Contractors Law Changes - Home Improvement Contracts
HOME IMPROVEMENT CONTRACTS, PRIOR TO JULY 1, 2005

A home improvement contract is an agreement, whether oral or written or contained in one or more documents between a
contractor and owner or between a contractor and tenant, for the performance of a home improvement.

1. Enforcement of License Law. Section 7159 of the Contractors’ License Law provides for specific requirements to be
included in contracts with owners or tenants for home improvements and the construction of swimming pools when the home
improvement contractor or the swimming pool contractor is acting as a prime contractor. The primary purpose of Section 7159
is the enforcement of the Contractors’ License Law as it relates to home improvements and the construction of swimming pools
on residential property.

2. Provisions of Other Laws Must Be Included. The provisions of Section 7159 are not all-inclusive as to what must be
included in a written contract. Other information must be given to the homeowner or tenant. For example, the notice about
questions concerning a contractor, as specified in Section 7030, and the notice about disclosure of prior disciplinary action, as
specified in Section 7030.1, must be given. The checklists outlined in Section 7159.3 and in regulation (Board Rules 872 and
872.1) are also required. Furthermore, all statements, writings, or notices required by other state or federal laws such as “Truth
in Lending” or “Notice of Right to Cancel” provisions, must also be included, where applicable. The contract may include other
matters agreed to between the parties.

3. Contracts in Excess of $500. A prime contractor who is licensed or subject to the provisions of Contractors’ License Law
must adhere to the requirements of Section 7159 when he or she enters into a contract with an owner or tenant to repair,
remodel, alter, convert, or modernize residential property, or to construct a swimming pool. The contract must be in writing if
the total contract price, including all labor, services and materials to be furnished by the contractor in one or more contracts,
exceeds $500.

4. Swimming Pool Contractor. A revision in the Contractors’ License Law, which became effective on January 1, 1992,
combined all the provisions of swimming pool contracts with those of home improvement contracts. All the provisions of home
improvement contracts apply to contracts for the construction of swimming pools. However, there are some additional
provisions which are exclusive to swimming pools. Also, there are two exceptions to the requirements under the provisions of
the Home Improvement Act for swimming pool contractors. (1) A swimming pool built for use and enjoyment of other than a
single family unit is exempt from the provisions. (2) A swimming pool built as part of an original building plan by the same
contractor who builds a single-family dwelling unit on the premises is exempt.

5. Swimming Pool Construction, Owner-Built. Specialty contractors hired by owner-builders are prime contractors and as
such are subject to Section 7159.

6. Contract Requirements. A contractor entering into a contract for home improvement which amounts to more than $500
must put the contract and any changes to the contract into writing and it must be signed by all parties. The writing, as specified
in Contractors’ License Law Section 7159, must contain:
· The name, address and license number of the contractor, and the name and registration number, if applicable, of any
salesperson who solicited or negotiated the contract.
· The approximate dates when the work will begin and be completed;
· For a swimming pool: a plan and scale drawing showing the shape, size dimensions, and construction and equipment
specifications for a swimming pool;
· For other home improvements: a description of the work to be done, the materials to be used, and the equipment to be used or
installed;
· The agreed consideration for the work.
· For swimming pools: if the payment schedule contained in the contract provides for a downpayment before the
commencement of work, the downpayment may not exceed the lesser of two hundred dollars ($200) or 2 percent of the contract
price, excluding finance charges;
· For other home improvements: If the payment schedule contained in the contract provides for a downpayment before the
commencement of work, the downpayment may not exceed the lesser of one thousand dollars ($1,000) or 10 percent of the
contract price, excluding finance charges;
· A schedule of payments showing the amount of each payment as a sum in dollars and cents. The schedule of payments must
specifically reference the amount of work or services to be performed and the materials and equipment to be supplied;
· The contract shall state that upon satisfactory payment being made for any portion of the work being performed, the
contractor shall, prior to any further payment being made, furnish to the owner or tenant contracting for the home improvement
or swimming pool, a full and unconditional release from any claim or mechanics' lien for that portion of the work for which
payment has been made. This requirement includes not only the contractor's full and unconditional release but also full and
unconditional releases from all subcontractors and material suppliers;
· In close proximity to the signature, the contract must state that the owner has the right to require the contractor to have a
performance and payment bond;
· A notice that failure by the contractor, without lawful excuse, to substantially commence work within 20 days from the
approximate date specified in the contract when work will begin, is a violation of the Contractors License Law;
· The contract may also contain other matters agreed to and the writing shall be legible and be in a form that clearly describes any
other document which is to be incorporated into the contract; and
· Prior to work being performed, the contractor is required to furnish the owner with a copy of the written agreement signed by
the contractor.

