Unrelated Trades, Qualifier Risk and Unwritten Rules on HOA Contracting

While the rules are written in contractor law sometimes the interpretation can be challenged and changed. That also applies to licensing questions here. We go back to the future for a new take on a previous question updated by ‘legal’ expertise! Another question takes us into an arena where an attorney should be part of a ‘tag team’ to complete the answer. A final contractor question is also ‘related’ to interpretation…

Q:  Does the California Law on Home Improvement contracts (Bus. & Prof. C. 7159) apply to contracts between a contractor and a Home Owner’s Association (HOA)?

A:  Last week I stated that the way I read B&P Code 7159(b) regarding Home Improvement contracts, I didn’tbelieve it would apply to a contract between a contractor and a Home Owner’s Association (HOA).  I had several attorneys offer an updated interpretation as they pointed out that since the HOA acts as an agent for the unit owner’s and the property is owned by the HOA, the HOA becomes the De Facto owners, and therefore B&P Code 7159(b) does in fact apply. I always appreciate the feedback!

Q:  I presently hold an Active “A” (General Engineering) and “B” (General Building) Contractor’s License in California. I am in the process of becoming a Responsible Managing Officer (RMO) for a Corporation. I was wondering if you would recommend that I speak with an attorney prior to finalizing the agreement or is this a relatively “low risk” situation? 

A:  Thank you for contacting Capitol Services Inc.  I wouldn’t necessarily call it a “low risk” situation.  There are responsibilities that come along with acting as an RMO/RME for a company. I’d be happy to discuss the general differences with you informally however I am not a legal expert, and ‘risk’ is always relative. However, I suggest you seek legal advice in this by contacting an attorney.

Q:  I understand that a General “B” Contractor may only take a job if there are at least two “unrelated” trades or crafts involved.  How can you determine if they are “related” or not? In particular, how can you determine if “C-10” (Electrical) work is “related” to “C-7” (Low-Voltage) work?

A:  While the term “related” is somewhat subjective, “C-10” work would most definitely be related to “C-7” work. The fact that a “C-10” contractor is covered to perform low voltage work without needing the “C-7” classification specifically, means they’re related. A “C-5” (Framing and Rough Carpentry) contractor can do overhead doors, staircases and railings, sub-flooring, etc. which would make all of those related.  There’s no official “chart” or anything but if you are wondering about something else in specific, let me know. 

Disassociation Notice, Solar Disclosures and Unlicensed Subs

If your worker ‘subverts’ the truth about his licensing are you ‘generally’ in trouble? There’s no place like ‘homeowner’s association’, I enlighten a contractor on a solar question and prevent an ‘alteration’ that would get another nothing but ‘rejection’… 

Q: Does California have a requirement for General Contractors to ensure subcontractor licensing? We’ve recently become aware that a handful of states (Arkansas, Louisiana, etc.) have specific penalties against GC’s who hire subs who turn out to be unlicensed—I’m wondering if California does as well.

A:  The CSLB would certainly frown on General Contractors who hire an unlicensed subcontractor however I am unable to find an actual “law” in the regulations that requires that they must ensure a subcontractor is licensed.  

You could argue if a General does hire an unlicensed subcontractor for work which requires a license, technically that “subcontractor” is now the General Contractor’s employee.  The CSLB also has the authority to cite the “subcontractor” for doing contracting work without a license.  I don’t see that the General Contractor would receive any specific penalty besides the liability that comes with hiring unlicensed contractors, but bottom line, hiring unlicensed contractors/subcontractors is not a good idea!

Q:  Does the California Law on Home Improvement contracts (Bus. & Prof. C. 7159) apply to contracts between a contractor and a Home Owner’s Association (HOA)?

A: The way I read the law, no, it would not apply.  7159(b) states that a home improvement contract is an agreement between a “contractor and an owner or between a contractor and a tenant”.  Since an HOA is not an owner or a tenant, it doesn’t seem to apply.

Q:  As you probably are aware, as of January 1, 2019, the CSLB has a requirement that all contractors installing solar energy systems provide a consumer with a disclosure document.  Do we need to provide the customer with the actual form provided by the CSLB?  Or would it be okay to just include that same language within our contract?

A:  I don’t believe it matters whether you use the CSLB’s actual form or create it yourself, however, it must be printed in boldface 16-point font on either the front or cover page of the Solar Energy contract.  Since 16-point font takes up a whole page, and being that it must be in the front, there is no reason not to use the form the CSLB has already created.

