Paying for Referrals

You probably have friends and relatives handing out your business cards for referrals. Is it legal to pay them? Anyone interested in forming an alliance with another contractor will benefit from an inquiry about ‘JV’s and GP’s’. A Nevada contractor catches a ‘waive’ to ride in California with our first question…

Q: I currently am a qualifier on a Nevada contractor’s license. I believe California has an agreement with Nevada to recognize the trade certificate from state to state. Can you see if I can get an exemption from the trade test? This would allow me to study for the law test only.

A: Thank you for your email. From my research, it appears a waiver of the trade exam is very likely under California and Nevada’s long-standing reciprocity agreement. This is based on your having been licensed in good standing for 5 of the previous 7 years. You’re correct, with an “exemption” from the trade test, you will only need to study for the law exam.

Q: My question is in regards to referral fees paid by contractors. I am a General Contractor who specializes in home remodeling and custom homes. We work with real estate agents quite often and I was wondering if paying a referral fee for them sending work our way is legal? These referrals simply involve giving a new homeowner my business card. Also, is it legal for contractors to pay referral fees to each other for passing on work? Thanks for your input!

A: B&P Code section 7157 addresses inducements or “kick-backs”. While I am not an attorney, based on my reading, my opinion is that it would be acceptable to pay a real estate agent a referral fee in the manner you describe. However, there may be some regulation against this in the code sections governing the real estate industry. NO kickback may be given to the new homeowner or to another contractor.

The above code section deals with home improvement contracts and states in part, “…no person may promise or offer to pay, credit, or allow to any owner, compensation or reward for the procurement or placing of home improvement business with others.” This Section goes on to say that no contractor shall pay any compensation of any kind to any other contractor except in the performance of his or her work as a subcontractor.

Q: We are two sole proprietor general contractors’ that want to form a business partnership. My research has taken me to the joint venture contractor’s license. Could you tell me if this is an appropriate way to put a partnership together? Will our present licenses be affected?

A: Forming a Joint Venture (JV)) would be one option. Forming a “general partnership” (GP) would be a second option. For contractor licensing purposes a JV consists of two or more licensed contractors both (or all) of which must be active and in good standing. A partnership can be formed as long as one listed individual holds a valid contractor’s license. Joint Ventures are the simplest type of license to apply for and usually take less than 10 days to be issued.

Because trouble often begins when partnerships break-up, whether you form a JV or GP, I would strongly recommend consulting an attorney to draw up a legal agreement. The new license will belong to both of you and should not impact your existing sole owner licenses.