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California Laws And Requirements For Home Improvement Contracts, Remodeling Contracts, Swimming Pool Contracts, And Other Private Construction Contracts

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.