Q:  We received our Contractor’s License renewal in the mail and I’m realizing that the Officers listed on the license are not completely accurate.  Two of the individuals have left the company and have been replaced.  Is it okay to strike out two of the names showing on the form?

A:  No, the CSLB will reject the renewal if you alter it.  You will need to file disassociation notices for the two people who are no longer with the company.  If you want to list the new people on the license, you will want to file Applications for Adding Personnel. 

Qualifying Multiple Licenses, Fire Prevention Rule and SWIFT Justice

Props to a publisher who gets a ‘swift’ pat on the back, a good answer for a helpful pair and we get ‘real’, really…

It’s great to see the work of the CSLB SWIFT enforcement teams get front page coverage in the Sacramento area’s Messenger Publishing newspapers and websites. Unlicensed activity just hurts everyone, a harm to consumers and a foul for licensed contractors. According to the CSLB story in the Carmichael Times and other community editions, 13 were nabbed by SWIFT in an operation in the Gold River suburbs of Sacramento. A repeat offender was among those caught in the home improvements ‘bid’ sting conducted with the Rancho Cordova Police Department. 

Q:  I am a General Contractor and I purchase cabinets from a “one-man-show” company.  He is a supplier and doesn’t do any installations, he leaves that up to me.    He recently purchased a skid steer tractor that he uses to mow down weeds, grind out old stumps, and do some minor grading.  He does this for homeowners that are trying to keep weeds down to protect against fires. Does her need a specific classification or license to work done?

A:  Good question and we all appreciate the effort to prevent anymore disasters in CA!  As long as the method used to clear the brush does not alter the grade of the land, a Contractor’s license is not required. If they are performing grading and the cost of the project is $500 or more, a Contractor’s license is required. The “C-12” (Earthwork and Paving) classification would be the most appropriate. If the cost of a stump grinding project is $500 or more, a Contractor’s license is required. In that case, the most appropriate classification is the “D-49” (Tree Service) classification.  Have him contact us if he needs to obtain a license!

Q:  We recently applied for a new license using the same Qualifier as our subsidiary based on 7068.1.  They sent us a “rejection” letter stating we needed to provide an organizational chart, with several requirements including personnel, ownership percentages, signatures, etc.  Is all of that really required?  Because we don’t usually provide detailed org charts like this with Officers signing off on it. Are you able to provide me with the section of the law that requires this, only because I know my boss will ask for it for his review?

A:  Yes, it is required to provide an organizational chart when you are requesting to use the same Qualifier on multiple licensesbased on B&P Code 7068.1(2).  I had to inquire with the CSLB to see which code/law requires this and was informed it is CA Code of Regulations 816(c). 

Corporate to LLC Transfer and FTB Suspensions

When you are done, you’re done, but going away may take some added steps for a corporate contractor. Another contractor finds that license transfers only go one way in CA…

Q:  Your company helped me set up my Corporation back in 2003.  We haven’t done business in California for years and I need to close up the corporation.  I noticed that it’s suspended by FTB (Franchise Tax Board).  What is the process to shut it down at this point?

A:  Before you can close/surrender your corporation, you will first need to get it back in Good Standing with the Secretary of State.  You will need to contact the Franchise Tax Board to find out the reason for the Suspension, however it is likely that your company needs to either file back tax returns, pay taxes owed, or both.  Contact my office if you need assistance with this.  We are here in Sacramento and can visit the FTB on your behalf to determine what’s needed and file the appropriate items to lift the Suspension.  Once the Suspension is lifted, you can file to surrender the corporation.

Q:  We are an Oregon Limited Liability Company (LLC) and when we originally obtained our California Contractor’s License (in 1995) we had to form a corporation because California didn’t allow LLC’s to have a license.  In 2012 when the CSLB started licensing LLC’s, we registered our Oregon LLC in California and transferred our license number over to the LLC.  For tax purposes, our CPA has recommended that we convert back to a corporation.  I assume we can just transfer the number back to the corporation?

A:  Actually, while a corporation (under certain circumstances) can transfer their license number to an LLC, an LLC cannot transfer a license number to a corporation.  I believe the statute that allows for a corporation to transfer a license number to an LLC was only established due to the fact that the CSLB didn’t previously license LLC’s.  Your corporation will be required to obtain a new license number.  Contact our office if you’d like assistance with the process.

NV Financial Requirement, Adding a Family Member & Waiver Consideration for Generals

Your son may be bright but how can you ‘incorporate’ him on your license?A ‘concrete’ result for a General’s inquiry will require greater details to be firmed up and a new Nevada venture will need to make a ‘statement’ to be successful…

Q:  My son has been working for me for years.  He’s not an Officer of the company.  Is there any way to add him to the license?

