In 1996, Judge Midlam, declared in the Ranchwood case that an unlicensed
contractor could not avail themselves of the laws of the state of California.
Ranchwood Communities Limited Partnership v. Jim Beat Construction held that two developers/general contractors failed to show substantial
compliance with licensing statutes, or that they were exempt from those
requirements, because they were owner builders, and accordingly they were
unable to recover compensation for work done on the project. Judge Midlam
also struck the developer/general contractor’s cross complaints
against the subcontractors, and therefore, the association had to proceed
against thirty plus subcontractors on the legal theories of only negligence
and equitable indemnity.
A contractor is defined by Business and Professions Code Sections 7026
and 7026.1. Almost all work needed to be performed by a vendor for your
association, including road maintenance, landscaping repairs and reconstruction,
requires a contractor’s license. The Business and Professions Code
goes on to state in Section 7125.2 the failure of the licensee to obtain
or maintain Worker's Compensation insurance shall result in an automatic
license suspension by operation of law. Further, licensed contractors
are required to have bonds and normally have liability insurance whereas
unlicensed contractors in almost every case have no bond, no liability
insurance and no workers compensation insurance to protect your association
from liability for their injured workers. Many insurance policies do not
protect associations when they hire unlicensed contractors. Most of these
policies exempt damage caused by the knowing use of unlicensed contractors.
Consequently, your association and perhaps your property manager could
be held liable for hiring an unlicensed contractor who is uninsured. If
the unlicensed contractor damages association property, or injures someone,
your association may be responsible for medical bills, lost wages and
other tort damages.
Mendoza v. Brodeur, a homeowner asked a neighbor to do some work on his home, the neighbor
was subsequently injured, and the homeowner was found to be an employer
who should have had workers compensation coverage in place. In the 2000 case of
Heiman v. Worker's Compensation Appeals Board, a property manager hired an unlicensed and uninsured contractor to install
rain gutters for the association and an employee of the contractor was
seriously injured on the first day of the job. The court concluded that the association and the unlicensed contractor
were dual employers and, as such, they were jointly and severally liable
for workers compensation. If a trespasser, a neighbor, or your own members
are personally injured or property is damaged by employees of an unlicensed
contractor, your Association may be liable for tort claims. Under some
circumstances your association might even be liable for unpaid wages of
the unlicensed contractor’s workers. Additionally, most unlicensed
contractors will not pull necessary building permits, or comply with building
codes and these failures could exacerbate liability for injury and damage
to third parties.
The best way to protect your association is to require in your requests
for proposals (RFP) all licensing, insurance and bonding information on
your proposed contractor, and go online and check the Contractors State
License Board website at
www.clsb.ca.gov. Further, you should require your proposed contractor to name your association
as an additional named insured under their insurance policies in any contract
which affects association property or personnel. This allows your association
to make claims directly to your contractor’s insurance company.
In addition, it is important to have a contract clause requiring your
contractor to remain licensed during the entire term of the contract.
Failure of a contractor to pay their workers compensation insurance or
failure to follow other technical corporate requirements could cause them
to become unlicensed during the term of the contract.
Warning! Only hire licensed, qualified contractors after checking their
licensing, insurance and references.
Ranchwood Communities Limited Partnership v. Jim Beat Construction Co. (1996) 49 Cal.App.4th 1397, 1409
Mendoza v. Brodeur (2006) 142 Cal.App.4th 72, 75
Heiman v. Workers' Comp. Appeals Bd. of State (2007) 149 Cal.App.4th 724, 736
**This article is republished from CAI Coachella Valley’s April 2017