California Construction Contractor Licensing Laws
California contractor licensing is a regulation primarily enforced by the state’s Department of Consumer Affairs and its Contractors State License Board (CSLB). The purpose of the licensing system is to ensure that all persons and entities with a demonstrable history of bankruptcy, neglect or insolvency are prohibited from performing construction work in the state, and that only those capable of meeting the appropriate licensing standards are able to work on contracting jobs.
A "contractor" is someone who neither performs such work personally nor uses their own labor. Rather, a contractor hires workers to perform contracting work on their behalf or engages in construction work through another person. In short , if you hire someone else to perform contracting work on your behalf, you are acting as that person’s "contractor."
A license is not needed if contracting for the following:
These exceptions only apply if the hiring person or entity does not hold out to be a contractor or advertise their availability to act in that capacity. Without a license, a contractor may not act as a prime contractor or subcontractor.
Contractor licensing is one of the most fundamental and crucial legal requirements for many California construction industry businesses. For those that must be licensed, it is necessary to understand what the various statutory and regulatory requirements are and how they are implicated in the activities of a contractor.
What Projects Require a License?
Within the construction industry, there are many different types of projects: residential, commercial, remodeling, new construction, and specialty work, among others. In all but the most generic of segments within the industry, you need a license to perform work as a contractor. You are now probably wondering if your home project will require a license — the answer is quite simple: it depends. The Contractors State License Board breaks down the different types of work that require a license into three categories: "Contractors who do any construction work, residential or commercial, must be licensed. All contractors must have at least one classification in which they are licensed to do work. The classification identifies the type of work the contractor is qualified to perform," (Contractor License Requirements for California). They are as follows: The Residential License covers new construction and remodel work on all single-family dwellings and any condominium or attached units that are less than four stories. The Project Owner’s Guide for Licensed Contractors goes a little deeper into detail, explaining that the "Law states that a residential remodel project … requires a C-36, C-42, C-54 licensed contractor, to perform any residential remodeling project where the remodeling (including new construction) is four or more residential units. These types of projects include but are not limited to multi-family residences, such as apartment buildings, condominiums, townhouses, etc., and any remodeling work on a single family residence where the total cost of all labor, materials, and expenses is $500 or more." As you can see, the average consumer was not completely accurate when stating that "Jack-of-all-trades" licensed contractors can take on any residential project. There is no gray area here. If you want a "free standing structure" of any type and you "break ground" then you need a license, period. The law takes "breaking ground" to mean the point at which "construction work starts" and/or "earth, rock, or other material is disturbed by any means", (Contractor License Requirements for California), see Civil Code § 881. Most remodeling projects fall under the residential license. Residential remodeling projects include but are not limited to any work involving: interior or exterior remodeling; a change to the load-bearing or non-load-bearing structure; demolition; pool, spa, spa/pool cover, or retaining wall installation; installation of window (size cannot be altered); drywall; plaster; lath; stucco; siding; door installation (size cannot be altered); heating; ventilation; air conditioning; carpeting; painting; floor covering; framing; masonry; water proofing; flat work; rough grading; finish grading; erosion control; and septic tank services. (Tree removal is not included.) As a general rule of thumb, "if the total value of work (which includes labor, materials, fees, etc.) is $500 or more" then you need a license.
Who is Required to Get a Contractor’s License?
In California, a contractor’s license is required for a business owner to engage in the business of contracting. A contractor’s license is generally required for the performance of work in any of the "trades" as defined in the California Business and Professions Code, including carpentry, roofing, plumbing, electrical work, masonry, flooring installation and more. Whether you are a general contractor or a specialist in one of the various trades, the licensing requirements hinge on the monetary value of the projects you engage in.
If you are a general contractor, you are required to be licensed if either the monetary value of any contract you have for construction of any one home improvement is over $500, or if the total value of the labor and materials in all of your contracts in any 12-month period is over $500. If you are a subcontractor (including a specialty contractor such as a painter), you must be licensed if the cost of the work performed or contracted by you on any one home improvement project is over $500, or the total value of the labor or materials in all of your contracts for a 12-month period is over $500.
So if you are engaging in contracting business in California, you should consult with an attorney before starting work to get a sense as to whether you are complying with the licensing requirements, or face severe consequences.
Risks of Contracting Without a License
In California, doing unlicensed contracting can have serious financial consequences and be used against you in court if you must litigate. The Contractors’ State License Board (CSLB), together with other state departments, has the power to penalize those who contract without the required license or who provide unlicensed employees for other businesses contracting in California. Both the CSLB and other agencies can fine a business or individual for contracting without a license, unfair competition, and misrepresenting your licensing status. In addition, recovering from a judgment in court can also be difficult or impossible.
For example, if a homeowner engages the services of a contractor, officially referred to in the law as a "licensee," then that licensee can recover under the contract. In contrast, if that same homeowner makes an agreement but the license is not active or it was never obtained, the owner could argue successfully that the contract is void, and the contractor will not be able to recover the amounts he or she is owed for services provided under the contract. By California law, at Civil Code section 7031, an unlicensed contractor may not recover the contract price or even the value of its services in connection with work requiring licensure. Passing off employees as licensed employees when they are not also brings about substantial fines and can result in your ability to accept new clients being severely hampered.
