It is common for home sellers to need to hire someone to do maintenance or corrective work in order to facilitate a sale. Sometimes such work will be done in order to prepare a house to go on the market. Sometimes it will be done in response to a buyer's "fix-it" list, and sometimes it will be performed in order to meet contractual requirements such as doing what is needed in order to obtain a structural pest control clearance.
When the work is hired out, as opposed to being done by the homeowner himself, attention should be paid to determine whether or not the person doing the work is required to have a contractor's license.
California Business and Professions Code #7028(a) states, "It is a misdemeanor for any person to engage in the business or act in the capacity of a contractor within this state without having a license therefor, unless such person is particularly exempted from the provisions of this chapter. (Note: All the references here are to California law; but many states have similar regulations.) What exempts a person from the license requirement? The same code at section #7048(a) says, "This chapter does not apply to any work or operation on one undertaking or project by one or more contracts, the aggregate contract price which for labor, materials, and all other items is less than five hundred dollars ($500)…"[my emphasis]
A project whose price totals less than $500 is considered "… of casual, minor, or inconsequential nature," and can be performed by a non-licensed person, often referred to as a ‘handyman'.
Good old American ingenuity being what it is, numerous schemes have been devised in attempts to skirt the $500 limit. Some will attempt to avoid the license requirement by breaking a job's billing up into components, e.g. labor $300 and materials $300. This doesn't work because the legislation clearly states that the relevant sum is the aggregate of costs.
Another ruse is to attempt to segregate the job into smaller components. "I'll do the north side of the roof for $450, the south side for $450, etc." This will not work either, as the code states that the exemption does not apply for a job, "…in which a division of the operation is made in contracts of amounts less than five hundred dollars ($500) for the purpose of evasion of this chapter…"
Even if the particular job (e.g. tearing out a wall) is less than $500, it is not exempt if it is, "... part of a larger or major operation [e.g. remodeling the house], whether undertaken by the same or a different contractor…" [my emphasis] Also, even if the job is less than $500, the exemption does not apply if the handyman has, through cards or advertising, held himself out to be a contractor.
Finally, it should be noted that the law requires a non-licensed person to disclose this fact to the consumer. The code provides specific language that must be delivered at the time of bid or at least prior to entering into a contract to perform work for less than $500. In 10 point boldface type the notice needs to tell the hiring person that the handyman is unlicensed, and that a license is required for work that will total more than $500. The required notice also puts the consumer on notice that, "If you contract with someone who does not have a license, the contractor's state license board may be unable to assist you with a complaint."
There are other headaches a homeowner might have to deal with. If the handyman has hired others to work on the project, they may be considered employees of the homeowner. If the job results in damage to some third party, the homeowner may be liable. Moreover, a "contractor" without a license is not going to have workman's compensation. If a worker, hired by the unlicensed person, is injured, guess who will be held financially responsible?
In these situations, the homeowner is not the only one liable to incur headaches. Unlicensed "contractors" need to know that the homeowner cannot be compelled to pay them for their work. Attorney George Wolff has stated the situation succinctly and forcefully:
Even if the work of the unlicensed contractor was perfect, and the other party is perfectly happy with the work done and is using it, and even if the property owner knew that person was unlicensed before the work started that the builder was not licensed, the unlicensed contractor may not sue to recover the amount owed on the contract, and can be forced to pay back to the owner every single penny that it was paid for the work.
An unlicensed contractor doing work for which a license is required? Not a good idea for either party.
Bob Hunt is a director of the California Association of Realtors®. He is the author of Real Estate the Ethical Way. His email address is firstname.lastname@example.org.