one to help you prepare your case.

However, small-claims court has limitations:

You generally cannot use it if there is a binding arbitration clause.
You may not be able to recover attorney’s fees unless the contract or a specific statute allows it.
The judge’s time is limited; extremely complex cases or cases needing lots of expert testimony may be a poor fit.

If your deposit and damages are within small-claims limits, and your contract does not clearly require arbitration, small-claims court is often the most cost-effective route. A well-drafted demand letter and organized evidence file can put you in a strong position.

Step Four: Send a Formal Demand Letter

Even if you are certain you will sue, a formal written demand letter is almost always worth doing. It:

Shows a court or arbitrator that you gave the contractor a fair chance to resolve the dispute.
Clarifies your position and what you are asking for.
Often triggers the contractor’s insurance or lawyer, which can lead to a settlement.

A good demand letter does not need to sound like a law review article. It should:

Identify the contract, the project, and the payments you made.
Describe what the contractor promised and what they actually did or failed to do.
Explain how that breach harmed you (for example, cost to fix, delay, or having to hire someone else).
State clearly what you want (refund, completion, payment of additional damages).
Give a reasonable deadline to respond before you pursue legal remedies.

You’ll find a template demand letter at the end of this article that you can adapt to your situation.

Step Five: Consider Settlement vs. “Principle”

When someone takes your money and doesn’t perform, the natural reaction is to “teach them a lesson.” Courts, however, are not in the “lesson” business. They are in the business of awarding money damages or ordering specific performance where appropriate.

Practical questions to weigh:

If the contractor offered a partial refund now, would that be better than waiting months for a lawsuit or arbitration?
Do you realistically want them back on your property to complete the work, or is a clean break and refund better?
Could you recover attorney’s fees, expert costs, and court costs, or will you be out-of-pocket even if you win?

Filing a lawsuit or starting arbitration is leverage. So is the fact that you have a well-documented file and a clear legal theory. Use that leverage to find the best outcome for you, not to chase a moral victory that leaves you exhausted and broke.

Step Six: Filing a Lawsuit Against the Contractor

If the contractor ignores your demand letter or refuses to make a reasonable offer, you may need to escalate.

In a typical contractor-breach case, the lawsuit will:

Identify the contract, your payments, and the contractor’s obligations.
Describe the specific ways they breached.
State your damages (the deposit, cost to finish or fix the work, and any other legally recoverable losses).
Request relief such as damages, court costs, and, where allowed, attorney’s fees.

You don’t have to sue only for the deposit. If you had to hire a replacement contractor at a higher price, that extra cost can often be part of your damages (this is sometimes called “cover” or cost to complete).

For larger projects or situations involving building code issues, structural defects, or safety concerns, you may also need:

Expert reports from inspectors, engineers, or other specialists.
Additional causes of action, such as negligence, misrepresentation, or statutory claims, depending on your jurisdiction.

The more complex and high-stakes the case, the more value a good litigation strategy and careful pleadings provide.

Step Seven: Arbitration with a Contractor Instead of Court

If your contract requires arbitration, your demand letter should still be sent, but instead of threatening “lawsuit in court,” you will typically:

Identify the arbitration provider named in the contract and the applicable rules.
State that if the matter is not resolved by the deadline, you will initiate arbitration.

Arbitration basics:

You file a demand for arbitration, pay the filing fee, and serve it on the contractor.
The contractor responds, and an arbitrator (or panel) is selected.
There may be some discovery (document exchange, depositions), followed by a hearing.
The arbitrator issues a written award; you can then seek to have it confirmed as a court judgment if needed.

Arbitration is not “less serious” than court. It is simply a different forum with its own procedures. Well-prepared evidence and a clear, concise story are just as important.

Step Eight: Collecting After You Win

Whether you win in small-claims court, regular court, or arbitration, you still face one last step: collecting.

Possible collection tools (depending on your jurisdiction) include:

Garnishing bank accounts or wages.
Placing a lien on the contractor’s property or, in some states, certain licenses.
Recording a judgment lien that can cloud title to real estate.

If the contractor has no assets, is heavily indebted, or goes out of business, collection can be difficult. In some cases, there may be other targets:

The contractor’s surety bond (for licensed contractors in some states).
The contractor’s liability insurance (if the issue involves property damage or certain types of negligence).
Consumer protection funds or recovery programs where available.

All of this makes it even more important to run the math early: what you are realistically likely to collect versus what you will spend to get there.

FAQ: Common Questions About Suing Contractors for Breach of Contract

Is a text-message “agreement” with a contractor enforceable?

Often, yes. Many jurisdictions will enforce agreements formed by email or text if the essential terms are clear: who is doing what, for how much, and when. The absence of a formal written contract doesn’t give the contractor a free pass. That said, written, signed contracts are easier to prove and usually more detailed, which helps your case.

What if the contractor did some work, but it is terrible? Is that breach, or just bad luck?

Poor-quality work can be a breach of contract if it does not meet the standards described in the contract or what a reasonable person would expect for that type of project. The usual remedy is the cost to repair or redo the work properly. Photos, expert opinions, and competing quotes from other contractors are often critical in showing that the work is below standard.

Can I refuse to pay the balance and just keep the incomplete work as leverage?

Stopping payment is sometimes legitimate leverage, but it can also complicate your position if the contractor claims you breached first by not paying. Ideally, your contract will tie payments to milestones and give you some right to withhold payment for defective work. If your contract is unclear, you will need to balance the leverage gained by withholding money against the risk that the contractor will argue you were the one in breach.

