By definition, and as contractors already know, contractors contract. It is an essential part of what contractors do. And the essential meaning of contract is "to agree upon." A contract is an agreement between two or more people that the law will enforce.

That is why the Contractors State License Board says that a home improvement contract is one of the most important tools a contractor uses. It is a tool to ensure that all parties to the contract agree. When contractors and consumers disagree, it is timely and costly to all involved.

Home improvement contracts are a tool to ensure that contractors and consumers agree on the work to be performed: how it will be done, when it will be done, what materials will be used, and how much it will cost. A well written contract is also a tool that helps ensure enforcement of the agreement, if necessary. Like most other tools, a contract should be top quality and well constructed, with all working parts.

A contract can be oral or written. For home improvement contracts over $500, they must be written. In most cases, it is a good idea to put a contract in writing. It shows that there was a contract, and it proves what things you and the other party agreed to do. The old axiom is true; "A verbal contract is as good as the paper it's not written on."

This information will describe what ALL home improvement contracts MUST have all the pieces of the puzzle, so to speak and then other information contractors should know. It also includes a "top ten" list of contract problems to watch out for, as well as a checklist of the essential elements of home improvement contracts. Finally, a resource list of where contractors can obtain standard contract forms is included.

What is Home Improvement?

Home improvement is the repairing, remodeling, altering, converting, modernizing or adding to residential property.

Examples of home improvement are the construction, erection, replacement or improvement of:

driveways
swimming pools, including spas and hot tubs
terraces
patios
awnings
gazebos
storm windows
landscaping
fences
porches
garages
basements
other structural improvements on land adjacent to a dwelling

A home improvement contract is an oral or written agreement BETWEEN a contractor or sales person AND either a residential owner or a tenant for the performance of a home improvement.

Here are some more specific examples of what home improvement IS, and what it IS NOT

HOME IMPROVEMENT IS	HOME IMPROVEMENT IS NOT
Installing a sprinkler system	Lawn mowing
Building a new addition to an existing residence	Building a doghouse
Installing a carpet	Steam cleaning a carpet
Trimming trees	Watering trees
Repairing a chimney	Sweeping a chimney
Building a pool	Cleaning a pool

"Top Ten" Problems with:
Home Improvement Contracts

In no particular order, here are frequently seen problems with home improvement contracts.

Notice regarding registrar's address missing
Excessive down payment requested
Equipment to be used or installed not detailed, and materials to be used not described specifically enough
Notice to owner regarding liens not included
Job to be completed is not clearly stated and described
Right to cancel notice missing
Bid not figured out carefully and/or completely
Change orders not included
Old notices used with old addresses and non-compliance language
Notice regarding owners right to require a performance and payment bond not included

If the total cost of the project exceeds $500, by law the contract MUST be in writing. The total cost includes labor, services, and materials.

"Time and materials" contracts must be put in writing with a fixed price whenever it is anticipated that the cost might exceed $500.

A home improvement contract must include elements specified in Business and Professions Code section 7159 and elsewhere. This information outlines those elements.

Business and Professions Code 7151.2

Laundry list of items required by law
in home improvement contracts

For a clean contract, here is a laundry list of each item that state law requires be in home improvement contracts. Contractors are also required to provide specified notice(s) to consumers PRIOR to Entering Contracts.

Informing

Contractor's name, address and license number
Name and registration number of salesperson (if applicable) who solicited or negotiated the contract
Statement regarding where to file a complaint
Arbitration Notice if the contractor is requiring private arbitration

Scheduling

Approximate starting and completion dates
Notice of consequences if contractor fails to substantially commence work within 20 days of start date without lawful excuse
Statement of what constitutes substantial commencement of work

Describing

Description of the work to be done, including materials and equipment to be used or installed
For swimming pools: plan and scale drawing show shape, size, dimensions and construction and equipment specifications for a swimming pool
Any changes or change orders after the original contract has been signed
Clear description of any other matters agreed to by the parties

Paying

Price agreed upon to do the work
Down payment is only 10 percent of the total cost of the project or $1,000, whichever is less (2 percent or $200 for swimming pools)
Schedule of payments in dollars and cents
Notice to owner regarding Mechanics' Liens
Contractor statement regarding lien releases upon satisfactory payment for work performed
Notice to owner requiring right to a bond or joint control

Canceling

Statement of right to cancel

Before You Sign a Contract

State law requires that all contractors give the following information on licensing and on mechanics' liens BEFORE a contract is signed.

License Information

The following notice must be provided to any person with whom he or she is contracting to perform work on residential property with four or fewer units.

The disclosure and notice may be provided in a bid, estimate, or other document prior to entering into a contract.

The following must be either in capital letters in 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type:

"State law requires anyone who contracts to do construction work to be licensed by the Contractors State License Board in the license category in which the contractor is going to be working-if the total price of the job is $300 or more (including labor and materials).

"Licensed contractors are regulated by laws designed to protect the public. If you contract with someone who does not have a license, the Contractors State License Board may be unable to assist you with a complaint. Your only remedy against an unlicensed contractor may be in civil court, and you may be liable for damages arising out of any injuries to the contractor or his or her employees.

