California Laws Governing Home Improvement and Private Commercial Constructions Contracts and Contractors
By: George W. Wolff, Esq.
Requirements for Private, Residential and Non-Residential, Construction Contracts and Claims
Issues/Concerns | Residential Jobs | Private, Non-Residential Jobs |
1. Definitions | Home Improvement = residential job, B&P §7151, 7151.2 | All non-public works jobs other than "residential" |
2. Contractors Licensing - types effect of improper license on builder effect on property owner | "B" or "C" B&P § 7056, 7057, 7059; 16 C.A.C. § 830 et seq If not licensed, contractor has no right to sue, must return all payments. B&P § 7031(a) & (b). Owner may be employer. Fernandez v. Lawson. Permit/Inspection Issues. | "A", "B" or "C" B&P § 7056, 7057, 7059; 16 C.A.C. § 830 et seq If not licensed, contractor has no right to sue, must return all payments. B&P § 7031(a) & (b). Owner may be employer. Fernandez v. Lawson. Permit/Inspection Issues. |
3. Home Solicitation Contract | Defined in CC § 1689.3 | Not applicable |
4. Right to Cancel | Notice of Right Required to be in Home Solicitation Contract by CC § 1689.7. If no notice, owner can rescind contract at any time without paying compensation. CC § 1689.11(c) | Not applicable. |
5. Payment Schedule/Methods | Limited down-payment. B&P § 7159(d) Apparently only allows milestone method. B&P § 7159(e) Contractor cannot receive more than 100% of value of work. Must give lien releases. B&P 7159(e),(f) Late penalty >30 days. CC§3260.1 | Percent completion, schedule of values, milestones schedule, costs-to-date plus fee payment methods. Lenders usually want percent completion per schedule of values, private inspection, retention. Late penalty >30 days. CC§3260.1 |
5. Description of Work | Description, plans and job specifications required, B&P § 7159(c) | A really good idea. Usually general, but with reference to specific, dated, sets of plans and specs/features. |
6.. Plans/Specifications | Required to be in contract. B&P § 7159 ( c) Should be as complete as possible, to avoid extra work claims, disputes Copyright issues re ownership of plans. | Needed for fixed price contract, often only skeletal or conceptual for design/build, cost-plus jobs. Should be as complete as possible, to avoid extra work claims, disputes. Architects attach form contract. Copyright issues in plans. |
7. Fixed Price Contract | Required. B&P § 7159( c), but use some of allowances. Bid/offer/InvitationFB may be enforceable | Contractual, many claims re delay, disruption costs, etc. are possible. Written bid/offer/InvitationFB may be enforceable by owner without signed contract. |
8. Cost-Plus Contract | May not be allowed. B&P § 7159(c) | Contractual, decreases adversity Costs plus fixed or variable fee, with or without maximum price. Less adversarial |
9. Design/Build Contract | Maybe not allowed, but use of allowances possibly permitted?. Licensing, insurance difficulties. | Allowed, good for urgent jobs. . Licensing, insurance difficult, or have many different variations. |
10. Changes - revisions in work, cost of revised work, completion date/contract time written change orders | Much litigation. Builder not required to perform, absent contract change provisions. Required to be in writing for fixed price, but costs/value can still be recovered on quantum meruit . B&P § 7159(h) | Much litigation. Effect on fixed price contract of many changes, change in scope, abandonment. Builder not required to perform, absent contract change provisions. Contractual, is a good idea in all contract types, required by most form contracts, change directive vs. change order; no pay without a writing clause, can be waived. |
11. Contractual Arbitration Escaping, Applicable law | Contractual, provision must be in bold type, initialed separately or is not enforceable by contractor if 4 or less units. B&P §7191. But FAA may preempt State law. CCP § 1281.2( c), other parties, Federal Act, Choice of law, Cronus v. Concierge Services (S116288), unconscionability | Must be in writing. Often multiple arbitrations during course of large or long projects. Preselection of arbitrator, FAA may preempt State law. CCP § 1281.2( c), other parties, Federal Act, Choice of law, Cronus v. Concierge Services (S116288), unconscionability |
12. Insurance Liability, adding owner as additional named insured Builders Risk | Contractual, tiers, restrictive endorsements as to type of work. Notice and checklist required. B&P § 7159.3; 16 CAC § 872. Owner should make sure to get certificates of insurance from contractor and subcontractors. Owner usually buys, contractor is also beneficiary. | Contractual, tiers, restrictive endorsements as to type of work. allowed may limit coverage Owner should make sure to get certificates of insurance from contractor and subcontractors. Owner usually buys, contractor is also beneficiary. |
13. Indemnity | Contractual, tiers, insurable. Limited by CC § 2782 But contractor may be required by law to defend subcontractors', etc lien claims . CC § 3153 | Contractual, tiers, insurable. Limited by CC § 2782 But contractor may be required by law to defend subcontractor's etc lien claims . CC § 3153 |
14. Bonds Payment, performance License bonds | Contractual. Payment bond benefits owner, subs, suppliers, protects against liens Contractual performance bonds guarantee completion for owner. Cost = 2-5% of job cost.. Contractor's License Bond only covers $12,500 or less in damages. | Payment bond required to be provided by owner or tenant on large or other jobs. CC § 3110.5, Payment bond benefits contractor and subs, suppliers, or owner, protects against liens Contractual performance bonds guarantee completion for owner. Cost = 2-5% of job cost.. Contractor's License Bond only covers $12,500 or less in damages |