Steps to Become a Licensed Contractor
Licensure as a contractor in California is governed by the Contractors State License Board, which has offices in Sacramento, four regional offices, and four contractor’s state license service (CSLS) offices to assist those who need a license. The CSLB will perform background checks of each applicant, so it is important to know that any prior misdemeanor will show on the applicant’s criminal record. In addition, all candidates must sign a statement that any prior felony conviction will not prevent him or her from getting a license. There are three types of individuals that will be issued a license: Individuals and sole proprietors, partners, and corporate officers. There are two methods to apply for a license: by mail or online. The CSLB recommends online applications, as they are processed much faster.
Online applications can be completed in several steps. First, the applicant must visit the CSLB website and fill out an application for a new license. Second, the applicant is directed to pay the fee online. Next, the applicant is then directed to register with eLicensing and set up an account before he or she can complete the license application . After creating an account, the applicant logs back in to his or her eLicensing account and completes the license application questions. Once the applicant completes the application, he or she needs to take an exam, and then provide the CSLB with all supporting documentation for the application.
There are also several requirements that must be met in order to apply for a contractor’s license. For applicants with no previous contractors’ license, or applicants applying for a new classification of license, there are six requirements. One, the applicant must be at least 18 years of age. Two, the applicant must provide the CSLB with proof of successfully passing the required examinations. Three, the applicant must provide the CSLB with proof of having the required experience to apply for a license. Four, the applicant must employ a "qualifying person" who passes the examination. Five, the applicant must provide the CSLB with a $15,000 bond, the cost of which is set by state law. Six, the applicant must either submit a certificate of worker’s compensation insurance, or if he or she is exempt from the requirement, submit a certificate of exemption.
License Exemptions and Special Circumstances
While the vast majority of individuals engaged in the construction business are required to have a contractor’s license, there are a number of exemptions from the licensing requirements. These exemptions apply when a contractor is providing certain services or building on a very small scale.
Probate & Bankruptcy Purchasers
Purchasers at a probate sale or bankruptcy sale of a residential structure containing four or fewer units are exempt from licensure. (Business and Professions Code Sections 7026(c)(7) and 7026.9)
Owner-Builders
An owner-builder is exempt from licensure when personal services are being furnished, as long as the owner-builder occupies the residence for the first year after completion of the construction. Personal services are considered to be "labor additional to the work of generalian," and includes but is not limited to, framing, electrical work, rough plumbing work, masonry, drywall, and flooring. (Business and Professions Code Section 7044)
Incidental Work, General Maintenance, and Repairs
A property owner may do incidental work, general maintenance, and repairs to his or her own property without prior licensure. The owner must complete the work on his or her own property in good faith and with honest intent, and not with the intention to evade this division. Incidental work, general maintenance, and repairs do not include additions, remodeling, repair of damage, or demolition of all or any part of any structure if that work totals in excess of $500 in labor and materials. (Business and Professions Code Section 7044(a))
Exempt Transactions
Transactions exempt from licensure include the following:
While these transactions are exempt from licensure, it is important to note that an individual performing such work must be appropriately licensed for all other work he or she may be doing. Thus, the foregoing exceptions do not provide a "loophole" to the requirement of licensure.
Registration and Renewal of a Contractor’s License
California licensed contractors are subject to the Contractors State License Law (the "CSL Law"). The CSL Law enforces the public contract and registration requirements applicable to construction in California. Every two years a contractor is required to renew his or her license. No license may exceed the number of licenses available to the qualifying individual. For example, if an individual qualified for a general engineering license, the licensee could not have more than one general engineering license. However, the licensee could also qualify for a general building license and, therefore, could hold a maximum of two licenses. Anticipated crews required for contracting work are taken into account when an applicant applies for a license. Unlicensed employees do not individually require licenses so long as their work is so described in the license application. The license is allowed to be available for use by the licensee and employees without a penalty, so long as it is used lawfully. The unauthorized use of an inactive license may result in a fine or suspension of the license . Contractors are required to obtain a license from the Registrar of Contractors prior to performing contracting work. The licensing process begins with filing an application and paying the required fee to the Registrar. The Registrar will verify that the applicant meets the requirements of the CSL Law and the Business and Professions Code. The applicant must be fingerprinted, provide proof of liability insurance, and bonding. Once an applicant passes a written exam, the applicant will be issued a license. An active license must then be renewed every two years. No license may be renewed more than five years after it expired. A late fee may be due upon renewal. If the license is not renewed by the end of the five-year grace period, it may not be reinstated or restored. Continuing education is required in order to maintain and renew a contractor’s license. There are two options: 10 hours of courses approved by the state or self-study which requires a contractor to pass closed-book exams demonstrating knowledge of license law.