"You may contact the Contractors State License Board to find out if this contractor has a valid license. The Board has complete information on the history of licensed contractors, including any possible suspensions. revocations, judgments, and citations. The board has offices throughout California. Check the government pages of the white pages for the office nearest you or call 1-800-321-CSLB for more information.

Liens

State law also requires that contractors provide the "Notice to Owner" regarding mechanics' liens. You may contact a CSLB district office to obtain a copy, or you may duplicate the form in this booklet. For additional information on liens, consult the "Managing a Business" section at the end of the "California Contractors License Law and Reference Book."

Notice required by disciplined contractors

A contractor who has had his or her license suspended or revoked due to disciplinary action two or more times within an eight-year period must provide a notice to consumers prior to entering into home improvement contracts for residential property with four or fewer units. This notice is required whether or not the suspension or revocation was stayed.

The disclosure must be either in capital letters in 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type.

The notice must include information on any citation, license suspension, or license revocation during the last four years resulting from any violation of any provisions of this chapter by the contractor, or any complaint or legal action relating to conduct regulated under this chapter that resulted in an unfavorable judgment against the contractor.

Consent

Both parties to a contract must give their consent, which must be true and freely given.

If one party's consent was obtained through fraud (deception or trickery), the contract can be canceled by the other party.

A contract can also be canceled if it is signed under duress or undue influence. Examples of duress are threats of or actual physical harm. Undue influence occurs when a person does not freely exercise his or her own free will as a result of another person's influence.

Business and Professions Code Section 7030, Civil Code Sections 1550, 1567

Notice To Owners

section 7018.5 of the Business and Professions Code requires that each contractor licensed under this chapter, prior to entering into a contract with an owner for work specified as home improvement or swimming pool construction pursuant to section 7159, give a copy of the following "Notice to "Owner" to the owner, the owner's agent, or the payer. The failure to provide this notice as required shall constitute grounds for disciplinary action.

NOTICE TO OWNER

Under the California Mechanics' Lien Law, any contractor, subcontractor, laborer, supplier, or other person or entity who helps to improve your property, but is not paid for his or her work or supplies, has a right to place a lien on your home, land, or property where the work was performed and to sue you in court to obtain payment.

This means that after a court hearing, your home, land, and property could be sold by a court officer and the proceeds of the sale used to satisfy what you owe. This can happen even if you have paid your contractor in full if the contractor's subcontractors, laborers, or suppliers remain unpaid.

To preserve their rights to file a claim or lien against your property, certain claimants such as subcontractors or material suppliers are each required to provide you with a document called a "Preliminary Notice." Contractors and laborers who contract with owners directly do not have to provide such notice since you are aware of their existence as an owner. A preliminary notice is not a lien against your property. Its purpose is to notify you of persons or entities that may have a right to file a lien against your property if they are not paid. In order to perfect their lien rights, a contractor, subcontractor, supplier, or laborer must file a mechanics' lien with the county recorder, which then becomes a recorded lien against your property. Generally, the maximum time allowed for filing a mechanics' lien against your property is 90 days after substantial completion of your project.

TO INSURE EXTRA PROTECTION FOR YOURSELF AND YOUR PROPERTY, YOU MAY WISH TO TAKE ONE OR MORE OF THE FOLLOWING STEPS:

(1) Require that your contractor supply you with a payment and performance bond (not a license bond), which provides that the bonding company will either complete the project or pay damages up to the amount of the bond. This payment and performance bond as well as a copy of the construction contract should be filed with the county recorder for your further protection. The payment and performance bond will usually cost from 1 to 5 percent of the contract amount depending on the contractor's bonding ability. If a contractor cannot obtain such bonding, it may indicate his or her financial incapacity.

(2) Require that payments be made directly to subcontractors and material suppliers through a joint control. Funding services may be available, for a fee, in your area which will establish voucher or other means of payment to your contractor. These services may also provide you with lien waivers and other forms of protection. Any joint control agreement should include the addendum approved by the registrar.

(3) Issue joint checks for payment, made out to both your contractor and subcontractors or material suppliers involved in the project. The joint checks should be made payable to the persons or entities which send preliminary notices to you. Those persons or entities have indicated that they may have lien rights on your property, therefore you need to protect yourself. This will help to insure that all persons due payment are actually paid.

(4) Upon making payment on any completed phase of the project, and before making any further payments, require your contractor to provide you with unconditional "Waiver and Release" forms signed by each material supplier, subcontractor, and laborer involved in that portion of the work for which payment was made. The statutory lien releases are set forth in exact language in section 3262 of the civil code. Most stationery stores will sell the "Waiver and Release" forms if your contractor does not have them. The material suppliers, subcontractors, and laborers that you obtain releases from are those persons or entities who have filed preliminary notices with you. If you are not certain of the material suppliers, subcontractors, and laborers working on your project, you may obtain a list from your contractor. On projects involving improvements to a single-family residence or a duplex owned by the individuals, the persons signing these releases lose the right to file a mechanics' lien claim against your property. In other types of construction, this protection may still be important, but may not be as complete.