How long do I have to sue a contractor for breach of contract?

Every state has a statute of limitations that sets the deadline to file a lawsuit. The time period varies and may differ for written versus oral contracts, and for construction versus other services. Some states also have special deadlines for latent construction defects that show up years later. The safe move is to act promptly; once the statute of limitations expires, your claim can often be barred completely.

What if the contractor is not licensed? Does that help or hurt my case?

An unlicensed contractor may face penalties and restrictions, and in some states they are limited in what they can recover from you. In some situations, you may have additional claims or defenses because of their unlicensed status. However, their lack of a license does not guarantee that you automatically win or that collection will be easy; unlicensed contractors are often undercapitalized and hard to find once a dispute arises.

Can I claim emotional distress, stress, or inconvenience damages?

Contract law is generally focused on economic loss: money you paid, money you had to spend to fix things, and measurable financial harm. Emotional distress, annoyance, and inconvenience are real, but they are rarely compensable as separate damages in a straightforward breach-of-contract case. There can be exceptions in extreme or special circumstances, but those are not typical.

Do I need a lawyer to go to small-claims court?

Small-claims courts are designed for self-represented litigants, and many people successfully present their own contractor cases there. That said, consulting a lawyer to help you structure your claim, choose the right legal theories, and organize your evidence can make a significant difference, especially if the amount at stake is meaningful to you.

What if the contractor threatens to file a lien on my property?

Contractors and subcontractors sometimes have lien rights for unpaid work or materials. If you’ve paid a large deposit and the contractor did little or nothing, a lien threat can be a pressure tactic. The details vary by state, including strict notice and filing deadlines. If a lien is filed against your property, you may need to act quickly to challenge it or bond it off, particularly if you plan to refinance or sell.

Is it worth suing a contractor who is clearly broke?

Sometimes the answer is no. A judgment is a piece of paper, not a pile of money. If a contractor has no assets, heavy debts, or a history of closing and reopening under new names, you might be throwing good money after bad. On the other hand, if they own property, have a going business, or rely on their reputation and license, a lawsuit or arbitration award can have real teeth. This is a case-by-case judgment call.

Can I report the contractor to a licensing board or consumer agency in addition to suing?

In many jurisdictions, yes. You may be able to file complaints with contractor licensing boards, consumer protection agencies, or the Better Business Bureau. These complaints do not replace a lawsuit or arbitration, but they can increase pressure and in some cases trigger investigations or administrative penalties. Some licensing boards also administer recovery funds for consumers harmed by licensed contractors.

Demand Letter Template: Breach of Contract – Contractor Took Deposit / Failed to Perform

You can adapt the following template to your situation. Replace bracketed sections with your information and adjust tone and content as needed. This is a general template and not a substitute for tailored legal advice.

[Your Name]
[Your Address]
[City, State ZIP]
[Email Address]
[Phone Number]

[Date]

VIA [EMAIL / CERTIFIED MAIL / BOTH]

[Contractor’s Name]
[Contractor’s Company Name]
[Contractor’s Address]
[City, State ZIP]

Re: Breach of Contract – [Project Address / Project Description]

Dear [Contractor Name]:

I am writing regarding the [contract / proposal / agreement] between us dated [Contract Date] concerning [brief description of project, e.g., “kitchen renovation at [Property Address]”] (the “Agreement”).

Under the Agreement, you agreed to perform the following work: [brief description of scope of work]. In reliance on your obligations, I paid you a deposit of [Amount] on [Date], as evidenced by [method of payment and any relevant reference numbers].

Despite this, you have:

failed to begin work by the agreed start date of [Start Date], and/or
failed to perform the work described in the Agreement, and/or
abandoned the project as of [Date], leaving the work incomplete and unusable.

To date, you have not completed the work required under the Agreement, and you have not returned the deposit or offered a reasonable plan to cure the breach. Your failure to perform the contracted work after accepting payment constitutes a material breach of the Agreement.

As a result of your breach, I have suffered damages, including but not limited to:

the deposit amount of [Amount] paid to you;
the cost of hiring another contractor to complete and/or correct the work; and
additional expenses associated with delay and disruption to the project.

Accordingly, I demand that you:

refund the full deposit amount of [Amount], and, if applicable,
reimburse [any documented out-of-pocket costs directly attributable to the breach, if you wish to demand them now],

no later than [a specific date, typically 10–14 days from receipt of the letter].

If I do not receive full payment, or a mutually acceptable written resolution, by that date, I will have no choice but to pursue all available legal remedies without further notice. This may include filing a lawsuit and/or initiating arbitration, seeking recovery of my damages, court or arbitration costs, and, where allowed by the Agreement or applicable law, my attorney’s fees.

Nothing in this letter is intended as, nor should be construed as, a waiver of any rights, remedies, or claims I may have under the Agreement or applicable law, all of which are expressly reserved.

I prefer to resolve this matter amicably. Please provide your written response by [deadline date] to [email address and/or physical address].

Sincerely,

[Your Name]

You can tailor the letter’s strength to your situation. For smaller disputes or where you think the contractor simply mismanaged time, you may soften the tone or invite a specific solution (for example, partial refund plus clear completion schedule). For more serious misconduct or outright nonperformance, a firm tone with a clear deadline is often appropriate.

Over time, pairing articles like this with interactive tools—a “Contractor Breach Demand Letter Generator” or a “Homeowner vs. Contractor Case Strength Quiz”—can help your readers both understand their rights and take practical steps, while also positioning your practice as the go-to resource for these disputes.