A bill sponsored by the California Landscape Contractors Association that prevents project owners from using a legal loophole to unjustly enrich themselves at the expense of contracts has been signed into law.
The measure, Assembly Bill 1386, was co-authored by Assemblymembers Shirley Horton (R-Chula Vista) and Lou Correa (D-Santa Ana).
For decades, there has been a provision in law essentially stipulating that a consumer does not have to pay an unlicensed contractor, regardless of whether the construction job was done properly or not. This provision has long been tempered by another provision that defines substantial compliance with licensure requirements. This substantial compliance test is important because it prevents licensed contractors who inadvertently become licensed for a brief period from being caught in a net actually cast for unlicensed operators who habitually violate the law.
A problem, however, arose in the 2000-01 legislative session when then Assembly Member Lou Papan’s AB 678 took this payment issue another step. AB 678 essentially said that an owner could recover compensation paid to an unlicensed contractor – regardless of whether the job was done well or not. Unfortunately, this law did not include a substantial compliance exception. Therefore, a licensed contractor who failed to renew a license on time could have been forced to give back to the project owner the entire payment for a construction job.
This created a terrible wrong by encouraging project owners to take advantage of contractors who inadvertently allowed their license to lapse during the course of a project. In addition, it was illogical. If a contractor in substantial compliance with licensing can successfully bring a lawsuit against an owner to recover money owed for work performed, the contractor also should be allowed to assert substantial compliance as a defense to a lawsuit brought by the owner to recover money already paid.
AB 1386 fixes this problem by applying a substantial compliance test to both instances.
The new law went into effect Jan. 1, 2004.
Source: California Landscape Contractors of America