To protect yourself under this option, you must be certain that all material suppliers, subcontractors, and laborers have signed the "Waiver and Release" form. If a mechanics' lien has been filed against your property, it can only be voluntarily released by a recorded "Release of Mechanics' Lien" signed by the person or entity that filed the mechanics' lien against your property unless the lawsuit to enforce the lien was not timely filed. You should not make any final payments until any and all such liens are removed. You should consult an attorney if a lien is filed against your property.

Required Notices

Required notice(s) PRIOR to contracting

Remember, BEFORE entering into a contract, contractors must provide the notice(s) described in "Before Signing Contracts".

Contract in writing

Home improvement contracts of $500 or more must be in writing. Since both contractors and consumers are bound by everything set down in the contract, contracts should be read carefully before signing. A judge will usually assume that all agreements, both oral and written, are included in the written contract.

Name of salesperson
(if applicable)

Contracts must include this information. A home improvement salesperson is employed by a licensed contractor to solicit and execute contracts outside the contractor's normal place of business. A salesperson may work for more than one contractor but must have a separate home improvement registration for each contractor.

Where to file a complaint

Every contract must include the following statement on all written contracts. The statement must be 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 riled within 10 years of the date of the alleged violation. Any questions concerning the contractor may be referred to the Registrar, Contractors State License Board, Post Office Box 26000, Sacramento, California 95826.11

Warranties

Contractors should be advised of the following information on CSLB complaint law should they wish to include an express, written warranty as part of their contract.

For patent or readily observable defects, California law limits the period within which a complaint may be filed against a contractor to four years from the date when the act or omission occurred. This statute of limitations may be extended if there is an express, written warranty issued by the contractor. If such a warranty has been breached by the contractor, the CSLB has authority to act on a complaint during the entire duration of the warranty. However, the CSLB has no authority to enforce a warranty given by a manufacturer or material supplier. A ten year statute of limitations exists for certain latent defects in construction.

Arbitration

If contractors want potential disputes to be solved via private arbitration, the Arbitration Notice must be used. Be advised, however, that including such a statement will disallow access to CSLB's arbitration program.

The CSLB offers two arbitration programs: a mandatory program for disputes involving alleged damages of less than $5,000, and a voluntary program for disputes involving damage allegations of between $5,000 and $25,000.

Disputes must comply with certain criteria in order to qualify for a CSLB arbitration program:

the contractor's license must be in good standing at the time of the alleged violation and at the time of the referral to arbitration;
the contractor cannot have a record of prior violations; and
the parties cannot have previously agreed to private arbitration in the contract or elsewhere.

CSLB arbitration is fast (about 120 days) and informal, and all decisions are binding and enforceable in court. The Board provides the arbitrator (who is an expert in construction matters) and one expert witness free of charge. It also pays all administrative fees.

For more information on arbitration, contact the CSLB by calling 1 (800) 321-2752 and order the following free publications: "Mandatory Arbitration Program Guide" and "Voluntary Arbitration Program Guide."

Business and Professions Code Sections 7159, 7030

Violation of Business and Professions Code

A violation of Business and Professions Code section 7159,

which specifies home improvement contract requirements, is a misdemeanor and punishable by a fine of not less than $100 or more than $5,000, up to one year in the county jail, or both

Arbitration with good Contractors

It was President Abraham Lincoln, a lawyer by profession, who said, "Discourage litigation...point out how the winner is often a real loser in fees, expenses, and waste of time."

Of course, one way to cut down on litigation is through a well-written contract. When disputes do occur, however, many of them are resolved efficiently and satisfactorily through CSLB's arbitration program.

CSLB's arbitration program is fast, free and fair. It's also fail-safe for contractors, by allowing those with good records to keep them that way. If a contractor complies with the arbitration decision, the complaint is not disclosable.

Hopefully, all of your customers will be happy and you will never need CSLB's arbitration program. But if you do, I encourage you to try it. Arbitration is a benefit earned by virtue of your good record. Use arbitration to keep your record that way.

Gail W Jesswein, Registrar of Contractors

, Registrar of Contractors

Arbitration Notice

If a contractor wishes to include a provision for private arbitration in a printed contract, it shall be set out in at least 10-point roman boldface type or in contrasting red print in at least 8-point roman boldface type.

If the provision is included in a typed contract, it shall be set out in capital letters.

