Required Contract Provisions for Construction Contracts in California

Contract

One question I get fairly often when drafting or reviewing construction contracts is what provisions, if any, are required in construction contracts in California. This is, of course, different than what should be included in a construction contract which is a post for another day. So, here you go:

Provisions Required in All Construction Contracts

There’s only one requirement applicable to all construction contracts in California. And, that is, that you must include your California contractor’s license number if you are performing or bidding on work requiring a license.  California Business and Professions Code section 7030.5 requires that licensed contractors include their license number in “(a) all construction contracts; (b) subcontracts and calls for bid; and (c) all forms advertising, as prescribed by the register of contractors, used by such person.”

Provisions Required in Prime Contracts Other than Home Improvement Contracts

If you are performing work as a prime contractor on a project other than a home improvement project, Business and Professions Code section 7030(a) requires that you include the following statement in at least 10-point type:

Contractors are required by law to be licensed and regulated by the Contractors’ State License Board which has jurisdiction to investigate complaints against contractors if a complaint regarding a patent act or omission is filed within four years of the date of the alleged violation. A complaint regarding a latent act or omission pertaining to structural defects must be filed within 10 years of the date of the alleged violation. Any questions concerning a contractor may be referred to the Registrar, Contractors’ State License Board, P.O. Box 26000, Sacramento, CA 95826.

Provisions Required in Public Works Contracts

Labor Code section 1775 provides that for contracts “executed between [a] contractor and [a] subcontractor for the performance of work on [a] public works project shall include a copy of this section and Sections 1771, 1776, 1777.5, 1813 and 1815.”

Provisions Required in Home Improvement Contracts

As discussed above, if you’re a prime contractor on a project other than a home improvement project, there is certain statutory language you must include in your contracts. But if you’re a prime contractor working on a home improvement project, whether a single-family, condominium, or multi-family project, you must use a contract which complies with Business an Professions Code section 7159 which sets forth numerous detailed requirements from font size to headings to required language.

The requirements of Section 7159 are too extensive to discuss in detail here, so you should check out Section 7159 yourself, but in a rather large nutshell it requires that home improvement contracts:

  • Be in writing and include in the title the words “Home Improvement” [Contract or Agreement] in at least 10-point boldface type.
  • Be in a typeface of at least 10-point type with headings in at least 10-point boldface type except as provided otherwise.
  • Include, on the first page of the contract, the date the date the project owner signed the contract and the name and address of the contractor, along with a statement advising the project owner that a Notice of Cancellation may be sent to the contractor at the address provided.
  • Include the name, business address and contractor’s license number of the contractor and, if a home improvement salesperson solicited or negotiated the contract, the name and registration number of the home improvement salesperson.
  •  Include the following statements:
    • A statement that, upon satisfactory payment being made for any portion of work performed, the contractor shall, prior to further payment, furnish a full and unconditional release from any potential mechanics lien claimant.
    • A statement, in at least 12-point boldface type, that “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 describing what constitutes substantial commencement of work under the contract.
    • A statement that the project owner may not require a contractor to perform extra or changed work without providing written authorization prior to the commencement of work covered by the change order.
  • Include the following headings:
    • Contract Price,” followed by the amount of the contract.
    • If late payments are subject to a finance charge, the heading “Finance Charge,” followed by the amount of the finance charge.
    • Description of the Project and Description of the Significant Materials to be Used and Equipment to be Installed,” followed by a description of the project and of the significant material sand equipment to be installed.
    • If a downpayment will be charged, the heading “Downpayment,” followed by the amount of the downpayment and a statement that a downpayment may not exceed $1,000 or 10% of the contract price, whichever is less.
    • If progress payments will be made, the heading “Schedule of Progress Payments,” followed by the amount of each progress payment and the work to be performed for each progress payment and a statement that it is against the law for a contractor to charge for work not yet completed other than a downpayment.
    • Approximate Start Date,” followed by the approximate start date and, “Approximate Completion Date,” followed by the approximate completion date.
    • Note About Extra Work and Change Orders,” followed by the statement extra and changed work become part of the contract if a change order is signed by the parties prior to commencement of the extra or changed work.
    • If applicable, the heading “List of Documents to be Incorporated into the Contract,” followed by a list of documents incorporated into the contract.
  • Include the following notices:
    • A notice that the project owner has the right to require the contractor to have a payment and performance bond.
    • A notice regarding whether the contractor carries commercial general liability insurance and workers’ compensation insurance.
    • A notice concerning mechanics liens.
    • A notice, in at least 12-point type, regarding the California Contractors State License Board.
    • A notice concerning the project owner’s Three-Day Right to Cancel.
    • For any contract written for the repair or restoration of residential property damaged by a sudden or catastrophic event in which a state of emergency has been declared, a notice concerning the project owner’s Seven-Day Right to Cancel.