Some of the above notices do not apply under some circumstances. See Section 7159 (g).

The written contract must also contain:
· The notice regarding questions concerning a contractor required by Section 7030;
· The language of the Notice to Owner form required by Section 7018.5;
· The notice on commercial general liability insurance and the checklists for homeowners on home improvement and swimming
pool construction outlined in Business and Professional Code Section 7159.3 and Board Rules 872 and 872.1;
· A Truth in Lending Notice, if applicable; and
· A Notice of the Right to Cancel, if applicable. See point 22, below.

7. Changes to a Contract. Any changes to a contract for home improvement must be put into writing and signed by all parties
prior to the work being performed.

8. Downpayment. On contracts for home improvements other than for swimming pools, the payment schedule may provide
and a home improvement contractor may receive up to 10 percent of the total contract price or $1,000, whichever is the lesser
amount, as a downpayment. On contracts for swimming pools, the swimming pool contractor may receive no more than $200 or
2 percent of the contract price, whichever is less, for a downpayment.

9. Progress Payments on Home Improvement Contracts (Other than Swimming Pool Contracts). The payment schedule
on home improvement contracts other than for swimming pools may provide for progress payments, but these payments cannot
be in excess of the value of the work completed at any given time, excluding finance charges. This means the value of the work
performed in relation to the total cost of the project. For example, on a $5,000 contract, the contractor may receive $500 as a
downpayment. A payment schedule could be set up requiring progress payments when 25 percent, 50 percent and 75 percent of
the work has been completed and final payment upon completion of the project. When 25 percent of the work is completed, the
payment due would be $750 ($1,250 minus the $500 downpayment). The second $1,250 would be due when the project is 50
percent completed and so on until the final payment is made when the project is completed.

10. Progress Payments On Swimming Pool Contracts. The payment schedule on swimming pool contracts is similar to the
schedule for home improvements, except for the downpayment and the final payment. The downpayment can be no more than
$200 or 2 percent, whichever is less. The final payment may be made at the completion of the final plastering phase of
construction provided that any installation or construction of equipment, decking or fencing required by the contract is
completed.

11. Bond Alternative to Payment Schedule. If a contractor wishes to receive more than ten percent or $1,000 as a
downpayment and/or wishes to receive payments on a schedule that results in his or her receiving more money on the project
than the value of the work performed at any given time, he or she can do so if the contract provides for the contractor to furnish
(1) a performance and payment bond, (2) a lien and completion bond, or (3) a bond equivalent approved by the Registrar. If the
contractor provides one of the above bonds, the bond must cover 100 percent of the contract value. Therefore, if one of the
bonds mentioned above was provided by the contractor and assuming the owner otherwise agreed, then the contractor could
receive any amount of money in advance on the project and/or arrange any payment schedule he or she desired without regard or
limit to the actual value of the work completed on the project at any given point in time.

12. Alternative to Performance and Payment Bond, etc. A few contractors file a bond equivalent in the form of a blanket
bond designed to cover all open projects. Although the Registrar has been given the authority to accept a bond equivalent, the
conditions for any alternative to the bond are restrictive and the financial conditions are prohibitive. Only a very few contractors
are willing or able to comply with requirements for a bond equivalent.

13. Joint Control. A joint control, as approved by the Registrar, covering full performance and completion of the contract can
be used as an alternative to payment requirements in the contract. A joint control acts as an escrow holder of a consumer’s
money and prevents the contractor from being paid more than the value of work already completed. It also safeguards the
consumer’s property from a mechanics’ lien. Although a joint control service relieves the contractor from the requirement of
actually including a payment schedule in the contract, the joint control company must disburse all payments in accordance with
the payment schedule as provided in Section 7159. Any joint control to be approved by the Registrar must include an addendum
which was developed through mutual agreement of the Registrar and joint control company representatives. A copy of the
addendum is included in this chapter.

14. Salesperson’s Commission. If the contract provides for a payment of a salesperson’s commission out of the contract
price, the payment shall be made on a pro rata basis in proportion to the schedule of payments.