Immediately before the line or space provided for the parties to indicate their assent or non assent to the arbitration provision, the following shall appear:

ARBITRATION OF DISPUTES

"NOTICE: BY INITIALING IN THE SPACE BELOW YOU ARE AGREEING TO HAVE ANY DISPUTE ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION DECIDED BY NEUTRAL ARBITRATION AS PROVIDED BY CALIFORNIA LAW AND YOU ARE GIVING UP ANY RIGHTS YOU MIGHT POSSESS TO HAVE THE DISPUTE LITIGATED IN A COURT OR JURY TRIAL. BY INITIALING IN THE SPACE BELOW YOU ARE GIVING UP YOUR JUDICIAL RIGHTS TO DISCOVERY AND APPEAL, UNLESS THOSE RIGHTS ARE SPECIFICALLY INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION. IF YOU REFUSE TO SUBMIT TO ARBITRATION AFTER AGREEING TO THIS PROVISION, YOU MAY BE COMPELLED TO ARBITRATE UNDER THE AUTHORITY OF THE BUSINESS AND PROFESSIONS CODE OR OTHER APPLICABLE LAWS. YOUR AGREEMENT TO THIS ARBITRATION PROVISION IS VOLUNTARY.

"WE HAVE READ AND UNDERSTAND THE FOREGOING AND AGREE TO SUBMIT DISPUTES ARISING OUT OF THE MATTERS INCLUDED IN THE 'ARBITRATION OF DISPUTES' PROVISION TO NEUTRAL ARBITRATION."

If this provision is not included, the contract may not be enforceable against any person other than the licensee.

Business and Professions Code Section 7191

For Assistance with your home improvement contract, consider the following resources:

Contractors State License Board

You may call a deputy registrar of the Contractors State License Board with questions regarding requirements of home improvement contracts at any of the 24 district offices or branches (see inside back cover).

Please remember, however, that deputies will only be able to answer specific questions regarding contractor law on home improvement contracts as specifically defined by Business and Professions Code section 7159.

Also, the CSLB cannot and does not give legal advice as to how the courts or an arbitrator would regard a specific matter. The CSLB staff can only provide information about how the CSLB interprets the law for its own purposes. For example, the CSLB staff can give an interpretation on whether a particular action by a contractor would constitute a violation that might lead to action by the CSLB.

Any other questions will need to be researched through one of the other resources available.

Books

The "California Contractors License Law and Reference Book" includes all of the various legal code sections referenced throughout this booklet. It also includes sections on "Managing Your Business" and on "Home Improvement Contracts."

Trade Associations

Printed standard forms of agreements used in the industry are available from:

many of the contractor associations (i.e., Associated General Contractors);

associations particular to the various trades (i.e., California Landscape Contractors Association); and also from

various Builders Exchanges.

Stationery Stores

Printed standard forms are also available from various stationery stores. When purchasing or obtaining a standard form, you should carefully check it to make sure it contains all the current legal requirements.

Legal Assistance

A continuing relationship with an attorney familiar with the construction business is helpful. It is a good idea to have an attorney check arrangements for individual jobs which might not quite fit a standard form.

Another source of information on contracting and the CSLB is the Internet. Information is available in the following categories:

License and application status information
Licensing and exam information
How to file a complaint
Information for disaster victims
Order forms and applications
CSLB office locations
CSLB publications and pamphlets
New topics, new laws, pending legislation

Contractors and the public can access us through our Internet address:

http://www.cslb.ca.gov/

Automated Phone Response

The Automated Phone Response System (APRS) is an automated, toll-free number, 1 (800) 321-2752, for obtaining information, forms, publications and other valuable assistance pertaining to contracting and the Contractors State License Board. The following categories identify the kinds of information and materials available through the APRS, followed by the number to press on your touch-tone phone to gain access to or information about each category.

License Maintenance

License renewal 2151

Adding a class 21521

Asbestos certification 21522

Hazardous substances removal 21523

License structure 2153

Changing business name and address 21541

Changing officers of the corporation 21542

Disassociation of qualifying person 21543

Replacing the qualifying person 21544

Inactivating a license 21551

Reactivating a license 21552

Canceling a license 2156

Contractor's bonds 2157

Workers' compensation 2158

Ordering Forms

For Assistance with your home improvement contract, consider the following resources:

Contractors State License Board

Any other questions will need to be researched through one of the other resources available.

Books

Trade Associations

Printed standard forms of agreements used in the industry are available from:

many of the contractor associations (i.e., Associated General Contractors);

associations particular to the various trades (i.e., California Landscape Contractors Association); and also from

various Builders Exchanges.

Stationery Stores

Legal Assistance

Another source of information on contracting and the CSLB is the Internet. Information is available in the following categories:

License and application status information
Licensing and exam information
How to file a complaint
Information for disaster victims
Order forms and applications
CSLB office locations
CSLB publications and pamphlets
New topics, new laws, pending legislation

Contractors and the public can access us through our Internet address:

http://www.cslb.ca.gov/

Automated Phone Response

License Maintenance

Ordering Forms

For Assistance with your home improvement contract, consider the following resources:

Contractors State License Board

Any other questions will need to be researched through one of the other resources available.

Books

Trade Associations

Printed standard forms of agreements used in the industry are available from:

many of the contractor associations (i.e., Associated General Contractors);

associations particular to the various trades (i.e., California Landscape Contractors Association); and also from

various Builders Exchanges.

