All too often we have heard "horror stories" from homeowners who have engaged in a Home Improvement Contract with a contractor who was not licensed, inexperienced or was unethical.
These incidents came into reality because either the homeowner failed to understand that ALL contractors are required to be licensed and are regulated by the California Contractors State License Board (CSLB) (California Department of Consumer Affairs) or neglected to check the contractor's license status or the contractor was a crook and never intended to complete the job for the contract price.
Licenses Are Required: Yes, ALL contractors operating in the State of California are required to be licensed. It is illegal for an unlicensed person to perform contracting work on any project valued at $500.00 OR MORE in labor and materials. Besides being illegal, unlicensed contractors lack accountability and have a high rate of involvement in construction scams. That includes anyone presenting themselves as a "Handyman." The handyman exception is for work valued at LESS THAN $500.00, and then a license is not required, but be aware.
Unlicensed Contractors: are unfair competition for licensed contractors who operate with bonds, insurance and other responsible business practices, which can afford the homeowner some legal protection.
Insurance and Bonds: Contractors are required by law to maintain (a) Workers' Compensation Insurance, if they have employees or they are exempt if they do not have employees. Contractors also are required to maintain a (b) surety bond on their license with CSLB, such as in the case of a general contractor, the license bond is at $12,500. [Effective January 1, 2016, the California Contractors License and qualifying individual bond will increase to $15,000.00].
(c) Commercial general liability insurance is not required; however, it covers damage to your property. If the contractor does not carry general liability insurance, he or she should be able to explain how damage or losses to your property will be covered, otherwise you could be stuck for damages, or your insurance company could end up paying for damages or denying your claim. A licensed contractor must provide you with information regarding both types of insurance in your written contract and should provide you with certificates of insurance as well.
HOME IMPROVEMENT CONTRACTS: Specific provisions (Terms and Conditions) are required by law to be expressly stated in all home improvement contracts in accordance with the requirements of the Contractor's License Law and the Business and Professions Code Section 7159 and as defined in Business and Professions Code Section 7151.2. Examples of the specific provisions or terms and conditions are as follows:
Plans and Specifications: (a) Construction drawings (plans) and specifications are required to graphically describe all of the work and detail how the work is to be constructed during the home improvement construction to be built. (b) The plans must also be prepared and signed by a licensed design professional, such as an architect or civil engineer. (c) Fees for furnishing plans are either included or excluded from the total home improvement contract price.
Building Permits: (a) Permits are required by the local building department and are to be submitted for plan check review and approval before the building permit can be issued. (b) The home improvement contract also must reflect who is responsible to apply for the permit and pay all permit fees.(c) Customarily, the contractor is the person who applies for the building permit as the building department requires their application form to reflect the contractor's contact information, license number, Workers' Compensation insurance (if they have employees) and general liability insurance data.
Description of All Work: The home improvement contract should contain a complete description ("Scope of Work") of all labor, materials and services that are to be provided by the contract. The scope of work should be thorough, complete and easily understood by the homeowner.
Contract Price: (a) All contracts must include the agreed-to price. Any job costing $500 or more (combined material and labor) needs a written home improvement contract. By law, the job must be completed for the agreed-upon contract price.
Down Payment: If the home improvement contract calls for a down payment before work starts, the down payment cannot be more than $1,000 or 10 percent of the contract price, whichever is less, for a home improvement job or swimming pool, excluding finance charges.
Schedule of Payments: A home improvement contract must include a payment schedule, also referred to as a schedule of values. It should describe (as a line item) each trade category amount of each payment and explain what work, materials or services are to be performed for that particular payment and the percentage of the total value for that item. Payments to the contractor cannot exceed the value of the performed work.
Extra Work Orders or Change Orders: The order is prepared in writing and signed by the parties prior to the commencement of work covered by the new change order. The order must describe the scope of the extra work or change, the cost to be added or subtracted from the contract, and the effect the order will have on the schedule of progress payments.
Workers' Compensation Insurance: A home improvement contract must contain Workers' compensation insurance information covering the contractor's employees or a statement that the contractor does not have any employees and is, therefore, exempt from Workers' Compensation Insurance requirements. Demand a certificate of insurance (if applicable).
