How California’s Right to Repair Act Applies to HOAs
Understanding SB 800 in the HOA Context
California’s Right to Repair Act (SB 800) doesn’t just protect individual homeowners — it also applies to homeowners’ associations (HOAs) responsible for managing common areas in newly built communities.
For HOAs, this law is one of the most powerful tools available to address defects in new construction, including problems with roofs, balconies, siding, waterproofing, drainage, and other shared systems.
What the Law Covers
Under Civil Code §§ 895–945.5, the Right to Repair Act establishes specific building performance standards that developers must meet.
For example:
Roofs and exterior walls must be waterproof and weather-resistant.
Plumbing, electrical, and mechanical systems must operate properly.
Structural components must be free from significant movement or failure.
Common areas must drain properly and prevent water intrusion.
When these standards are violated — even before damage occurs — the HOA has the right to demand that the builder repair the defects.
How an HOA Brings a Claim Under SB 800
Here’s how the process works for associations:
Notice of Claim – The HOA, through its attorney, sends a written notice to the builder or developer identifying the defects.
Builder Response – The builder has 14 days to acknowledge the claim and may request access for inspections.
Inspection and Repair Offer – The builder can inspect the affected areas and either offer to make repairs or reject the claim with an explanation.
Repairs and Mediation – If repairs are offered, they must be completed within a reasonable time. The parties may also mediate before any lawsuit is filed.
Litigation (if necessary) – If the builder fails to respond, refuses to repair, or performs inadequate repairs, the HOA can file a lawsuit to recover repair costs and damages.
This process is mandatory — meaning that an HOA generally must comply with SB 800’s pre-litigation procedures before filing suit.
Common Areas and HOA Standing
Under Civil Code §5980, the HOA has the right (“standing”) to bring claims for defects in:
Common areas (roofs, walls, garages, hallways, elevators, etc.),
Portions of individual units that the HOA is responsible to maintain, and
Any defects that affect multiple owners.
Individual homeowners may also have their own claims for interior or unit-specific issues, but SB 800 allows the HOA to address community-wide construction problems on behalf of the membership.
Deadlines and Time Limits
Just like individual homeowners, HOAs must bring their SB 800 claims within the statute of repose periods specified in the law:
Fit and finish (paint, flooring, cabinets, etc.) - 1 year
Plumbing, electrical, mechanical systems - 2 years
Water intrusion and building envelope - 4 years (for drainage issues) to 10 years (for major waterproofing failures)
Structural and load-bearing components - 10 years
Because many of these time limits begin when the project is completed or turned over, it’s critical for HOAs to act quickly after transition from developer control.
Why the HOA’s Attorney Must Lead the Process
All SB 800 notices, inspections, and expert evaluations should be coordinated through the HOA’s legal counsel.
When the attorney retains engineers and consultants to inspect and prepare reports, those materials are protected under the attorney work product privilege. If the property manager or board hires experts directly, those reports can become discoverable by the builder — jeopardizing the HOA’s case.
By engaging counsel early, the HOA ensures that the entire process — from initial inspection to potential litigation — is handled strategically and confidentially.
Practical Tips for HOA Boards
Act early after turnover. Don’t assume minor leaks or cracks are “normal.” They may signal bigger issues.
Engage experienced legal counsel. Construction defect law is specialized — the right attorney will coordinate the expert investigation.
Document everything. Keep maintenance records, owner complaints, and repair histories.
Preserve evidence. Don’t make major repairs before consulting legal counsel; doing so can destroy critical evidence.
Bottom Line - The Right to Repair Act gives HOAs a clear, structured way to pursue construction defect claims — but only if they act within the statute’s timeframes and follow its procedures carefully.
By hiring an experienced construction defect attorney early, the HOA can coordinate expert inspections, protect privileged communications, and preserve the association’s right to recover repair costs.
The Developer Turnover — Why HOAs Should Act Early to Protect Their Rights
The Critical Moment: Transition from Developer to Homeowners
When a new condominium or planned community is completed, the developer typically controls the HOA during the early phase of the project. As homes sell and a majority of units or lots transfer to owners, control of the association shifts from the developer’s appointees to the homeowner-elected board.