Stationery Stores

Legal Assistance

Another source of information on contracting and the CSLB is the Internet. Information is available in the following categories:

License and application status information
Licensing and exam information
How to file a complaint
Information for disaster victims
Order forms and applications
CSLB office locations
CSLB publications and pamphlets
New topics, new laws, pending legislation

Contractors and the public can access us through our Internet address:

http://www.cslb.ca.gov/

Automated Phone Response

License Maintenance

Ordering Forms

Ordering application for contractors license 241

License renewal form 243

Reactivation form 243

Inactivation form 243

Add class/RME/O replacement application 244

Joint venture application 244

Asbestos certification application 245

Hazardous waste application 245

Name/address change form 246

Change officers form 246

Disassociation form 246

Bond forms cash alternative forms 247

Qualifier bond exemption form 247

Workers' compensation exemption form 248

"Asbestos: A Contractor's Guide
and Open Book Exam" 262

"Blueprint for Becoming a
California Licensed Contractor" 262

"California Contractors License
Law and Reference Book" 263

Commencement of Work - Start the Job

All home improvement contracts must include:

the approximate dates on which construction is to begin;

the approximate dates on which all construction is to be completed (not number of working days);

what constitutes substantial commencement of the work; and

a notice that failure of 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 Business and Professions Code section 7159

Approximate Work Duration

The dates need to be approximate only, since external factors such as the weather, or the availability of supplies might cause delays.

      Business and Professions Code Section 7159

Description of the Work

The contract must include a description of the work to be done, the materials to be used, and the equipment to be used or installed. Also, a plan and scale drawing showing the shape, size dimensions, and construction and equipment specifications for a swimming pool and for other home improvements must also be included as part of the contract. Make sure the contract includes everything that is agreed to, up to and including complete cleanup and removal of debris and materials, and special requests like saving lumber for firewood or saving certain materials or appliances.

Remember, the word "contract" means "to agree." The more effort that is spent in spelling out in as much detail as possible what will be done on the job, the less the chance that there will be a misunderstanding.

Therefore, the contract should be as specific as possible regarding all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply.

For example, the contract should say "install oak kitchen cabinets, manufactured by Company XYZ, model 0138 1A, as per the plan," not just "install kitchen cabinets."

Describing the job: the good, the bad, the ugly

The Good

The Bad
The Ugly

Install Kitchen Cabinets Manufactured by Company XYZ, model ABC, per plan Install oak country style kitchen cabinets Install some cabinets

Paint indoor entry (per plan) using brand X paint, color ABC, two coats, with preparation described in next paragraph. prep and paint entryway with blue paint paint the entry

Brand X kitchen faucet in style ABC and color BCS. kitchen faucet replaced if necessary kitchen fixtures

Change Orders

Change Orders: Disputes frequently arise over "changes" or "extras." First of all, in order to determine if something is an extra or outside the scope of the original agreement, contractors must be able to accurately determine what the original agreement says. If the original agreement is well defined and in writing, it will be much easier to determine if something is an extra.

Change orders are required to perform extra or changed work. Change order forms become a part of the contract and must clearly set forth the scope of the work and the price to be charged. They must be in writing and must include:

the name, address, and contractor's license number;

signatures of both parties to the contract;

approximate dates when the work will begin and be completed;

a legal description of the location where the work will be done, and include the "Notice to Owner" mechanics' lien statement.

Business and Professions Code Section 7159(h)

Maximum Down Payment

The down payment for home improvements must not exceed $1,000 or        10 percent of contract price. For a swimming pool, the maximum down payment is $200 or 2 percent of the contract price.

Agreed Price

All contracts must include the price agreed upon for the work. Remember that $500 is the threshold at which the requirements for home improvement contracts must be met.

By law, the job must be completed for the agreed upon contract price.

If the contract price is to be changed, that MUST be accomplished via written change orders, which become a part of the contract. Not completing the job for the contract price is a violation of Business and Professions Code section 7113, and constitutes a cause for disciplinary action. In fact, most license revocation actions include a reference to a violation of this code section.

Down Payment

If the payment schedule contained in the contract provides for a down payment to be paid to the contractor by the owner or the tenant before the commencement of work, the down payment shall not exceed one thousand dollars ($1,000) or 10 percent of the contract price for home improvements, excluding finance charges, whichever is less. There are no exceptions for special order materials.

The maximum down payment for swimming pools is $200 or 2 percent of the contract price, whichever is less. With respect to a swimming pool contract, 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 also completed.

Schedule of Payments

A home improvement contract must include the schedule of payments showing the amount of each payment as a sum in dollars and cents. It should be specifically referenced to the amount of work or services to be performed and to any materials and equipment to be supplied.

Payments to the contractor cannot exceed the value of the work performed, except for the initial down payment.

If the contractor has not begun the work within 20 days of the contract start date, the payment schedule specified in the contract shall be postponed for the period of time equivalent to the time between when substantial commencement was to have occurred and when it actually occurred.

Sales Commission

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

Liens

The law requires that prior to entering into a contract with an owner, a "Notice to Owner" should be provided. The contract must state that upon satisfactory payment being made for any portion of the work performed, the contractor shall furnish a full and unconditional release from any claim or mechanics' lien for that portion of the work for which payment has been made.

