No Payment for Unlicensed Contractors
By Timothy R. Hughes
Getting paid for your work is critical to your home improvement business success and even survival. Failing to obtain proper licensing can end your ability to get paid even for remodeling or construction work that is properly performed. The range of impact for unlicensed contractors varies from state to state. States at the more lenient end of the scale may create road bumps in the unlicensed contractor’s ability to effectively file suit or to assert mechanic’s liens and may create some exceptions.
Middle-of-the-road states can impose a complete bar to recovery for lack of licensure. The most onerous states can be far more Draconian, including penalties where an owner can demand disgorgement of all monies paid to the unlicensed contractor for work performed, even where the work is proper.
By way of example, we will compare and contrast the differing rules outlined in my geographic region of the Washington, D.C., metro area.
Virginia – Potentially a Bar to Unlicensed Contractors
Code of Virginia § 54.1-1115 makes unlicensed contracting work illegal. Case law provides that unlicensed contractors are barred from being able to sue to recover for work performed. The same code section, however, provides:
No person shall be entitled to assert the lack of licensure or certification as required by this chapter as a defense to any action at law or suit in equity if the party who seeks to recover from such person gives substantial performance within the terms of the contract in good faith and without actual knowledge that a license or certificate was required by this chapter to perform the work for which he seeks to recover payment (emphasis added).
The case law construing this section is relatively thin. Still, there are at least arguments that an unlicensed contractor may use to get paid.
More recently, in 2013 Virginia provided in a black and white fashion that a contractor needs a license to claim a mechanic’s lien. See Code of Virginia § 43-3.
Maryland – more black and white
Unlike Virginia, Maryland generally does not require a blanket general contracting license for masonry work (although trade specialties like plumbing and electrical always need licenses). Maryland does require a home improvement license for all contractors performing home improvement projects.
Maryland cases discussing contractors license requirements have tended to be relatively black and white that unlicensed contractors cannot recover. On occasion, the courts will allow a little more flexibility (such as when the contractor obtains a license after the contract but before the work). Maryland courts also have allowed unlicensed subcontractors to recover for their work from general contractors on the theory that the license regime is to protect the homeowners. Still, the general rule appears far more black and white than in Virginia, where the statute contains at least a baked in argument that an unlicensed contractor can still sometimes get paid.
District of Columbia – expressly draconian
The District of Columbia takes the need for a home improvement license to the ultimate extreme. As with Maryland, the District requires all contractors that perform work on home improvement jobs to obtain a license to act as a “home improvement contractor.”
The District has applied a remarkably harsh bright line test to enforce this rule. Unlicensed contractors are completely barred from recovery. Any deficiency, including obtaining the license after the contract but before the work, results in a complete bar to recovery. Going even further, an owner can accept the benefit of a fully completed and properly built project, pay in full, and then sue for disgorgement of the entire cost of the work from the unlicensed contractor.
Courts construing these rules expressly state that they are purposefully “Draconian” in nature and are not subject to adjustment based on arguments of fairness. Forewarned is forearmed; you do not want to face a licensing argument in D.C. court against a homeowner.
Each state has different laws and requirements for permits, corporate formation, and licensing. You need to understand the laws of each state where you do business. The wildly different rules in three abutting jurisdictions in the Washington, D.C., area highlight the need to know the playing field everywhere you do business. Given the harsh potential results, it pays to do the right thing and ensure that your licensing is completely straight before you even advertise for work or you may find yourself facing extreme peril at the end of a project.
Timothy R. Hughes, Esq., LEED AP, is the Managing Shareholder of the law firm Bean Kinney & Korman, P.C. in Arlington, Virginia. A construction, real estate and business attorney, he was recognized as a “Leader in the Law” in 2010 by Virginia Lawyer’s Weekly, a member of the “Legal Elite” for Construction Law by Virginia Business Magazine, and one of the “Best Lawyers in America” for Virginia Construction Law. A former chair of the Construction Law and Public Contracts Section of the Virginia State Bar, he may be reached at 703-525-4000 or by email at email@example.com.