This “transition period” is one of the most important — and risky — times for an HOA. It’s the first opportunity for the board to act independently to review how the project was built and whether any construction defects or maintenance issues exist.
Common Issues That Surface After Turnover
The following problems often emerge soon after the developer hands over control:
Water intrusion from balconies, windows, or roofs
Cracking in stucco, concrete, or foundations
Improper drainage causing standing water or erosion
Mechanical system failures (plumbing, HVAC, electrical)
Incomplete or missing maintenance records
Deferred repairs that were never properly funded by the developer
These issues may be early warnings of deeper defects — but without proper investigation and legal guidance, an HOA may miss the opportunity to pursue the responsible parties before statutes of limitation expire.
Why the New Board Needs Independent Legal Counsel
If any of the early warning signs exist, the new board should promptly retain independent legal counsel experienced in construction defect and HOA law — not the law firm that represented the developer during setup.
Here’s why:
The developer’s counsel and consultants owe duties to the developer, not the association.
There may be conflicts of interest when evaluating construction quality or warranties.
Legal counsel can help the new board review records, retain experts, and preserve critical deadlines for defect claims under the Right to Repair Act (SB 800) or other laws.
Having the right attorney early ensures that the HOA is acting in the best interests of the homeowners — not relying on information prepared by those responsible for the project’s construction.
What the Attorney Will Do During Transition
An experienced construction defect attorney will:
Review Developer Records: Examine contracts, warranties, maintenance manuals, and turnover documentation to identify missing or incomplete records.
Coordinate Expert Inspections: Retain engineers, architects, and other specialists to inspect common areas and building systems — under the attorney’s direction to preserve the work product privilege.
Evaluate Potential Defects: Determine whether observed issues may stem from design or construction defects.
Preserve Evidence and Deadlines: Ensure that statutory notice and claim procedures (like SB 800) are followed before time runs out.
Advise the Board: Help the HOA make informed decisions about warranty claims, repairs, and communication with the developer.
By engaging counsel right away, the association can begin building a confidential and privileged record of its investigation — something that cannot be done if the manager or board hires consultants directly.
Why Acting Quickly Matters
Under California law, deadlines for construction defect claims begin running when defects are discovered — and they can expire in as little as one to ten years depending on the type of defect.
If the HOA waits to act, it may lose its ability to recover repair costs from the developer, builders, or insurers.
Bottom Line – The developer turnover period is the HOA’s first — and best — chance to protect homeowners’ investment. If there are signs of potential construction defects, by hiring experienced construction defect counsel early, the association can conduct a privileged investigation, identify potential issues, and preserve all available claims before it’s too late.
Why HOAs Should Hire an Attorney — Not the HOA Manager — to Investigate Construction Defects
When Red Flags Turn into Action
In a prior post, we discussed warning signs that may indicate construction defects — things like leaks, cracks, drainage issues, or mechanical failures. Once those red flags appear, the next step is crucial: don’t start hiring engineers or contractors yourself.
Instead, the homeowners’ association should first consult an attorney experienced in construction defect law.
Why? Because the way you handle the initial investigation can make or break the HOA’s ability to bring a claim later — especially when it comes to preserving confidentiality and the attorney work product privilege.
Why the Attorney — Not the Property Manager — Must Hire the Experts
When a property manager or board hires an expert (like an engineer or contractor) directly, anything that expert writes can be discoverable if a lawsuit is later filed. That means the developer or builder can demand to see those early reports – even if they’re unfavorable or preliminary.
By contrast, when the attorney retains the experts, those same communications and reports are protected as attorney work product.
This distinction is not just technical — it’s critical. Under California law:
Reports prepared at an attorney’s request, for purposes of evaluating potential claims or litigation, are privileged and confidential.
Reports prepared by or for the property manager or HOA (without counsel) are not privileged and can be used by the builder or developer later.