For more information on liens, consult the "Managing a Business" section at the end of the "California Contractors License Law and Reference Book." See ordering information from the Automated Phone Response System.

Bonds

The contract must contain a notice stating that the owner or tenant has the right to require the contractor to have a performance and payment bond. This notice is contained in the "Notice to Owner". The notice must be in close proximity to the signatures of the owner and contractor and in at least 10-point type. Lien notice requirements for home improvement contracts do not apply if:

the contractor furnishes a performance and payment bond, lien and completion bond, bond equivalent or joint control approved by the Registrar of Contractors, which covers full performance and completion of the contract and the bonds; or joint control is furnished by the contractor; or

when parties agree for full payment to be made upon or for a schedule of payments to commence after satisfactory completion of the project.

Funding

A joint control is a builder's construction control service which acts as an escrow holder of a consumer's money. A good joint control company manages the disbursement of funds to prevent the contractor from being paid more than the value of the work already completed. A joint control also safeguards the consumer's property from "mechanics' liens" by requiring the contractor to supply lien releases from subcontractors and suppliers as progress payments are made.

A joint control normally includes an analysis of the contract and building plans or specifications, breakdowns of cost, and the preparation of an account from which the funds will be disbursed on regularly scheduled progress payments. An addendum must be incorporated into joint control agreements in order for any joint control company to be considered approved by the Registrar of Contractors. The addendum should prove beneficial to both contractors and consumers.

The Contractors State License Board does not license, have any legal control or maintain lists of approved joint control companies. Approval is implicit if the addendum is used.

Business and Professions Code Sections 7159 (d)(i)(e), 7113 and 7018.5

Joint Funding Control

JOINT CONTROL ADDENDUM

Addendum to Control Agreement/Escrow Instructions

This addendum is hereby incorporated into and becomes a part of the Control Agreement attached hereto dated

I . Should any of the terms or provisions of the contract between owner and contractor or of the contract into which this addendum is incorporated conflict with any of the terms or provisions of this addendum, then the terms of this addendum shall prevail.

2. Control agrees to control and disburse funds in the following manner:

a) Supplier or sub-contractor submits to contractor duplicate copies of invoices requesting payment.

b) If payment is justified, based on work completed, control accepts disbursement order or voucher in favor of payee for net amount.

c) After signing by the contractor and the payee concerned, order for payment together with copies of invoices, unconditional lien releases and/or other substantiating data is delivered or mailed to the Control for payment.

3. Prior to issuing payment, Control agrees to verify:

a) That all vouchers have authorized signatures.

b) That adequate unconditional lien releases have been submitted in writing.

c) That sufficient funds are on hand to pay the specific invoice(s) submitted.

4. Prior to issuing final payment, Control agrees to verify that project has passed final inspection by local building authorities, unless the scope of the contracted project does not require a final inspection.

5. After verification of the above, checks shall be made out payable to the supplier or subcontractor, or to the prime contractor and supplier or subcontractor, jointly.

6. Control agrees that in no event shall it disburse payments in excess of 100 percent of the value of the work performed on the project at any time, excluding finance charges.

7. The funds from this account shall be used only for the project described in the contract. Control warrants that work and material paid for by Control has been provided.

8. If this agreement is terminated for any reason prior to disbursement of all monies payable under the contract between Owner and Contractor, all subsequent disbursements to Contractor shall conform to the requirements of section 7159 of the Business and Professions Code.

NOTE: Section 7159 of the Business and Professions Code requires that all change orders be in writing and signed by all parties.

SO AGREED this _______day of_____________ 19____

CONTROL __________________________ OWNER_________________________

CONTRACTOR______________________ OWNER_________________________

Contractors who furnish a joint control as part of the terms of a home improvement contract should be aware that the law prohibits them from having any financial or other interest in the joint control company. Also, it is the contractor's responsibility to determine whether or not the above addendum is included in the control agreement.

If an approved joint control or bond covering the complete contract is not furnished with a home improvement contract, the contractor may not require a down payment in excess of $1,000 or 10 percent of the total contract price, whichever is less. The contract must also contain a schedule of payments stated in dollars and cents and specifically references to the work or services to be performed or the materials and equipment to be supplied. Also, no payments other than the down payment can be in excess of the value of the work (excluding finance charges) performed at any time on the project.

Cancellation Provisions

There are three cancellation provisions that contractors should be familiar with:

The Home Solicitation Sales Act
The Federal Truth in Lending Act
Business and Professions Code Section 7163

Home Solicitation

Home improvement contracts, and virtually any other consumer transaction involving $25 or more which takes place in the buyer's home or away from "appropriate trade premises " can be canceled by the buyer, without penalty or obligation, within three business days after the buyer signs the contract.

To cancel, the buyer need only give the contractor written notice of the buyer's intent not to be bound by the contract. If the contractor has not complied with certain notice requirements, the cancellation period begins when the contractor has complied (see discussion below).

