The ability of an unlicensed contractor to file a mechanics lien depends on the state. One of the states that strictly requires licensure is California. At levelset, we always recommend that if there is a license required – get that license. Only performing work that you are licensed to perform (where licensure is required) is the safest way to ensure that your lien rights are preserved. Plus, it’s just good business practice. This year, California law has become a little less black and white licensure, though the grey area is very small. Again, if a license is required- get it!
The amendment to Business & Professions Code § 7031 can be found here.
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California Contractor Requirements
California is especially harsh to unlicensed contractors. Beyond losing lien rights, an unlicensed party performing work requiring licensure may not bring any court action to recover payment for that work. So an unlicensed contractor can’t file a lien, has no breach claim, and can’t bring an unjust enrichment action- nothing. And California contractor requirements actually go one step further! When a contractor does work and does not hold the required license, the property owner may actually force the contractor to pay back all amounts under the contract. Brutal stuff.
For the third time – if you’re a California contractor, make sure you are licensed to perform the work you’re doing. But things happen. That’s why there was a little wiggle room under this requirement.
To substantially comply, a contractor had to meet 4 requirements: (1) the contractor had been duly licensed as a contractor in California prior to the performance of the work, (2) the contractor acted reasonably and in good faith to maintain the license, (3) the contractor did not know or reasonably should not have known that he or she was not licensed when performing the work, and (4) the contractor acted promptly and in good faith to reinstate the license once learning the license had lapsed.
As you may have noticed, the third requirement is a bit subjective. California contractors complained that the third factor was nearly impossible to meet. In theory, every contractor should know the requirements of the state. It appears as though their complaints have finally been heard, and substantial compliance has been redefined.
Substantial Compliance, Amended
The requirements for substantial compliance have been amended. Most notably, the former third factor has now been deleted, and the fourth factor was lightly edited.
Under the amendment, if the contractor:
“(1) had been duly licensed as a contractor in this state prior to the performance of the act or contract, (2) acted reasonably and in good faith to maintain proper licensure, and (3) acted promptly and in good faith to remedy the failure to comply with the licensure requirements upon learning of the failure.“
then they have substantially complied with the licensure requirement.
Even with this amendment there is still very little wiggle room regarding California contractor requirements. So for the fourth time- if a license is required, get it!
But when a mishap occurs, California has given a tiny bit more leeway to unlicensed contractors. The old third factor that essentially failed all substantial compliance claims has been eliminated. Still, California remains one of the harshest states for unlicensed contractors.