What are the minimum requirements for your contract?
Many contractors are now aware that if they contract with a homeowner to improve an existing home, that their contracts must include special provisions. Most contractors are unaware that there are also special provisions that must be included in their contracts, their bids and change orders to their contracts if they contract to build a new residence if the contract is for from one to four residential units. Those special provisions are described below.

One to Four Unit Buildings

Contractors who enter into contracts to build residential buildings with from one to four units in them must include special provisions in their bids, their contracts and their contract change orders. These provisions are in addition to those that are required of commercial contractors.

When submitting a bid or before entering into a contract to perform work on residential property with four or fewer units, whichever occurs first, a contractor must provide the following notice in capital letters in at least 10-point roman boldface type or in contrasting red print in at least 8-point boldface type:

NOTE

State law requires anyone who contracts to do construction work to be licensed by the Contractors’ State License Board in the license category in which the contractor is going to be working**if the total price of the job is $300 or more (including labor and materials).

Licensed contractors are regulated by laws designed to protect the public. If you contract with someone who does not have a license, the Contractors’ State License Board may be unable to assist you with a complaint. Your only remedy against an unlicensed contractor may be in civil court, and you may be liable for damages arising out of any injuries to the contractor or his or her employees.

You may contact the Contractors’ State License Board to find out if this contractor has a valid license. The Board has complete information on the history of licensed contractors, including any possible suspensions, revocations, judgments, and citations. The Board has offices throughout California. Please check the government pages of the white pages for the office nearest you or call 1-800-321-CSLB for more information.

The above notice is printed in Times New Roman 10-point type. Failure to comply with this notice requirement is cause for disciplinary action before the Contractors State License Board.

In addition, before entering into a contract to perform work on residential property with four or fewer units, any contractor who has had his or her license suspended or revoked two or more time within an eight-year period must disclose any disciplinary license suspension or license revocation during the last eight years resulting from any violation of the License Law by the contractor, whether or not the suspension or revocation was stayed. The disclosure may be provided in a bid, estimate, or other document before entering into a contract, and must appear either in capital 10-point roman boldface type or in contrasting red 8-point roman boldface type.

If a contractor fails to provide this discipline disclosure when required, he or she will be subject to the following penalties:

a. First violation-$1,000;
b. Second violation-$2,500;
c. Third violation-$5,000 and a one-year license suspension; and
d. Fourth violation-license revocation.

If a contractor lacks a license, what happens?

Before enforcing a contract, a mechanics lien, a stop notice or any other claim, the claimant must be licensed. The California Supreme Court has even held that a contractor could not recover from an owner for fraud if the contractor could not prove that it was duly licensed during the time the projects was built. After that case was reported, this policy was roundly criticized in the legal literature. In response, the legislature adopted a limited escape form contractors.

If a contractor shows that it was duly licensed for the work performed during any of the 90 days immediately preceding the performance of the contract and the lack of a license at the time of performance was the result of either inadvertent clerical error or as the result of another error or delay not caused by the contractor’s negligence, then a court may find that there has been substantial compliance with the licensing law such that the contractor’s claim may be enforced. Other limited exceptions may arise from time to time, but you must consult with an attorney before determining if there is any basis for pursuing the claim.

For those defending construction claims, the absence of a license may provide a complete defense to a claim. For those asserting a claim, the statute raises a potentially costly hurdle if there is any question concerning that claimant’s contractor’s license. It is unknown whether the same approach will be taken by the courts with regard to the licenses of design professionals.

Single-Family Dwelling Contracts

Every contract between the owner and a contractor for the construction of a single-family dwelling, and any changes to such a contract, should be retained by the owner for at least one year and, must be evidenced by a writing containing the following information that is signed by both parties:

1. The contractor’s name, address, and license number.
2. The approximate dates when the work will begin and be substantially completed.
3. A legal description of the location where the work will be done.
4. The language of the notice prescribed by the Contractors’ State License Board concerning the applicability of the mechanics’ lien laws to the contract and the rights and responsibilities of the owner and the contractor under those laws.
5. A notice, in close proximity to the signatures of the owner and contractor and in at least 10-point bold type or in all capital letters, stating that the owner has the right to require the contractor to have a performance and payment bond and that the expense of the bond may be borne by the owner.
6. The writing may also contain other matters agreed to by the parties to the contract. It must be legible, and must clearly describe any other document that is to be incorporated into the contract. Before the commencement of any work under the contract, the contractor must provide the owner with a copy of the written agreement, signed by the contractor.

The failure to provide notice as required above constitutes grounds for disciplinary action before the Contractors State License Board.

It is our policy to review our clients’ standard form contracts regularly. If your contract forms, bid forms and change order forms have not been reviewed recently, then please contact an attorney familiar with construction law to be certain that your forms comply with the current California statutes and regulations.

Disclaimer: The foregoing is not intended as legal advice. The facts and circumstances of any case requires the review of an attorney familiar with real estate and/or construction law. Before taking any action, please consult with your counsel.