The cancellation provisions are most commonly applied to sales made in the buyer's home, but the test is whether the contract or offer is made somewhere other than the seller's place of business.

These provisions apply whether the buyer initiated contact with the contractor or vice versa. They apply where there is no financing involved, or in the fairly rare case where the financing is through a retail installment contract.

Exceptions to the Act are noted below.

Contract and Notice Must be in Writing

In this discussion, bold type indicates requirements that a contract must meet in order to avoid extending the cancellation period beyond three business days.

The buyer's contract or offer to purchase must be in writing, and must be in the same language as is principally used in the oral sales presentation (for example, Spanish). The contract or offer must be dated and signed by the buyer, and must state on the first page the name and address of the contractor to which the notice of cancellation is to be sent, and the date on which the buyer signed the contract or offer.

The contract or offer must contain a conspicuous, statutorily-prescribed notice of the buyer's right to cancel, which must be located near the space for the buyer's signature. This notice must state:

"You, the buyer, may cancel this transaction at any time prior to midnight of the third business day after the date of this transaction. See the attached notice of cancellation form for an explanation of this right."

The contractor must give the buyer a copy of the contract or offer and the statutorily-required Notice of Cancellation forms, as described in the paragraphs below.

Form of Cancellation Notice

The contractor must give the buyer duplicate, completed, "Notice of Cancellation" forms, in the same language as used in the contract, which contain a statutorily-prescribed Notice of Cancellation. These forms must be attached to the contract or offer, and must be easily detachable, so that the buyer can use the form itself to give the contract notice of the buyer's decision to cancel. At the time the contract or offer is executed, the contractor also must orally inform the buyer of the buyer's right to cancel.

Notice and Cancellation Period

The buyer may cancel the contract or offer until midnight of the third business day after the day on which the buyer signed the instrument. "Business day" means any calendar day except Sundays and specified holidays.

However, if the contractor has not complied with the foregoing requirements described in bold type, the buyer may cancel the contract or offer at any time until the contractor has complied with those requirements.

A buyer who desires to cancel need not use the form provided by the contractor. In order to cancel, the buyer's notice of cancellation need only be in writing, and need only express the buyer's intent not to be bound by the contract or offer.

The buyer's notice must be sent to the contractor at the address specified in the agreement or the offer. If given by mail, the buyer's notice is effective when it is deposited in the mail, properly addressed, with postage prepaid. The buyer also may cancel by sending a telegram to the contractor's address.

Transactions Not Covered

The following are the most important exceptions to the Act:

Contracts with a licensed contractor for repair services, if (1) the contract price is less than $100, contract contains a written and dated statement, signed by the buyer, that he or she initiated the negotiations.
Contracts for emergency repairs or services which are necessary for the immediate protection of people or property, where the buyer initiates the contract and gives the contractor a separate signed and dated personal statement which describes the situation, and which expressly acknowledges and waives the buyer's right to cancel.
Any transaction which is subject to rescission by the buyer under the federal Truth-in-Lending Act because it involves a security interest in the buyer's principal dwelling (discussed below).

Truth in Lending Act

If the home improvement is to be financed and involves a security interest in the buyer's home, the Truth in Lending (TIL) Act's three-business-day right of rescission (cancellation) probably applies.

Transactions Covered

The TIL rescission right arises in a consumer credit transaction where a nonpurchase lien or security interest is taken in the consumer's principal dwelling, or where a security interest in the dwelling may arise by operation of law (e.g., a mechanic's or materialman's lien). The credit must be extended to a natural person for personal, family or household purposes by a creditor who regularly extends consumer credit (this can be a contractor or a lender).

Major exceptions to the rescission provisions include loans to finance the construction or purchase of a home, and refinancings of the same property by the same creditor with no new advance of funds.

Cancellation Right

Each consumer whose ownership interest is or will be subject to the security interest has the right to rescind the transaction until midnight of the third business day after:

consummation of the contract,
the creditor's delivery of the required notice of the right to rescind, or
the creditor's delivery of all material disclosures, whichever occurs last. ("Material disclosures" include the annual percentage rate, the finance charge, the amount financed, and other key loan terms.)

If the required notice or material disclosures are not delivered, the right to rescind generally expires three years after consummation.

Business and Professions Code Section

Application

B&P section 7163 complements and supplements the Truth in Lending Act's recession provisions described above. The second applies in any of the following situations:

if the obtaining of a loan for all or portion of the contract price for a home improvement contract is a condition precedent to the contract;
if the contractor provides financing or helps the buyer in any manner to obtain a loan; or
if the contractor refers the buyer to a lender or to any other person for the purpose of arranging a loan.

If one of these conditions is present, the contract is not enforceable against the buyer unless all of the following requirements are satisfied:

the third party, if any, agrees to make the loan;
the buyer agrees to accept the loan or financing; and
the buyer does not rescind the loan or financing transaction as permitted by the Truth in Lending Act, if that Act's provisions are applicable.

Exceptions to B&P Section 7163

In general, the buyer's waiver of any rights under B&P section 7163 is void and unenforceable.