15. Building Permits. The obtaining of a building permit is considered work performed and payment can be received for the
actual cost of the permit after it has been issued.

16. Preparation of Plans. The preparation of plans for a project is considered work performed and payment can be received to
pay for the cost of the plans. The amount charged for the plans must be based upon the fair market value of the plans.

17. Finance Charges. It is not expected that finance charges are to be considered as part of the amount of the contract between
the owner and the contractor. Although finance charges in many instances are included on the contract form, in compliance with
state and/or federal law, they are not considered under Section 7159 when determining the amount of payment which can be
made at any particular phase of the project. Only actual construction costs to the owner are considered.

18. Failure to Commence Work on Time. A contractor who, without lawful excuse, fails to substantially commence work
within 20 days from the approximate date specified in the contract for work to begin is in violation of Section 7159.

19. Violation of Section 7159. A violation of Section 7159 by a licensee or an applicant for a license is a misdemeanor. The
misdemeanor is punishable by a fine of not less than $100 nor more than $5,000 or by imprisonment in the county jail not
exceeding one year, or by both the fine and imprisonment.

20. State of Emergency Violation. An additional penalty shall be imposed for any fraudulent action committed against a
homeowner in connection with the offer to repair or repair of structures damaged by a natural disaster that is covered by the
Governor’s or President’s Emergency Proclamation. The court may impose a minimum additional fine of $500 or a maximum of
$25,000 per violation.

21. Kickback Penalty. A contractor may give tangible items not to exceed a value of $5 to prospective customers for
advertising or sales promotion purposes, but the gift cannot be conditioned on obtaining a home improvement contract. Only
one of these gifts may be given per transaction. Giving all other gifts or inducements to compensate or reward an owner for the
procurement of a home improvement transaction is a misdemeanor and a cause for legal action.

22. Three-Day Right to Cancel. The Home Solicitation Sales Act requires a seller of home goods or services to give the buyer
three days to think about whether to buy the offered goods or services. The law itself provides the extraordinary remedy of
completely canceling the contract and requiring the seller to return the entire contract amount and, if a service has been provided,
to return the consumer's property to the way it was before the contract.The purpose of the three-day right to cancel is to
protect consumers from the pressure they often feel to make an immediate purchasing decision when a person selling goods or
services appears at the consumer's home. Unless the contract is negotiated at the contractor's place of business, the buyer
qualifies for the 3-day right to cancel.

Contractors can violate the Home Solicitation Sales Act by:
· Failing to give the consumer notice of the right to cancel;
· Starting the work before the three days run; or
· Claiming that the work meets an exception when it does not.
There are two statutory exceptions that allow contractors to start work before the three days have run. The first exception is
called the licensed contractor's exception (Civil Code section 1689.5(a). The licensed contractor exception allows a contractor to
start work before the three days have run IF:
· The contractor is licensed (This exception is not available to unlicensed contractors.);
· The contract price is less than $100;
· The buyer initiates the negotiation; and
· The contract contains a written and dated statement, signed by the buyer, indicating that the buyer initiated the negotiations.
The written statement can be a form provided by the contractor.
The value of this exception is that it allows the buyer and the contractor to take care of small problems right away. As currently
written, the limit on this exception is very narrow - only up to $99. If the contractor goes ahead with a repair priced at more
than $99, the contract is subject to rescission (being cancelled). Even if the work is completed and is appropriately priced, the
consumer can cancel the contract.
The second exception is the emergency exception (Civil Code section 1689.13). To meet the standards of the emergency
exception,
· the repairs or services must be: necessary for the immediate protection of people or property; and invoked only if the buyer
initiates the negotiation.
· In addition, the buyer must give the contractor a separate signed and dated personal statement which:
describes the emergency or immediate necessity; and expressly acknowledges and waives the buyer's right to cancel.
Unlike the statement in the licensed contractor exception, this statement cannot be a contractor's form. The homeowner must
write it personally.
We serve the San Diego Communities of Carlsbad, Encinitas, Leucadia, Ranch Santa Fe, Cardiff, Oceanside,
Del Mar, Carmel Valley, La Jolla, Clairemont, Pacific Beach, Ocean Beach, Point Loma, Hillcrest, North Park,
Sorrento Valley, Solana Beach and San Marcos.
HOME IMPROVEMENT CONTRACTS, EFFECTIVE JULY 1, 2005

A home improvement contract is an agreement between a contractor and owner or between a contractor and tenant for the
performance of a home improvement.

