Our office represents property owners at all phases of the construction process, and if necessary, through litigation.
For homeowners the best time to consult a construction law attorney is prior to entering into a Home Improvement Contract. It is important to ensure your contractor is licensed by the Contractor's State License Board as defined in Business and Professions Code 7026 & 7026.1. Any contractor doing a project on your property that becomes a permanent part of your property and amounts to $500 or more in labor and materials must be licensed by the CSLB.
A homeowner can check a contractor's license status at cslb.ca.gov. By reviewing the CSLB website and licensing information of your contractor you can see if he has: an active license, surety bond, workers compensation, previous licenses, and any past disciplinary action. Sometimes a license may be listed inactive and the contractor may not know it, but regardless of the reason if the contractor does not have an active license he cannot enter into a contract, your contract may be void, and the contractor committing a Business and Professions Code Section 7031 violation for unlicensed activity.
All licensed contractors are required to carry a Surety Bond in the amount of $15,000.00. A homeowner may make a claim against the bond due to defective work and violations by the contractor of the Contractor's State Licensing Laws. For Home Improvement Contractors a homeowner may be entitled to the full $15,000.00, but for other contracts the owner may only be entitled to up to $7,500.00. See Business and Professions Code Section 7071.5 & 7071.6.
There are additional bonds that contractor may have beyond the basic contractor Surety Bond. If the qualifier of the license (the individual who took and passed the licensing exam) has less than 10% ownership in the company the qualifier must also obtain a qualifiers bond for no less than $12,500.00. If your contractor's business entity is an LLC, then their bond should be for $100,000.00. An LLC is also required to maintain General Liability Insurance at all times.
All construction companies with employees are required to maintain workers compensation. If the contractor has employees and does not have workers compensation that puts his employees at risk. It is a misdemeanor crime for a contractor to have employees that are not covered by workers compensation. See Labor Code Section 3700.5. The lack of workers compensation may also void the contract, but only to the benefit of the homeowner. See Wright v. Issak (2007) 149 Cal.App.4th 1116.
The Contract drafted by your contractor, must be compliant with the Contractor's State Licensing Laws and Business and Professions Code Section 7159. It must clearly state the basic terms of any contract: parties, subject, price, and time. In addition, it must also include specific information and meet certain requirements. The address of the CSLB must be in the contract, so the homeowner knows who to contact if there is a problem with the contractor. A homeowner can also find the CSLB online at cslb.ca.gov. Mechanics Lien warning must be included in the contract, advising that anyone, including subcontractors, have a right to file a claim against the property if they are not paid.
A prime contractor can file a lien against your property if not paid, but there are hoops the contractor must jump through in order to properly file the lien. He must file the lien within 90 days of the last day of work or completion of the project. If the lien is properly filed and timely executed with a foreclosure action and notice of pending action filed in the county recorders' office the property owner could see their home sold to pay off any contractors not paid.
The property owner can protect themselves against a mechanics lien in a number of ways, and these ways should be listed in the contract. The property owner is entitled to receive conditional releases and unconditional releases from the prime contractor and subcontractors. These forms are available for free from cslb.ca.gov to both the contractor and property owner. Whenever the contractor provides the owner with invoices, he should also provide conditional releases. The conditional releases inform the homeowner if the homeowner pays the amount being invoiced the subcontractors will give up their lien rights for what they just invoiced. The unconditional release states the condition of payment has been met, and the contractor no longer cares about their lien rights for what they have been paid. A homeowner can legally refuse to pay any further invoices until they have received the unconditional releases from all contractors working on the project for work, that have performed and have been paid.
The property owner is entitled to have the prime contractor obtain performance and payment bonds. These bonds help ensure proper completion of the project, and that subcontractors are paid. If any subcontractor is not paid, they can make a claim against the bond instead of placing a mechanics' lien against the property. However, in order for a subcontractor to make a claim against a bond or file a mechanics' lien, they must have served the property owner with a Preliminary Notice, that must be served within 20 days of the subcontractor having commenced work. IF the owner did not receive Preliminary Notice the lien and claim are invalid.
Prime Contractors are also entitled to a deposit of up to 10% or $1,000.00, whichever is greater. Beyond the deposit the contractor may only demand payment for work performed and materials delivered. A blank change order should also be included in the contract. The owner is entitled to make changes if they want before the project is completed, and the contractor is entitled to receive additional compensation for extra work beyond the scope of the original contract.
Sometimes, contractors will low ball bids, and homeowners think they are getting a great deal, but the homeowner doesn't read the fine print on the contract. Contractors may list a number of exclusions, items excluded from the contract price, to which the homeowner believed would be part of the contract. Some contractors will put allowances in the contract saying that certain work and items are only to be paid for by the contract up to a certain amount, and any additional cost will be the responsibility of the homeowner. Low ball bids by a contractor are typically followed by a large number of costly change orders. The validity of the contractors change orders can be determined in part by the original contract, estimate, in relation to the approved set of plans.
The prime contractor is required to obtain a building permit and cannot put that responsibility on the homeowner. A homeowner may chose to get the building permit, but regardless, if the project requires a permit the contractor cannot perform any work until the permit is obtained. See Business and Professions Code section 7090.
Many contracts include warranties. A party may be sued for breach of written contract up to 4 years. See California Code of Civil Procedure Section 337. A warranty may extend the period in which a contract may be deemed liable for defective work and defective products. Most contractors don't warranty products but do warranty their work. Civil Code Section 900 allows an automatic one-year warranty for some finish work.
Every home improvement contract, not entered into at the contractors' place of business, should also include a Notice of Cancellation. The homeowner has 3 business days to cancel a home improvement contract, and the cancellation is valid if in writing and served upon the contractor. If the homeowner is 65 years of age or older, they have 5 business days. If your contractor has not complied with the terms of the construction contract and/or done defective work, please contact my office. If you're a contractor and the homeowner is not complying with the terms of the contract, please feel free to contact my office. Free consultations are available.