Contractor's General Liability Insurance: A home improvement contract must include a statement that the contractor has currently in force a General Liability Insurance Policy and the limits thereof. Customarily, the contractor will provide proof of insurance. Demand a certificate of insurance.
Surety Bond: The home improvement contract shall contain, in close proximity to the signatures of the homeowner and contractor, a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond. The cost for the bond, however, shall be paid by the homeowner or tenant.
Joint Control / Builders Control: (a) When a construction loan is necessary for a home improvement project, the lender can set up a system for the joint control of all funds payable to the contractor in a controlled manner which assures that payments are released to the contractor for that portion of the work which has been satisfactorily inspected, approved and completed. (b) If the contract provides for a contractor to furnish joint control, the contractor shall not have any financial or other interest in the joint control.
Three (3) Day Cancellation Notice: The Home Solicitation Sales Act requires a seller of home goods or services to give the buyer three (3) business days to think about whether to buy the offered goods or services. The home improvement contract must contain written instructions for the homeowner to exercise this right.
Progress Schedule: A home improvement contract must contain the dates when the work is to be started and completed. Customarily the contractor will provide a progress schedule commonly in the form of a "Bar Chart" which graphically illustrates each part of the work, its duration (in days) and the completion date for all of the work.
Mechanics Liens and Lien Releases: (a) Consumers are required to receive a "Notice to Owner" warning about property liens. Anyone who helps improve property, but is not paid, may place what is called a mechanics lien on the property. A mechanics lien is a claim made against the property by the person who was not paid, and is recorded with the county.
(b) Even if the contractor is paid in full, unpaid subcontractors, suppliers, and laborers involved in the project may record a mechanics lien and sue the property owner in court to foreclose the lien. A property owner could be forced to pay twice or have the court sell the home to pay the lien. Liens also can affect a consumer's personal credit rating, and affect his or her ability to borrow and refinance.
(c) Consumers can protect themselves from liens by getting a list from the contractor of all subcontractors and material suppliers who will work on the project, along with the dates they will start and finish the work. Material suppliers and subcontractors are required to give the property owner a "Preliminary Notice" of their right to file a lien within 20 days of delivering products/materials or 20 days of beginning the work. Have subcontractors sign lien releases when their portion of the work is completed.
(d) Another option for consumers is to pay with a joint check that is payable to both the contractor and the subcontractor or material supplier.
(e) The Homeowner has a right to know and should know the names, addresses, license numbers and subcontract amounts for all subcontractors and material suppliers providing labor, materials and any services to the property for purposes of avoiding mechanics liens.
Notice that Contractors are Licensed and Regulated by the Contractors State License Board (CSLB): Every person licensed shall include the following statement in at least 12-point type in all home improvement contracts written:
"Information about the Contractors' State License Board (CSLB): CSLB is the state consumer protection agency that licenses and regulates construction contractors. Contact CSLB for information about the licensed contractor you are considering, including information about disclosable complaints, disciplinary actions and civil judgments that are reported to CSLB. Use only licensed contractors. If you file a complaint against a licensed contractor within the legal deadline (usually four years), CSLB has authority to investigate the complaint. If you use an unlicensed contractor, CSLB may not be able to help you resolve your complaint. Your only remedy may be in civil court, and you may be liable for damages arising out of any injuries to the unlicensed contractor or the unlicensed contractor's employees."
For more information:
Visit CSLB's Internet Web site at www.cslb.ca.gov
Call CSLB at 800-321-CSLB (2752)
Write CSLB at P.O. Box 26000, Sacramento, CA 95826."
Before you sign any contract, first check the status of the contractor's license: https://www2.cslb.ca.gov/OnlineServices/CheckLicenseII/checklicense.aspx
Download the Consumer Guide to Home Improvement Contracts. It contains a sample contract, a homeowner checklist and a lot of very useful information that may save you from experiencing your own "Horror Story."
Visit the Contractors State License Board for Consumer Information: http://www.cslb.ca.gov/Consumers/
SHOULD YOU FIND YOURSELF IN NEED OF LEGAL ADVICE, WE STRONGLY SUGGEST YOU CONTACT A CONSTRUCTION LAW PRACTITIONER.