A:  There are only two capacities in which an individual can be listed on a corporate license: either as an Officer, or as the Qualifying Individual. So, the only way to add him to the license currently would be to replace you as the Qualifying Individual.  

Q:  I am a General Building contractor and I want to add the “C-8” Concrete classification to my license.  Is there any way that I can get a Waiver of the exam based on the fact that I’ve been doing concrete work with my General license for many years?

A:  There are certain circumstances where you can ask for a Waiver of a Specialty Classification based on the current classification that you hold.  The CSLB mayconsider a waiver if you meet the following requirements: a) The Qualifier has been listed as a member of the personnel for five of the last seven years immediately preceding the application; b) The Qualifier has at least four years of experience within the last 10 (Journeyman level or above) in the classification being applied for; and c) The classification being applied for, as determined by the Registrar, is closely related and is a significant component of the classification currently on the license.

Be aware that when requesting a Waiver of an additional classification you will likely be required to provide additional documentation, such as detailed project forms showing that your additional classification has been a significant part of your work.

Q:  I am in the process of completing an application for a Nevada Contractor’s License. The application states that we need to provide a Financial Statement no more than a year old. Our fiscal year end is March 31st so the last audit that we had done was last year.  Our next audit will not be complete for another month, which is exactly when the bid date is for the project we are seeking in Nevada.  Will the Nevada Board accept our last financial statement if we provide a letter from our accountant stating that new one is not complete yet and explaining that March 31stis our fiscal year end?  If not, can I at least take the exam ahead of time?

A:  No, unfortunately Nevada will not budge on the requirement.  You absolutely have to provide a Financial Statement dated within the last year.  They will not approve you to take the exam prior to providing an acceptable financial statement.

Disassociation Timing, License Waivers and Registering Your DBA

Let’s ‘file’ the rough edges off a new rule on those ‘doing business as’ in California. Another contractor’s best laid plans crash when they get ‘waived’ off while another RME problem may have two ‘individual’ solutions pending the final test…

Q:  We are a sign installation company, but we are needing to get a General Contractor’s license in CA so we can be the prime contractor on our jobs.  Our business name is “ – – Signs”.  The CSLB rejected our application stating we need to register a ‘dba’ (doing business as) name because our company name is incompatible with our “B” classification.  What is involved in registering a ‘dba’ name?

A:  That sounds accurate!  While I’m not super familiar with registering ‘dba’ names since this is a new requirement the CSLB implemented, it is my understanding you file the fictitious name with the County Clerk where you intend on conducting business or nearest to your business address.  If you aren’t going to have a CA address, you can file the ‘dba’ with Sacramento county.  You then provide proof of the filing to the CSLB.

Q:  I obtained a Corporate license about 4 years ago using a Responsible Managing Employee (RME) who was not using his personal license, with the understanding that after five years of being licensed, I (as the only Officer of the company) would be able to replace my RME on the license and request a Waiver of the exams.  At my CPA’s recommendation, I formed a Limited Liability Company (LLC) last year to replace the Corporation.  I brought on a couple of partners, so we didn’t meet the requirement to transfer the license number because the personnel changed so we ended up with a new license number.  Between the two companies, it has now been five years and I’m ready to replace my RME.  Can you assist with that process and getting the approval for the Waiver?

A:   We can definitely assist with the replacement process, however, unfortunately you are not going to qualify for a Waiver of the exams.  In order to qualify, you have to have been an Officer/Member/Supervisory employee of the company for five out of the last seven years.  You cannot use two different entities combined(Corp/LLC) to add up to the five years and qualify for the Waiver.

Q:  Our current RME gave his notice that he will be leaving our company to start his own business, so we need to replace him on our license.  He has agreed to remain on the license until we replace him.  We have a couple other candidates in mind. Is the best way to proceed to have each individual obtain their own personal license, or should we just have one of them apply outright to replace the current RME?  I’m just wondering if filing the replacement application automatically starts the 90-day clock ticking.  We don’t want our license to lapse in the event our new person doesn’t pass the exam!

A:  Understandable!  Filing the replacement application does not automatically start the 90-day clock.  If your current Qualifier has agreed to stay on board until you replace him, there is a box you can check on the replacement application to not remove him/her until the new person is officially added to the license.

