Renting Your California Contractor’s License. Probably Not Such a Good Idea

I'm For Rent t-shirtFor those of you who are licensed contractors in California, or if you’re thinking about getting a contractor’s license in California, you know that you need a “qualifying individual” in order to maintain or obtain a license. A qualifying individual can be a Responsible Managing Officer (“RMO”), a Responsible Employee (“RME”), a Responsible Managing Member, or Resopnsible Managing Manger, who holds his or her own individual contractor’s license which is associated with the company.

In order for a qualifying individual to obtain a contractor’s license they must satisfy the California Contractors State License Board’s (“CSLB”) experience requirements and take and pass a written Law and Business Examination and a specific trade examination for each classification in which the individual seeks a license.

And that’s where the rub lies.

For licensed contractors seeking to add a classification or new contractors seeking to get a contractor’s license, who do not have a qualifying individual who holds a license in the classification they seek, the solution may seem straightforward.

Rent one.

Renting a qualifier means that you pay an individual who holds an individual contractor’s license to act as the RMO, RME, Responsible Managing Member, or Responsible Managing Manager for your company when they have no actual involvement in the day-to-day operations of the company.  But, as the CSLB is warning contractors, renting your license (or getting someone to rent their license to you) can land you in a heap of trouble:

*****

Perils of “Renting” Your License

Are you a retired, expired or “inactive” contractor? Have you been asked to serve as the qualifier for someone else’s license for a monthly fee without having to be involved in day-to-day business operations?

If you receive such a solicitation, your first question should be “Is that legal?” The answer: No.

Companies throughout the state have been offering to “rent” contractor licenses so their business can qualify to conduct a construction operation. Licensees have been offered several hundred dollars per month to do this. But, amendments to Business and Professions (B&P) Code section 7068.1 clearly state that an individual has to have direct control and supervision of his or his employer’s or principal’s construction operations or face disciplinary and misdemeanor criminal charges (punishable by up to six months in jail, by a fine of $3,000 to $5,000, or both).

Licensees also can be held liable in a civil court for damages that may arise from defective work done by the business entity they qualify. Violations of Contractors State License Law result in the qualifier being held responsible, regardless of his or her knowledge or participation in the prohibited act or omission.

Construction performed by unqualified individuals who illegally obtain a license by using an absentee qualifier is a threat to the public. Consumers are put at risk when substandard work is performed by unskilled individuals; the cost to correct deficient work can be exorbitant, often exceeding the original contract amount.

The ongoing case against revoked licensee Avi Gozlan provides a sobering example of what can happen when qualifiers are not actively involved with the licenses they qualify. Gozlan was one of 13 people indicted by the Ventura County Grand Jury in August for a telemarketing scheme that used licenses that were obtained from nonparticipating qualifiers as a front to sell phony or inferior home improvement services.

Three qualifiers already have pleaded guilty to felony conspiracy charges in the Southern California case in which thousands of consumers are believed to have been defrauded.

Remember that when you’re the qualifier for a license, you need to have direct supervision and control of business activities. California contractors cannot act as a qualifier for an additional individual or firm unless there is a common ownership of at least 20 percent. An additional firm may be a subsidiary or joint venture of the initial company where at least 20 percent of the equity is owned by the initial firm. Also, a qualifying individual can be the qualifier for not more than three firms in any one-year period.

CSLB’s website includes more information that describes the duties and responsibilities of a qualifier: http://www.cslb.ca.gov/applicants/ContractorsLicense/ExamApplication/BeforeApplyingForLicense.asp.

34 Responses to “Renting Your California Contractor’s License. Probably Not Such a Good Idea”

    • mo

      MY COMPANY WANTS ME TO BECOME THE RME AFTER JUST 2 MONTHS WITH THEM (C-13 FENCING) I LIED ABOUT MY 4-YRS OF EXPERIENCE AND HAD 2- “FRIENDS” / PREVIOUS CO-WORKERS BACK MY EXPERIENCE, I HAVE SINCE HAD SECOND THOUGHTS AND BACKED OUT TODAY / SCHOOL AND ALL…THEY WERE GOING TO PAY ME $1200 A MONTH, BUT I AM WORRIED ABOUT THE RISK. IS THERE MAJOR RISK EVEN IF I AM AN EMPLOYEE?
      THANKS , MO

      Reply
      • Garret Murai

        Hi Mo. I’m going to assume this is a let’s-post-a-fake-comment-and-see-how-the-blogger-responds-to-it post*, but I’ll run with it.

        Aside from the fact that you’ve admitted to having misrepresented your experience in order to get a contractor’s license (please read my Disclaimer – “Comments, feedback and responses on this blog are not confidential”), yes, there is a risk both for you and possibly the company if the company was going to pay you the $1,200 per month just to use your license but you’re not: (1) a bona fide employee involved in the business at least 32 hours a week or 80% of the total business operating hours per week, whichever is less; or (2) not actively involved in the construction activities of the company.

        As I mentioned in my 2014 Construction Law Update, beginning January 1, 2014, with the enactment of SB 262, the Contractors State License Board may take disciplinary action against a qualifier (including an RME) and the licensee they are qualifying for, if the qualifier is not actively involved in the construction activities of the licensee. In addition to administrative penalties, the qualifier may be subject to misdemeanor criminal charges including imprisonment in the county jail up to six months, a fine of up to $5,000, or both.