Provisions Required if Your License Has Been Suspended or Revoked

Not exactly a construction contract requirement more so than a requirement that you comply with before you enter into a construction contract, is that if your license has been suspended or revoked two or more times in an 8-year period, Business and Professions Code section 7030.1 requires that you disclose such suspensions and/or revocations “prior to entering into a contract to perform work on residential property with four or fewer units.”  The disclosure, which can be included in a bid, must be in capital letters in 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type.

29 Responses to “Required Contract Provisions for Construction Contracts in California”

  1. Dave Ross

    Good overview. Most contracts (especially GC-written ones) I see for home improvements (remodeling, additions) don’t come even close to meeting the statutory requirements. More needs to be done to educate owners and contractors, I think.

    On a related subject, why isn’t a custom new home construction project considered a Home Improvement Contract? Is it because a home can only be improved if it already exists, or is the reasoning related to a judgement call by the legislature about the sophistication level of people building custom homes?

    Reply
    • Garret Murai

      Thanks Dave. I completely agree. I think I’ve seen at most one or two “proper” home improvement contracts in the cases I’ve handled. But, then again, since I often get involved after things have gone wrong, my world view may be somewhat limited.

      Business and Professions Code section 7151 defines “home improvement” as “the repairing, remodeling, altering, converting, or modernizing of, or adding to, residential property” which, as you point out, excludes new residential construction. My guess as to why the State Legislature exempted new residential home construction from the home improvement contract requirements is, as you say, because of the relative sophistication between the contracting parties for new or custom home construction but also, I think, because The Right to Repair Act (SB 800) provides a relatively comprehensive scheme applicable to new residential construction.

      Reply
  2. fernando aguilar

    Is it necessary for the RMO to sign the contract?
    can anybody other than an RMO sign a construction contract?
    If not signed by the RMO, is the contract invalid by operation of law?

    Reply
      • Fernando Aguilar

        garret,
        when you say officer, does he have to be on the license. or any officer of the company. I believe during the review for the exam, it was mentioned that the person signing has to be on the CSLB license. Is that the case.
        and if so, and the contract was not signed by an officer on the CSLB license, does that make the contract invalid.

      • Garret Murai

        Hi Fernando. I am unaware of any such requirement. While it is typical that an officer of a company sign contracts, anyone who is authorized by the company to sign and bind the company to agreements it has entered into can do so. For example, if the company is a corporation, most corporations have bylaws which set forth who has authority to sign contracts on behalf of the company and may even provide that such persons can delegate that responsibility to others. Particularly for very large companies this makes a lot of sense, because you wouldn’t want to have the President of Google, as an example, having to sign every purchase order or contract for toilet paper, copy paper and disposable cups. If you are aware of anything in the CSLB statute or regs which says differently, I would be interested in seeing it.

      • Fernando Aguilar

        Garret, yes I called the CSLB. A construction contract can only be signed by someone on the CSLB license. A licensed HIS can also sign. However, the CSLB said it is by principle not by statute. So it is nowhere in chapter nine. But the CSLB said any complaint about this will find the person signing as guilty of unlicensed contracting.
        I was just thinking maybe that you know the doctrine behind that.

      • Garret Murai

        Interesting. Thanks for the tip Fernando. I have to say though, I don’t know what authority the CSLB would have to back them up on that, and by saying “it is by principle not by statute” doesn’t sound very convincing to me. The CSLB is a regulatory agency responsible for enforcing the laws enacted by the State Legislature and unless the State Legislature has said that only individuals listed on a contractor’s license can sign contracts, I don’t know that the CSLB implementing such a requirement, would be upheld in court. My two cents.

      • fernando aguilar

        Garret,
        Thanks for the reply, That is exactly what I discussed with the CSLB person in intake. I believe that the first step would be to complain to the CSLB and use the report in court. I am in a situation with a prime contractor where the RME is an absentee and he was not the one who signed the contract. His license was also not on the contract and did not put the provisions on 7030.5. We are going to try to invalidate the contract.
        Do you have a suggestion.

      • Garret Murai

        Hi Fernando. We’re getting into the “legal advice” but “I’m not your lawyer” area, and I don’t know enough about the specifics of your situation, sorry.

