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CSLB Press Release - 08/15/12

Contractors State License Board Warns Consumers Not to Pay More than 10 Percent Up Front

Considering a home improvement project? Remember your consumer protection rights!

SACRAMENTO —The Contractors State License Board (CSLB) is alerting California consumers who are considering hiring a painter, landscaper – or any other type of construction contractor – that it is illegal to ask for or accept a down payment of more than 10 percent of the total home improvement contract price or $1,000, whichever is less.

Many consumer victims who file complaints with CSLB tell investigators they were unaware that there is a legal limit for down payments. Many unlicensed operators also are not familiar with this aspect of California contracting law, which should serve as a red flag for homeowners. If someone asks for a large amount of money up front, the person might not have a license or the necessary project skills. Many times, unlicensed operators take a homeowner’s down payment and never start the project.

Consumers also should be aware that their contractor cannot “front load” the contract by asking for project funds in advance. That means a person should never pay for work before it is completed, or for materials before they are delivered to the property. Make sure the written contract contains a progress payment schedule that outlines project phases, with all costs and estimated completion dates.

"It is important for homeowners to familiarize themselves with their rights before making a significant investment in their home," said CSLB Registrar Steve Sands. "A number of helpful brochures, including Ten Tips to Make Sure Your Contractor Measures Up, are available on our website."

There is an exception to the down payment law for about two dozen contractors who purchase blanket performance and payment bonds, which protect consumers. These contractors may solicit larger payments than those who have a basic $12,500 bond, which is required of all licensees. The type of license bond a contractor holds is noted on the board’s online detail page for each licensee, which can be accessed through CSLB’s Instant License Check feature. Limited liability companies (to which CSLB began issuing licenses in January 2012) must carry liability insurance and a $100,000 license bond, in addition to the standard $12,500 surety bond.

Consumers also should take precautions to prevent mechanics liens that can be filed by laborers, subcontractors, and materials suppliers who prime contractors have failed to pay. Those who do not receive payment for services and materials supplied have a legal right to record a lien against the property, provided the owner is properly notified. A lien can jeopardize the property title, affecting the homeowner’s ability to refinance, sell, or obtain a line of credit.

To avoid mechanics liens, CSLB recommends not allowing payments to get ahead of the project work, and to require joint signatures on payment checks between the prime contractor and the subcontractors and prime contractor and suppliers. Homeowners also should have all parties involved sign lien release forms for progress payments and when the final payment is made. These forms are available on CSLB’s website. Do not pay the final installment until the work is completed to your satisfaction, and you are certain all parties have been compensated.

CSLB urges consumers to follow these tips when hiring a contractor:

  • Hire only licensed contractors and ask to see their license and a photo ID to verify their identity. Make sure that all subcontractors also have the appropriate licenses and that the contractor has a good payment history with those supplying project materials.
  • Always check the license numbers on CSLB’s Instant License Check to make sure the licenses are in good standing, and that employees are covered by workers’ compensation insurance.
  • Don’t pay more than 10 percent or $1,000, whichever is less, as a down payment. There is an exception for about two dozen licensees who carry special bonds to protect consumers. These exceptions are noted on CSLB’s website.
  • Don’t pay in cash, and don’t let payments get ahead of the work.

The Contractors State License Board operates under the umbrella of the California Department of Consumer Affairs. More information and publications about hiring contractors are available on the CSLB website or by calling 800-321-CSLB (2752). You also can sign up for CSLB email alerts. CSLB licenses and regulates California's 300,000 contractors, and is regarded as one of the leading consumer protection agencies in the United States. In fiscal year 2011-12, CSLB helped recover nearly $36 million in ordered restitution for consumers.