It is surprising how many calls we get because home improvement contracts fail to meet even the bare requirements of California Law. Contractors working in residential improvements need to be extremely careful that they do not simply use their bid as the agreement. The contractor must provide the homeowner with a written Home Improvement Contract (HIC) that fully complies with California law. Otherwise, the Contractor may not only have a problem collecting payment from the homeowner, but may also face discipline from the Contractors State License Board.
What Must I Include in My Contract?
There are a number of codes and statutes that regulate the content of a construction agreement. California contractors must be aware of the laws that requires them to include certain language in their agreements to perform home improvements for customers.
For virtually every type of construction contract Business and Professions Code section 7030.5 (BPC 7030.5) requires that a contractor place their license number on all contracts, subcontracts, bids, and advertising.
Under Business and Professions Code section 7159 (BPC 7159), the first requirement is that the agreement is written and legible, and both the contractor and the buyer must sign it. The contractor must give the buyer a signed copy of this written agreement before work commences. The text and headings of the agreement must be in at least 10-point font, except where the law specifies that the text must be larger (see below).
Some of the provisions that your Home Improvement Contract must include are:
- The name, business address and license number of the contractor.
- The date the buyer signed the contract.
- A thorough description of the work to be done, including starting date and estimated completion date.
- The name and address to which a “Notice of Cancellation” can be mailed, immediately preceded by a statement advising the buyer that the “Notice of Cancellation” may be sent to the contractor at the address noted on the contract.
- In at least 12-point bold type, this statement: “You are entitled to a completely filled in copy of this agreement, signed by both you and the contractor, before any work may be started.”
- A statement that, upon satisfactory payment being made for any portion of the work performed, the contractor, prior to any further payment being made, shall furnish to the person contracting for the home improvement or swimming pool work a full and unconditional release from any potential lien claimant claim or mechanics lien.
It is important to note that the above is not an exhaustive list. There are several other required provisions that must be in a home improvement contract. To make sure your contract is in compliance with state law, it is wise to retain the services of an experienced construction law attorney who can assist in drafting the contract and ensure that it complies with the law.
Down Payments and Progress Payments
BPC § 7159 also contains other mandatory provisions regarding down payments or deposits for construction work. Not only does it limit the amount of the down payment but it also requires that the following language be in the contract:
- The heading: “Down Payment”;
- A space where the actual amount of the down payment appears; and
- The following statement in at least 12-point boldface type: “THE DOWN PAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS.”
If the construction contract calls for progress payments, the section describing the progress payment schedule must include the following statement in at least 12-point bold type:
“The schedule of progress payments must specifically describe each phase of work, including the type and amount of work or services scheduled to be supplied in each phase, along with the amount of each proposed progress payment. IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWN PAYMENT.”
Additional Notices to the Customer
Home improvement contracts also must give notices about insurance, liens and cancellation rights. Section 7159 includes the language that must appear with respect to these mandatory notices. Your customer must be informed in writing about these subjects:
- How extra work and change orders are to be included with the contract;
- Whether you carry commercial general liability insurance, and if so, information about the policy;
- Whether you carry workers’ compensation insurance, and if so, information about the policy;
- A warning about a contractor’s right to place a mechanics lien against the property for failure to pay for the work;
- Notice including information about contacting the Contractor State License Board; and
- Notice of the buyer’s right to cancellation
The list of requirements for compliant Home Improvements Contracts is extensive. For licensed contractors, the penalty for failing to comply with these requirements can be severe. Discipline from the Contractors State License Board can include fines and the suspension or revocation of the contractor’s license plus an increase in bond premiums and requirements. A contractor with an improper Home Improvement Contract can lose their right to receive full payment for work performed, and in some cases, may be required to pay the customer back.
New Requirements for Residential Solar Energy System Contracts
As of January 1, 2019, there are new notice requirements related to solar energy systems. Business and Professions Code section 7169 (BPC 7169) requires special disclosure documents that also have very specific language requirements. A single page document was approved by the Public Utilities Commission (PUC), but this law is currently in a state of flux and it is important to check with a construction lawyer to make sure you have the most up to date form.
Licensed contractors should seek the advice of an attorney experienced with construction law to make sure that their contract complies with state law. Ignoring the mandatory language can affect a contractor’s right to collect payment, and could lead to discipline from the CSLB. With more than 35 years of experience, the law firm of Adina T. Stern is ready to help you with your contract drafting needs. Let us help you today.
Our firm handles legal matters and transactions throughout Southern California, including Laguna Niguel, Lake Forest, Laguna Beach, West Hollywood, Riverside, Orange County, Los Angeles County, Riverside County, Ventura County, San Bernardino County and San Diego County. Call us today at (949) 459-2111 to speak with us about a consultation.