Many property owners hire unlicensed contractors to work on their rental buildings. Sometimes it works out just fine, but when things go south, as they often do, a nightmare can unfold. By hiring an unlicensed contractor, owners forgo basic legal protections, exposing their property to a loss in value, costly lawsuits, and costly repairs. In some instances, the financial damage can be staggering, in others property owners are exposing themselves to lawsuits. The potential ramifications are the same whether the contractor is a friend or a family member—often the unlicensed contractor is a criminal.
State Oversight of Contractors
Contractors are subject to oversight by the State of California, oversight that results in protection for the consumer. For example, California’s Contractors State Licensing Board (CSLB) protects consumers by requiring that all contractors have a minimum competence (as certified to by the contractor’s license), submit to criminal background checks, obtain a construction bond, and if necessary, workers compensation insurance, among other requirements. The Board also requires licensed contractors to arbitrate disputes with the property owner who hired them. The CSLB tracks complaints against licensed contractors and has the power to discipline them. For example, if a contractor receives too many complaints, they can lose their license. The CSLB also creates a legal incentive for licensed contractors to follow the law by obtaining proper permits and charging ethical amounts for their services by helping the property owner if a complaint is filed.
The law does not require that a property owner hire a licensed contractor. However, a contractor must be licensed to complete any work with a value over $500. It’s not per se illegal to hire an unlicensed contractor, but it’s more likely that an unlicensed person will do something illegal that then has negative consequences for the property owner.
Minimal State Oversight of Unlicensed Contractors
Unlicensed contractors can disappear if something goes wrong. Of course, the property owner can file a complaint with the CSLB, but it is unlikely that the unlicensed contractor will be found. By hiring an unlicensed person, owners are venturing into an unregulated market where the only loser is the property owners and his or her property.
An unlicensed contractor may choose to forego the necessary permits as required by law—often without telling the owner and usually to save money or to overcharge. If the city discovers that the repair or construction work is being done without permits, it can shut the work down and require the owner or contractor to obtain the required permits. The city can also compel the property owner to correct any non-code compliant work. The unlicensed contractor will then attempt to pass any resulting increased costs on to the property owner. Without the protections of mandatory arbitration agreements, the owner is then left to chase an unlicensed contractor through the court system for mistakes he made.
Property Owner’s Liability
An unlicensed contractor is an employee, not a contractor. So, if such a person is hurt in the course of working for the owner, the owner could be liable for tort damages. At the very least, this requires the funds to defend a lawsuit. At worst, the property owner could end up paying the injured contractor’s medical bills and lost wages. Licensed contractors who hire their own employees are must offer them employment insurance. But, if the contractor is unlicensed, and his employee is injured on the job, it’s once again the owner who could be liable for the worker’s injuries, medical bills, and lost wages.
Finally, the owner could also be held liable for damage to a neighbor’s property or injuries due to the unlicensed contractor’s shoddy work, cutting of corners, and failure to obtain required permits. Any of these practices can put the owner in legal peril.
The Costly Consequences of Shoddy Work
Aside from the potential legal costs associated with an unlicensed contractor, there is also real monetary cost. The unlicensed person’s shoddy work—whether deliberate or due to poor skills—could force you to hire a licensed contractor to do very costly repairs.
It is important to remember that while it’s far more common among unlicensed contractors, not all licensed contractors are ethical and provide competent work either. However, more protections are afforded to property owners who hire licensed people. To ensure that a licensed contractor is ethical the CSLB recommends that any property owner seeking to hire an independent contractor consult this online guide: www.cslb.ca.gov/Resources/Consumer%20Education/AvoidHomeRepairScams.pdf
Sean Makarin is an attorney with the Law Offices of Walter Parsley. Contact him at (415) 777-1800 or [email protected]. Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News. For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.