Social Security for Foreign Officers, Carpentry and LLC Business Name Transfers

Some electrical work is just ‘plug and play’ for a carpenter? A name change won’t work in another contractor’s company transformation that is turning into a ‘bad dream’ for him.  I also share why a ‘foreign’ officer will have to be ‘qualified’ to come ashore as a legal contractor…

Q:  Can a “C-6” (Cabinet, Millwork and Finish Carpentry) license install minor electrical components?  Basically, the lighting would be installed only on the cabinets the “C-6” contractor is putting in. The cabinets are manufactured by the C-6 company and the lighting going in is “plug and play” meaning that they are not hard wiring anything from an electrical panel within a building.  Instead, they will be plugging the light into a receptacle that was installed by a licensed electrician.  In some cases, if a client is requesting that the units be hard-wired, the C-6 company would simply request that the electrician wire the final connection from their light fixture to his junction box, switch, etc.  

A: Yes, it is acceptable for a “C-6” contractor to plug in the power cord for built-in cabinet lighting. The use of a “C-10” contractor to hard wire any lighting would be appropriate as well.

Q:  We are a flooring contractor and have both the “C-15” (Flooring) and the “C-54” (Tile) license.  We have been licensed since 1988 as a Corporation and we just recently formed a Limited Liability Company, so we need to transfer the license to the LLC.  

Our corporate business name is XYZ Design Inc., so naturally we applied for the new LLC as XYZ Design LLC.  Our application was rejected, asking for us to add a dba such as “XYZ Flooring Design”.  We have been XYZ Design Inc. for over 30 years, has something changed with moving from a Corporation to an LLC that is triggering this?  Our ultimate goal is to be known by our legal name.  “Changing our name” sounds like an administrative nightmare!

A: The CSLB has been “enforcing” B&P Code section 7059.1 more than ever before (at least in my experience), which states “A licensee shall not use any business name that indicates the licensee is qualified to perform work in classifications other than those issued for that license, or any business name that is incompatible with the type of business entity licensed.”  

They are rejecting business names for being “too vague”and have determined that words such as “Services”, “Systems”, or “Design” can only be used if they are in conjunction with your classification, hence the suggestion of “XYZ Flooring Design”.  This is fairly new, which is why your business name was acceptable when you originally obtained the license, but it’s not anymore.  Another wrench the CSLB threw in for dba’s is you are now required to register your ‘doing business as’ name with the county or city, which has never been required in the past.

Q:  We spoke a few months back about updating our Nevada license with a new Qualifier and new Officers.  We have finally updated the Secretary of State and are ready to move forward with the license paperwork.  Our new Officers are not US citizens and don’t have INS cards (they live in Spain).  Will that be okay?

A: If they are an Officer and are not going to come to the U.S. to workthey are not required to provide a US Social Security card or INS. But if they are a Qualified Individual they are required to be able to be present at job sites and therefore must establish legal status.

Sharing Contractor Licensing, Transatlantic Experience Credit and Fingerprinting for Inactive License Renewal

You can ‘share’ so much in social media these days, but in the real world of contracting not this! You may detect a slight accent in one inquiry while another contractor plans on mixing business and pleasure while in California…

Q:  You recently helped our Iowa company obtain a California contractor’s license. Can you help me understand whether or not we could allow another entity to use it, such as one of our subsidiaries?  Or, if we entered into a temporary subcontract agreement with another entity, could the subcontractor use our license or vice versa? 

A:  Absolutely not.  One entity cannot “use” another entity’s contractor’s license under any circumstances.

Q:  We spoke a couple of weeks ago regarding our Corporation that is based in the United Kingdom.  You had informed us that our Qualifying Individual needs to document four years of experience.  Does his experience need to be in the United States?  If it makes any difference, he has a license in the UK and it is much more difficult to qualify for a license in the UK than it is in California.

A:  His experience does not need to have been in the US.  I’m not familiar with contractor licensing in the UK, however I do know that being licensed in the UK doesn’t offer any “shortcuts” for him.  If he is licensed in the UK and the requirements are more stringent, I would speculate that he would be qualified for a license in CA,  but give me a call at your convenience to further discuss his background so we can actually confirm it’s ‘trans-Atlantic’ experience. 

Q:  I moved to the Midwest years ago and when I did, I put my CA contractor’s license on “Inactive” status.  I’ve been contacted by a company who wants to hire me as a Responsible Managing Employee (RME).  The company is wanting this license quickly and they said I would need to come to CA to get fingerprinted.  I’m not familiar with the licensing procedure anymore but I don’t remember needing to fingerprint, and I if I did, I don’t remember that I had to specifically do it in California?  I’m trying to plan my summer vacations and if this is necessary, I’ll work a West Coast trip into my plans!