        Good luck to you (wink).

        * My assumption is also based on the fact that I didn’t see your name associated with a C13 fencing license on the Contractors State License Board website.

  1. Dan T.

    I wish CSLB is more active in enforcing the law. Being a licensed contractor in bay area, I have known a lot of cases like that and those ones keeps expanding to be RMO for other businesses to obtain licenses.

    Reply
  2. Colin

    What is the liability of a contractor pulls a permit under its license, but lists itself as an agent of an unlicensed company which subequently hires unlicensed workers to perform the work. (The original contractor performed no work on project).

    Reply
    • Garret Murai

      Hi Colin. I would need more information. Liability for what? Who was the contractor who pulled the permit in contract with? And what do you mean by “unlicensed workers”?

      Reply
    • Stop

      I’m so pissied that this can happen with contractor having no knowledge of his license being used I have authorized not one person to work for myself now use my license to pull any permits in any California city. Sometimes you just have to say it new truck is mine or you go to jail.

      Reply
      • Garret Murai

        Hi Stop. If someone is using your license to pull permits without your authorization you can file a complaint against them with the California Contractors State License Board.

    • Garret Murai

      Hi Mercedes. You cannot “rent” the license of a contractor in order to have him or her serve as a qualifier, as discussed in the post.

      Reply
  3. GB

    I agreed to be an RME for the company I am employed by who’s owner passed away was the license holder. I would qualify to legally be an RME. I have an A, B and C-12 set as inactive. What compensation should I request to be an RME? The company currenlty does about $10-12 million in sales per year.

    Reply
  4. Jim

    Hi, Garrett,
    I have an offer to be the RME for a friend. 20k up front and a full time salary of 50k per year. I would manage all installations through the use of licensed subs and do field supervision and inspections. Is this something you could help put together?

    Reply
  5. Mike

    im a lic. general contractor i am now retired. My son who is now 30 years old has worked in my buisness for 8 years he wants me to make him an RME , so he can work for another general contractor and pull in sub contractor wages. is this legal, could i be held liable on his job?

    Reply
    • Garret Murai

      Hi Mike. Does your son already have his own contractor’s license? He won’t be able to serve as an RME for your company if he doesn’t, and if he does, as an RME, he will be precluded from working on his own. I don’t see how you would have any liability, though, I don’t think it’s possible to do what your son is trying to do in the way he is trying to do it.

      Reply
  6. Phil Cocciante (@License_Guru)

    If he’s an RME for Mike, he couldn’t work for anyone else. If Mike’s license is a sole owner, and he carried workmans comp, it could be possible for the son to take over the license using the Family Waiver. Son could become the license holder without taking the exams.

    Reply
  7. Elan dorriz

    I have my license with corporation as a rme just find out this company doesn’t believe in pulling permit to do jobs nor city business license ,what is my rights and what should I do about ir

    Reply
    • Garret Murai

      Hi Elan. You can talk to the company to see if they will change their business practices. If that doesn’t work you can file a withdrawal of qualifier form with the California Contractors State License Board (CSLB). You can find the form on the CSLB website. Good luck.

      Reply
  8. Chris Manning

    What is the going rate for RMO> I have a B1 and C39. A company wants to use my licenses for a solar company.communityenergyexperts.com. I’m interested, i need more info as to how to approach this…
    chris

    Reply
    • Garret Murai

      Hi Chris. There is no “going rate” and I would caution you if you are going to let a company use your license if you are not going to actually perform the role of a RMO as you could lose your license and/or be subject to liability.

      Reply
  9. Bill

    Hey Garret – Great post.

    I just left a corporation who buys their license from an RME that I only met once during my 9 months there and he has no idea what is happening day-to-day on the projects. They paid him $700 a month to use his license and I left because of VERY shady business practices which include but are not limited to marking up change orders 50-100% with no other reason than making more money.

    Is there any way to file a complaint anonymously? If they were to ever find out that I sent a complaint to the CSLB, they would send 10 lawyers to my doorstep immediately.

    2nd question – Do I have any grounds to file a complaint as a former employee?

    Reply
  10. Jack

    I am in East Bay and in need (very urgent ) to hire a RME/RMO with a c-17 license, with fairly payment/salary. What’s is the better way, RME or RMO? Is there any body with c-17 there? Please any body let me know, or let me know any clue, recommendation. Thanks. my cell 925-989-3828

    Reply
    • Garret Murai

      Hi Jack. First, as indicated in the post, you cannot rent a qualifier. I don’t know whether you are intending to do that or not, but based on your “very urgent” statement, it leads me to believe so. A qualifier has to be involved in the day-to-day construction activities of the company, so if you just want to use/rent someone’s C-17 license, you can’t do that. Second, assuming your qualifier will be involved in the day-to-day construction activities of the company, you may want to read our post on obtaining a contractor’s license – https://calconstructionlawblog.com/2013/09/04/what-you-need-to-know-about-obtaining-a-contractors-license-in-california/ – which discusses the differences between RMOs and RMEs.

      Reply

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