1. Enforcement of License Law. Sections 7159 through 7159.6 of the Contractors License Law of the Business & Professions
Code provide for specific requirements to be included in contracts with owners or tenants for home improvements and the
construction of swimming pools when the home improvement contractor or the swimming pool contractor is acting as a prime
contractor. The primary purpose of these laws is the enforcement of the Contractors License Law as it relates to home
improvements.

2. Provisions of Other Laws Must Be Included. The provisions of these sections are not all-inclusive as to what must be
included in a written contract. Other information must be given to the homeowner or tenant. For example, the notice about
questions concerning a contractor, as specified in Section 7030, and the notice about disclosure of prior disciplinary action, as
specified in Section 7030.1, must be given. Furthermore, all statements, writings, or notices required by other state or federal
laws such as "Truth in Lending" or "Notice of Right to Cancel" provisions, must also be included where applicable. The
contract may include other matters agreed to between the parties.

3. Contracts in Excess of $500. SB 30 does not include the provision that only contracts in excess of $500 need adhere to the
home improvement contract requirements. All home improvement contracts must be in writing and follow all home
improvement requirements. But see "New Service and Repair Contracts," below.

4. Swimming Pool Contractor. Swimming pool contracts are home improvement contracts. With two exceptions, the
provisions of home improvement contracts apply to contracts for the construction of swimming pools. The two exceptions are:
· A swimming pool built for use and enjoyment of other than a single family unit is exempt from the provisions.
· A swimming pool built as part of an original building plan by the same contractor who builds a single-family dwelling unit on
the premises is exempt.
After July 1, 2005, swimming pool contractors will be subject to the same down payment limitations as other home
improvement contractors. Swimming pool contractors will be allowed to collect 10% of the contract price or $1,000, whichever
is less.

5. Contract Requirements. A contractor entering into a contract for home improvement must put the contract and any
changes to the contract into writing. Both the contract and any changes to the contract must be signed by all parties. The
writing, as specified in Contractors License Law Sections 7159 and 7159.3 through 7159.6 must contain:
· The name, business address, the license number of the contractor, and a description of the classification relevant to the project;
· If applicable, the name and registration number of any salesperson who solicited or negotiated the contract;
· The approximate dates when the work will begin and be completed;
· For home improvements: a description of the work to be done and description of the materials to be used and equipment to be
used or installed and, for a swimming pool, a plan and scale drawing showing the shape, size dimensions, and construction and
equipment specifications for the swimming pool;
· The agreed price for the work;
· If the payment schedule contained in the contract provides for a downpayment before the commencement of work, the
downpayment may not exceed the lesser of one thousand dollars ($1,000) or 10 percent of the contract price, excluding finance
charges;
· A schedule of progress payments showing the amount of each payment as a sum in dollars and cents. The schedule of
payments must specifically reference the amount of work or services to be performed and the materials and equipment to be
supplied;
· The contract may also contain other matters agreed to;
· The writing shall be legible and be in a form that clearly describes any other document to be incorporated into the contract; and
· Prior to work being performed, the contractor is required to furnish the owner with a copy of the written agreement signed by
the contractor.
Some of the above notices do not apply under some circumstances. See Section 7159.5(a) (8).

The written contract must also contain:
· The notice required by Section 7030 (b);
· The language of the Mechanics' Lien Warning required by Section 7159.4 (o);
· The notice on commercial general liability insurance and workers' compensation required by Section 7159.3;
· A Truth in Lending Notice, if applicable; and
· A Notice of the Right to Cancel, if applicable. See point 16, below.

6. Changes to a Contract. Any changes to a contract for home improvement must be put into writing and signed by all parties
prior to the work being performed.

7. Progress Payments on Home Improvement Contracts. The payment schedule on home improvement contracts may
provide for progress payments, but these payments cannot be in excess of the value of the work completed at any given time,
excluding finance charges. This means the value of the work performed in relation to the total cost of the project.

8. Alternatives to Payment Schedule. A contractor who wishes to receive more than ten percent or $1,000 as a
downpayment or wishes to receive payments on the project greater than the value of the work performed at any given time can
do so only if the contract provides for the contractor to furnish:
· a performance and payment bond;
· a lien and completion bond;
· a bond equivalent approved by the Registrar (a blanket bond); or
· a joint control agreement.