A: I looked up your contractor’s license and you were definitely originally licensed prior to the fingerprinting requirement, so you can “work” surf and sand in to your summer vacation!  Completing the fingerprints via Live Scan makes the licensing process much quicker, as opposed to fingerprinting outside of CA which can add weeks (and sometimes months!) to the process.

Rent An RMO and Foreign Corporation Contractor Licensing

You can’t buy forgiveness or ‘rent’ some things either, despite what rumors may have you believe. Just don’t do it…

Q:  I am looking to purchase a contracting business but I only have experience working on my own houses and family member’s homes.  I understand it is difficult to qualify based on experience gained as an “owner builder”, or handyman tasks that I have done for family.  I’ve heard that it’s possible to “rent” an RMO (Responsible Managing Officer).  How does that process work?

A:  It depends on what exactly you mean by “rent” an RMO.  We hear that term frequently and it means different things to different people.  The proper way to go about the process of obtaining a Contractor’s License when you don’t have the requisite experience is to hire someone who either a) has a current contractor’s license and is willing to act as your Qualifier, or b) has the required amount of experience (4 years of full time within the last ten in the tradeyou are applying for) and is willing to sit for the exams.  Either way, the individual should exercise direct supervision and control of the contracting business. Remember too, if you choose option ‘a’, if the individual does not have at least 20% ownership in your company, he/she would be required to Inactivate their own license.

Sometimes when people refer to “renting” an RMO, they are referring to paying a licensed contractor a fee to Qualify their license, with no intention of that individual being involved in the day-to-day operations of the company.  This is a definite no- No!  The CSLB is always on the lookout for this offense, and if discovered, will take disciplinary action on the Qualifier and the Licensee.

Q:  We applied for a Contractor’s License for our Delaware corporation.  On the license application instructions, it stated that “foreign” Corporations are required to list their President and the Qualifying Individual on the application, which we did.  We just received a letter stating that Corporations are required to list their President, Secretary, and Treasurer as reflected with the Secretary of State, and that all individuals listed must be fingerprinted.  Can you please clarify if this is actually required?

A:  The CSLB used to require foreign corporations to only list their President and Qualifying Individual, however just recently they started following the provisions of B&P Code 7065b(1) with states “Every person who is an Officer, Member, responsible Manager, or Director of a Corporation or Limited Liability Company seeking licensure under this chapter shall be listed on the application as a member of the personnel of record”.  You are correct about the instructions on the license application stating otherwise, but they are in the process of updating the forms to reflect this information. At least, that’s the rumor! 

Concrete Pumping, Exam Waivers and Hiring New Employees

What do you do when your employee number is up? Don’t worry no one was hurt in writing this question, but if they were this is an important answer to know. Another contractor got a ‘concrete’ answer from his legal expert, but this licensing expert has to break it up… 

Q:  I am a licensed contractor and I plan to hire several new employees.  Do I need to report the number of employees to the CSLB for any reason?

A:  No, the CSLB does not require that you report new employees.  The only time you need to notify the CSLB of personnel changes is if the officers on record with the CSLB change, if your qualifier changes, or if you go from no employees (in which case you would likely have an Exemption from Worker’s Compensation on file, to employing CA workers (in which case you would need to have a Worker’s Compensation Insurance certificate on file with the CSLB).

Q:  I currently have a Sole Proprietor General Building (“B”) license that’s been Inactive for about three years now.  I want to add the “C-8” (Concrete) classification to my license in order to obtain a separate Concrete license for a Partnership that I am starting with my business associate.

My attorney said I may be able to Waive the Trade exam based on my General Building license if I can show that concrete has been a significant portion of my work for five out of the last seven years.  What does the CSLB consider acceptable documentation to prove my concrete experience?

A:   Your attorney is referring to B&P Code Section 7065.3, which allows for a Waiver of the Trade exam when adding a classification to your license if you meet the requirements.  As your attorney stated, one of the requirements is the classification needs to be closely related to your current classification and it must have been a significant portion of the work you performed for five out of the last seven years.  So sorry, since your license has been Inactive for three years now, there is no way for you to document using your General Building license for performing Concrete work as required. 

Q:  I currently have a “C-61”/”D-06” (Concrete related services) license in CA.  My company does concrete pumping.  We have some potential work in Nevada.  I have reviewed Nevada’s classification list and it doesn’t appear that they have anything that is equivalent.  Do I even need a license to perform this work in Nevada?

A:  Thank you for contacting us.  If all you are doing is delivering and pumping from the truck then no, a contractor’s license is not required in Nevada.