New License Classification, Same Potential Pitfalls
California Creates a New B-2 Classification for Residential Remodeling Contractor
Effective January 1, 2021, recent California legislation created a new contractor licensing classification splitting the Class B license into a B-1 classification, which is consistent with the old B License, and creating a new B-2 classification for residential remodeling activities. The California Contractors State License Board (CSLB) has not yet created the testing protocol for the public to apply and qualify for the B-2 license. However, for those who may be interested in applying for the new B-2 license, it will be important to make sure you understand the classification parameters, limitations, and contract requirements in setting up a business to operate under the B-2 classification. Those currently holding a B license, which essentially becomes a B-1 license, can continue to contract as previously permitted by law. The new legislation makes no changes to the contracting abilities of a traditional B licensee.
What Is Included in the New B-2 Classification?
According to the authors of Senate Bill 1189, which created the B-2 classification, the purpose of the additional classification is to break up the “one-size fits all license” for general contractors “which allows contractors to take on jobs for remodeling a building to building a skyscraper.” (Senate Bill Third Reading Analysis.) One of the catalysts, again according to the authors, was complaints of shoddy work and mistakes by contractors rebuilding homes damaged by natural disasters, namely wildfires. (Id.) The new “residential remodeling contractor” (RRC) license adds a new classification for a contractor whose principal contracting business is “making improvements to an existing residential wood frame structure and the project requires the use of at least three unrelated building trades or crafts for a single contract.” (Cal. Bus. & Prof. Code § 7057.5.) The ultimate language of the statute as enacted includes a non-exhaustive list of the trades and crafts, which can be found here, but includes items such as: drywall, finish carpentry, flooring, and painting. (Cal. Bus. & Prof. Code § 7057.5, subd. (b)(1).)
Aside from the limitation that the project must involve three unrelated building trades or crafts, there are additional limitations placed on the B-2 classification. The RRC cannot take on a contract that includes trades for Fire Protection (C-16), Asbestos Abatement (C-22), and Well Drilling (C-57) unless the RRC holds those respective licenses. An RRC cannot make structural changes to load bearing portions of existing structures. Importantly, while an RRC can make minor alterations to existing electrical, mechanical, or plumbing systems to effectuate the purpose of the residential remodel contract, the RRC cannot install, replace, substantially alter, or extend those systems unless it holds the appropriate licenses or subcontracts that work. (Cal. Bus. & Prof. Code § 7050.5, subd. (c)(3).) A keen reader would question what it means to “substantially alter” one of the above-mentioned systems. While that term is not defined in the new statute, it does give the CSLB the ability to adopt regulations that further define what activity constitutes minor alterations. (Cal. Bus. & Prof. Code § 7050.5, subd. (c)(3)(C).)
CSLB has yet to create regulations or the testing materials for the new RRC license. At the time of this article, the CSLB plans to have the appropriate internal steps completed to start issuing RRC licenses by August 1, 2021. The new B-2 classification specifically will allow applicants to obtain licensure without showing both framing and rough carpentry experience as was previously required for a general contracting license.
Home Improvement Contract Requirements Can Lead to Pitfalls For an RRC
In addition to creating the RRC, Senate Bill 1189 also revised portions of the “home improvement contract” statutes to make clear that such contracts include “reconstruction, restoration, or rebuilding of residential property that is damaged or destroyed by a natural disaster for which a state of emergency was declared.” (Cal. Bus. & Prof. Code § 7151.) By the nature of the B-2 classification, any work contemplated by an RRC will necessarily be deemed “home improvement,” which means that an RRC will need to make sure its contracts comply with home improvement contract requirements.
To protect consumers, California previously enacted a series of statues that set forth specific requirements, both in form and substance, that all home improvement contracts must meet. The specific contract requirements are described in California Business & Professions Code section 7159. The statute lays out the specific required sections of the contract, and in certain cases required language and font size. The statutes also make it clear how much the contractor can charge as a down payment, how changes can be made to the contract, certain required disclaimers, and provide the customer with a right to cancel. Any person or entity looking to start contracting under the newly created RRC license should ensure that any planned prime contract form meets all of the requirements in section 7159.
The CSLB provides some limited guidance for both consumers and contractors on navigating home improvement contracts. Additionally, a simple internet search can find potential examples of home improvement contracts, but they often do not adequately meet the exact requirements outlined in section 7159. One additional change to the home improvement contract became effective January 1, 2021. Through a separate Assembly Bill, the California Legislature amended California Business & Professions Code section 7159, among others, to add extended cancellation rights for “senior citizens” (defined as individuals 65 years of age and older). When entering into a home improvement contract with a senior citizen, the right of cancellation is extended from three (3) days to five (5) days.
With all the requirements and recent changes in the law, the best practice is to have any proposed home improvement contract reviewed by an attorney to ensure that it complies with the home improvement contract statutes and meets the needs of the contractor. For those looking to obtain the RRC license once it becomes available through the CSLB in fall 2021, the best time to have counsel review either current or proposed contracts is before doing business.
For those who are interesting to moving into the newly created Residential Remodeling Contractor license designation, or who have questions regarding home improvement contracts and the recent changes in the law, the attorneys at Balestreri Potocki & Holmes are available to help.
Daniel J. Brast, Senior Attorney
Daniel J. Brast represents both property owners and contractors in matters relating to contract formation, business and payment disputes, and business litigation.
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