Waiver is permitted, however, to the extent that the contract is for emergency repairs or services which are necessary for the immediate protection of people or property. In this situation, the buyer must give the contractor a signed and dated personal statement which describes the emergency, states that the contractor has informed the buyer of the buyer's right to cancel under B&P section 7163, and states that the buyer waives those rights. The waiver must be signed by each owner of the property. Waivers on printed forms are void and unenforceable.

Swimming Pool Contracts

B&P Section 7165 allows use of substitute provisions in the case of a swimming pool contract financed by a third-party lender.

Notice of Right to Cancel

NOTICE OF RIGHT TO CANCEL

Notice of Cancellation

_________________________________________
(enter date of transaction)

You may cancel this transaction, without any penalty or obligation, within three business days from the above date.

If you cancel, any property traded in, any payments made by you under the contract or sale, and any negotiable instrument executed by you will be returned within 10 days following receipt by the seller of your cancellation notice, and any security interest arising out of the transaction will be canceled.

If you cancel, you must make available to the seller at your residence, in substantially as good condition as when received, any goods delivered to you under this contract or sale, or you may, if you wish, comply with the instructions of the seller regarding the return shipment of the goods at the seller's expense and risk.

If you do make the goods available to the seller and the seller does not pick them up within 20 days of the date of your notice of cancellation, you may retain or dispose of the goods without any further obligation. If you fail to make the goods available to the seller, or if you agree to return the goods to the seller and fail to do so, then you remain liable for performance of all obligations under the contract.

To cancel this transaction, mail or deliver a signed and dated copy of this cancellation notice, or any other written notice, or send a telegram to:

____________________________________
(name of seller)

at ____________________________________________________
(address of seller's place of business)

not later than midnight of :

____________________________________
(date)

I hereby cancel this transaction

___________________________
(date)

_______________________________________________
(buyer's signature)

For Assistance with your home improvement contract, consider the following resources:

Contractors State License Board

You may call a deputy registrar of the Contractors State License Board with questions regarding requirements of home improvement contracts at any of the 24 district offices or branches (see inside back cover).

Please remember, however, that deputies will only be able to answer specific questions regarding contractor law on home improvement contracts as specifically defined by Business and Professions Code section 7159.

Also, the CSLB cannot and does not give legal advice as to how the courts or an arbitrator would regard a specific matter. The CSLB staff can only provide information about how the CSLB interprets the law for its own purposes. For example, the CSLB staff can give an interpretation on whether a particular action by a contractor would constitute a violation that might lead to action by the CSLB.

Any other questions will need to be researched through one of the other resources available.

Books

The "California Contractors License Law and Reference Book" includes all of the various legal code sections referenced throughout this booklet. It also includes sections on "Managing Your Business" and on "Home Improvement Contracts."

Trade Associations

Printed standard forms of agreements used in the industry are available from:

many of the contractor associations (i.e., Associated General Contractors);

associations particular to the various trades (i.e., California Landscape Contractors Association); and also from
various Builders Exchanges.

Stationery Stores

Printed standard forms are also available from various stationery stores. When purchasing or obtaining a standard form, you should carefully check it to make sure it contains all the current legal requirements.

Legal Assistance

A continuing relationship with an attorney familiar with the construction business is helpful. It is a good idea to have an attorney check arrangements for individual jobs which might not quite fit a standard form.

Another source of information on contracting and the CSLB is the Internet. Information is available in the following categories:

License and application status information

Licensing and exam information

How to file a complaint

Information for disaster victims

Order forms and applications

CSLB office locations

CSLB publications and pamphlets

New topics, new laws, pending legislation

Contractors and the public can access us through our Internet address:

http://www.cslb.ca.gov/

Automated Phone Response

The Automated Phone Response System (APRS) is an automated, toll-free number, 1 (800) 321-2752, for obtaining information, forms, publications and other valuable assistance pertaining to contracting and the Contractors State License Board. The following categories identify the kinds of information and materials available through the APRS, followed by the number to press on your touch-tone phone to gain access to or information about each category.

License Maintenance

License renewal 2151

Adding a class 21521

Asbestos certification 21522

Hazardous substances removal 21523

License structure 2153

Changing business name and address 21541

Changing officers of the corporation 21542

Disassociation of qualifying person 21543

Replacing the qualifying person 21544

Inactivating a license 21551

Reactivating a license 21552

Canceling a license 2156

Contractor's bonds 2157

Workers' compensation 2158

Ordering Forms

Ordering application for contractors license 241

License renewal form 243

Reactivation form 243

Inactivation form 243

Add class/RME/O replacement application 244

Joint venture application 244

Asbestos certification application 245

Hazardous waste application 245

Name/address change form 246

Change officers form 246

Disassociation form 246

Bond forms cash alternative forms 247

Qualifier bond exemption form 247

Workers' compensation exemption form 248

"Asbestos: A Contractor's Guide
and Open Book Exam" 262

"Blueprint for Becoming a
California Licensed Contractor" 262

"California Contractors License
Law and Reference Book" 263