If the contractor provides one of the above alternatives covering 100 percent of the contract value, then the contractor can
receive any amount of money in advance on the project and/or arrange any payment schedule he or she desires without regard
or limit to the actual value of the work completed on the project at any given point in time.

9. Alternative to Performance and Payment Bond, etc. A few contractors file a bond equivalent in the form of a blanket
bond designed to cover all open projects. Although the Registrar has been given the authority to accept a bond equivalent, the
conditions for any alternative to the bond are restrictive and the financial conditions are prohibitive. Only a very few
contractors are willing or able to comply with requirements for a bond equivalent.

10. Joint Control. A joint control, as approved by the Registrar, covering full performance and completion of the contract can
be used as an alternative to payment requirements in the contract. A joint control acts as an escrow holder of a consumer's
money and prevents the contractor from being paid more than the value of work already completed. It also safeguards the
consumer's property from a mechanics' lien. Although a joint control service relieves the contractor from the requirement of
actually including a payment schedule in the contract, the joint control company must disburse all payments in accordance with
the payment schedule as provided in Section 7159. Any joint control to be approved by the Registrar must include an
addendum which was developed through mutual agreement of the Registrar and joint control company representatives. A copy
of the addendum is included in this chapter.

11. Salesperson's Commission. If the contract provides for a payment of a salesperson's commission out of the contract
price, the payment shall be made on a pro rata basis in proportion to the schedule of payments.

12. Building Permits. The obtaining of a building permit is considered work performed and payment can be received for the
actual cost of the permit after it has been issued. Contractors are cautioned that obtaining permits is the responsibility of the
contractor.

13. Preparation of Plans. The preparation of plans for a project is considered work performed and payment can be received
to pay for the cost of the plans. The amount charged for the plans must be based upon their fair market value.

14. Finance Charges. It is not expected that finance charges are to be considered as part of the amount of the contract
between the owner and the contractor. Although finance charges in many instances are included on the contract form, in
compliance with state and/or federal law, they are not considered when calculating the downpayment or when determining the
amount of payment which can be made at any particular phase of the project. Only actual construction costs to the owner are
considered.

15. Violation of Home Improvement Contract Requirements. A violation of certain sections of the Home Improvement
Contract requirements by a licensee or an applicant for a license is a misdemeanor. For example, taking a downpayment in
excess of $1,000 is a misdemeanor punishable by a fine and/or by imprisonment in jail.

16. The Three-Day Right to Cancel. The Home Solicitation Sales Act requires a seller of home goods or services to give the
buyer three days to think about whether to buy the offered goods or services. The law itself provides the extraordinary remedy
of completely canceling the contract and requiring the seller to return the entire contract amount and, if a service has been
provided, to return the consumer's property to the way it was before the contract. The purpose of the three-day right to cancel
is to protect consumers from the pressure they often feel to make an immediate purchasing decision when a person selling
goods or services appears at the consumer's home. Unless the contract is negotiated at the contractor's place of business, the
buyer qualifies for the 3-day right to cancel.
Contractors can violate the Home Solicitation Sales Act by:
· Failing to give the consumer notice of the right to cancel;
· Starting the work before the three days run; or
· Claiming that the work meets the emergency exception when it does not.
After July 1, 2005, the licensed contractor's exception has been repealed. To meet the standards of the emergency exception
(Civil Code section 1689.13) the repairs or services must be:
· necessary for the immediate protection of people or property; and
· invoked only if the buyer initiates the negotiation.
In addition, the buyer must give the contractor a separate signed and dated personal statement which:
· describes the emergency or immediate necessity; and
· expressly acknowledges and waives the buyer's right to cancel. This statement cannot be a contractor's form. The homeowner
must write it personally.

17. State of Emergency Violation. An additional penalty shall be imposed for any fraudulent action committed against a
homeowner in connection with the offer to repair or repair of structures damaged by a natural disaster that is covered by the
Governor's or President's Emergency Proclamation. The court may impose a minimum additional fine of $500 or a maximum of
$25,000 per violation. Under this circumstance, the 7-day right to cancel applies.
We are happy to consult with you regarding your
legal issue, whether you are a contractor facing a
potential lawsuit or a homeowner that would like
to know your rights.