      • fernando aguilar

        7028.15. (a) It is a misdemeanor for any person to submit a bid to
        a public agency in order to engage in the business or act in the
        capacity of a contractor within this state without having a license
        therefor, except in any of the following cases:
        Garrett, is this the reason why it is required that the RME or Officer listed on the license submits a bid or offer or contract. I think signing a bid or contract is the only proof that the contractor was the one who submitted it.

      • Garret Murai

        Hi Fernando. I don’t believe so. The term “person” means more than simply an individual, and includes business entities as well, so the term “person” should not be construed to mean the RMO or RME of a business.

  3. David Sanchez

    Is it common for a home improvement contract to have a cap or limitation on liabilities provision, essentially saying that the most that the contractor can be liable for is the amount of the payments required under the contract?

    Reply
    • Garret Murai

      Hi David. As you know, home improvement contracts must comply with the requirements of Business and Professions Code section 7159. While Section 7159 sets forth what is “required” to be contained in home improvement contracts it does limit what may be included in home improvement contracts. Thus, while Section 7159 does not require that limitation on liability provisions be included in home improvement contracts it does not preclude the inclusion of such provisions either. I noticed that you are an attorney. You may want to look into whether a limitation on liability provision in a consumer contract, which is essentially what a home improvement contract is, is enforceable. I could well imagine that courts may put some limitations on such provisions, particularly, in contracts with consumers.

      Reply
  4. Viviana

    What are the requirements for a contract for a new residential construction? Sea like the well written article above is only for home improvement. If we are tearing down a house and building a new one, how do we assure our contractor gave us a valid contract?

    Reply
    • Garret Murai

      Hi Vivian. For new residential construction the only requirement is that the contractor include its contractor’s license number. Things can get a little gray, however, if the contractor is going to leave up a wall or leave the foundation, in which case, it could be argued that it’s a home improvement contract. In general, however, I would ensure that that the contractor is licensed, has no claims against it (which you can find out on the CSLB website), has adequate insurance, and, of course, there’s nothing like good referrals. Good luck on your project.

      Reply
  5. Cathy

    Hi, Garrett. Are you familiar with any on-line resources that provide free samples of building contracts for use in California? I’m a customer who will be building a home. The contractor will be providing the contract, but I’m wondering if there are provisions that should (and shouldn’t) be included. I’d like to compare the contract he provides with a standard or model contract. Thanks!

    Reply
    • Garret Murai

      Hi Cathy. As I’m sure you’ve found there are free contracts you can find on the Internet, some may be California specific while others may not, but free and good contracts I’m not aware of. There are a number trade associations which have developed their own model contracts including the American Institute of Architects, the Associated General Contractors of California, and the ConsensusDocs set of contracts, but there’s a fee for all of them. If you are building a house and you an architect, and if contract review is among the services your architect is to perform, I would ask your architect. Construction contract drafting and review isn’t something I think you should do unless you have experience doing it.

      Reply
  6. Lyle standish

    Great information for HICS, however I am looking for information on C-45 (signs) license contracts. It is a bit difficult to decipher what exactly needs to be included in a specialty license contract. I was hoping you could point me in the right direction.

    Reply
    • Garret Murai

      Hi Lyle. Other than what I’ve included here, I’m not aware of any special contractual requirements for contracts by C-45 licensees.

      Reply
  7. Daniel Vanderpriem

    Is a corporation which does home improvements required to follow the maximum deposit requirements in California, i.e. 10% max? I read the statute and it apples to “real persons” so not sure if a contractor can hide behind a corporation and get away with requiring a larger deposit.

    Reply
    • Garret Murai

      Hi Daniel. The Home Improvement statute applies to home improvement contractors which includes both individuals and business entities performing home improvements.

      Reply
  8. David

    Hi, Garret. Great article. Would a contract between a General Contractor and the Owner of a multi-unit residential property for the purposes of Seismic Retrofitting under the City of Los Angeles’ Soft-Story Program (Ordinance No. 183893) be considered a “Home Improvement Contract” and subject to the requirements of 7159? Thank you!

    Reply
    • Garret Murai

      Hi David. I’m not familiar with the ordinance you are referring to but if it involves construction work you would need to use a statutory home improvement contract, even for work on an apartment building, which I know seems odd.

      Reply
  9. PRA

    Garret…. enjoyed your summary and good counsel to the above inquiries (I practiced RE law for 30 yrs and was a specialty contractor for 17 years). The statutory warnings for home improvement contracts are no doubt well intended, but it is absurdly unmanageable. It is little wonder that virtually nobody complies completely. Cheers.

    Reply

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