16. Withholding/Retention | Contractor cannot apply for more than for work done, B&P §7159(e) Retention of 5-10% customary in contracts. Must be paid within 45 days of "completion", owner can withhold 150% of good faith dispute amount CC§ 3260, 3260.1 | Contractor cannot apply for more than for work done. Retention of 5-10% customary in contracts. Must be paid within 45 days of "completion", owner can withhold 150% of good faith dispute amount CC§ 3260, 3260.1 |
17. Claims Types Deadlines | Delay, acceleration, disruption, inefficiency, extra work, abandonment, etc. Contractual, except for liens, etc. Limitations period is two or four years for suit. | Delay, acceleration, disruption, inefficiency, extra work, abandonment, etc. Contractual, except for liens, etc. Limitations period is two or four years for suit. |
18. Preliminary Notices. | By subs, sub-subs, suppliers as a condition of lien, stop notice, payment bond rights. CC § 3097, 3114, 3160, 3242(a) But bond notice. CC § 3242(b) | By contractor on tenant work,subs, sub-subs, suppliers as a condition of lien, stop notice, payment bond rights. CC § 3097, 3114, 3160 But bond notice. CC § 3242(b) |
19. Liens/Stop Notices. Deadlines for Liens Perfecting Liens Release of Liens Bonded Stop Notice, Effect Bankruptcy Issues | Constitutional and statutory Lien relates back to start of work. Record in 30/60 or 60/90 days of "completion"/"cessation" or notice..CC § 3115, 3116, 3160, 3092, 3093 Suit within 90 days of recording. CC § 3144, 3172.. By payment, by release bonds CC § 3143, 3171, by CC § 3154 petition. CC § 3262 release form is only means to prevent lien rights, (conditional & unconditional, progress & final payment release) On owner, construction lender. CC § 3161, 3162 May affect deadlines. | Constitutional and statutory Lien relates back to start of work. Record in 30/60 or 60/90 days of "completion"/"cessation" or notice..CC § 3115, 3116, 3160, 3092, 3093 Suit within 90 days of recording. CC § 3144, 3172.. By payment, by release bonds CC § 3143, 3171, by CC § 3154 petition. CC § 3262 release form is only means to prevent lien rights, (conditional & unconditional, progress & final payment release) On owner, construction lender. CC § 3161, 3162 May affect deadlines. |
20. Subcontracts/Subcontractors | Licensing, lien, stop notice requirements and rights. Possible owner double liability if subcontractors are not paid. Should require contractor to provide lien releases per CC § 3262 on progress, final payments. Required to be paid promptly by contractor. B&P §7108.5. No other direct rights against owner, except where owner directs Require indemnity of owner and additional insured in subcontract. | Licensing, lien, stop notice and payment bond rights. Possible owner double liability if subcontractors are not paid. Should require contractor to provide releases per CC § 3262 on progress, final payments Required to be paid promptly by contractor. B&P §7108.5. No other direct rights against owner, except where owner directs Require indemnity of owner and additional insured in subcontract. |
21. Termination of Contract | For convenience vs. for cause, contract provisions, law, very risky for both sides, possible consequential damages. Safe-harbor procedure for contractor not paid.. CC § 3260.2 | For convenience vs. for cause, contract provisions, law, very risky for both sides, possible consequential damages. Safe-harbor procedure for contractor not paid.. CC § 3260.2 |
22. Final/Retention Payment | Usually __ days after "substantial completion". 45days after "completion" or there are penalties. CC § 3260(c) | Usually __ days after "substantial completion". 45days after "completion" or there are penalties. CC § 3260(c) |
23. Late Payment Penalties/ Attorneys Fees in Payment Disputes. | 2% per month late payment penalty in lieu of interest, reasonable attorney fees to prevailing party. where late retention payment CC § 3260(g), 3260.1. Otherwise contractual. Fees to prevailing party on bonded stop notice, payment bond claims. CC § 3176, | 2% per month late payment penalty in lieu of interest, reasonable attorney fees to prevailing party. where late retention payment CC § 3260(g), 3260.1. Otherwise contractual. Fees to prevailing party on bonded stop notice, payment bond claims. CC § 3176, |
23. Warranties | Except for roofing (CC §1797.90), no express warranty required, but most contracts have one year. May be implied, or may also be created by law on mass-produced homes. (Eichler Homes) | No express warranty required, but most contracts have one year. May be implied, or may also be created by law on mass-produced homes. (Eichler Homes) |
24. Statutes of Limitations and Repose on Construction Defect Claims Patent vs Latent Defects | CCP § 337, 339, 338(b) 4 years, 3 years after discovery but within 10 years of "completion." CCP § 337.1, 337.15, latter doesn't apply where wilful misconduct or fraud, repair work may extend, contract may shorten. | CCP § 337, 339, 338(b) 4 years, 3 years after discovery but within 10 years of "completion." CCP § 337.1, 337.15, latter doesn't apply where wilful misconduct or fraud, repair work may extend, contract may shorten. |
"B&P" refers to sections of the California Business and Professions Code.
"CC" refers to the California Civil Code provision, and
"CCP" refers to the California Code of Civil Procedure,
most of which are available on-line at www.CSLB..ca.gov, which also includes much more detail and information on all of these subjects, as well as information on contractor licensing and related topics.
NB. This is not legal advice. Consult a competent construction lawyer for legal advice regarding your specific situation, as each situation is unique, and most laws frequently are changed by subsequent legislation or are affected by court decisions.. For legal questions, call George at (415)788-1881, x 222, or contact us. For further information on the subject of this article or for legal questions on Mechanics Liens and other Construction Law issues on Private and Public construction jobs, please call George Wolff at (415)788-1881, x 222, or contact us via email. |