That’s why it’s essential that the attorney hires the experts directly and manages the entire investigation.
How the Process Typically Works
Here’s how a proper construction defect investigation should unfold:
Attorney Engagement: The HOA board retains a construction defect attorney.
Preliminary Review: The attorney reviews project documents, warranties, and maintenance records.
Expert Retention: The attorney – not the manager – retains qualified experts (engineers, architects, or general construction specialists).
Site Inspections: The experts perform inspections under the attorney’s direction and prepare confidential reports for legal review.
Strategy and Communication: The attorney uses those findings to advise the board on next steps — such as sending statutory notices under the Right to Repair Act (SB 800) or preparing a formal claim.
By channeling all work through counsel, the HOA preserves both attorney-client privilege and work product protection – meaning the builder cannot demand those materials later if litigation arises.
The Role of the Property Manager
The property manager still plays an important role. Managers are often the first to observe issues, coordinate with homeowners, and maintain records of complaints.
However, once defects are suspected:
The manager should stop hiring outside consultants or contractors to “inspect” the problem.
Instead, the manager should report the issue to the HOA board and help the board engage legal counsel.
This protects the HOA’s rights while allowing a coordinated, professional investigation led by the attorney.
What Can Go Wrong If You Don’t Involve Counsel Early
HOAs that skip this step often face costly consequences:
Loss of privilege: Early expert reports become discoverable by the builder.
Conflicting findings: Multiple contractors or consultants produce inconsistent reports that weaken the HOA’s credibility.
Statute of limitations issues: Without legal guidance, deadlines to file a claim under SB 800 or other laws may expire.
Increased costs: Repeating investigations later under attorney supervision wastes time and money.
Bringing in counsel early avoids all of these pitfalls – and positions the HOA to pursue repairs or recovery efficiently.
Bottom Line – When construction problems arise, property managers should not act alone. The HOA’s first call should be to a qualified construction defect attorney who can retain the right experts under the protection of the attorney work product privilege.
This simple procedural step can preserve confidentiality, protect the association’s legal position, and ensure that any investigation is done properly from the start.
Red Flags for Property Managers — Spotting Potential Construction Defects Early
Why Early Detection Matters
For property managers and homeowners’ associations (HOAs), identifying potential construction defects early can make the difference between a manageable repair and a multimillion-dollar lawsuit.
Under California law – including the Right to Repair Act (SB 800) – HOAs often have rights to pursue claims for construction defects affecting common areas and individual units. But those rights can expire if problems aren’t recognized and documented in time.
Here are some of the most common red flags that property managers should watch for during routine inspections and homeowner reports.
1. Water Intrusion or Moisture Stains
Water is the number one enemy of any building. Early signs of leaks or water damage are often the first indicators of more serious underlying defects.
Watch for:
Water stains on ceilings or walls
Damp or musty odors in units or common areas
Efflorescence (white mineral deposits) on concrete or stucco
Warping or delamination of flooring or baseboards
Leaks around windows, doors, or roof penetrations
Possible causes: Defective flashing, improper waterproofing, roof installation errors, window or deck detailing failures, or faulty exterior stucco systems.
If you notice recurring leaks in multiple locations, it’s often not an isolated problem — it’s a sign of systemic building-envelope defects.
2. Cracking in Stucco, Foundations, or Concrete
Cracks are not always structural failures — but they can be clues to serious issues.
Look for:
Horizontal or diagonal cracks in stucco, especially near windows or floor lines
Large cracks in concrete slabs, driveways, or retaining walls
Uneven floor levels or doors that don’t close properly
Possible causes: Soil movement, inadequate compaction, poor structural design, or improper curing and reinforcement of concrete.
Consistent cracking patterns throughout a building or complex often point to design or construction deficiencies, not simple settling.
3. Roofing or Deck Failures
Flat roofs, podium decks, and balconies are among the most defect-prone elements in multifamily construction.
Warning signs include:
Ponding water or clogged drains
Cracked or blistered roofing membranes
Soft or spongy deck surfaces
Rusting metal guardrails or flashing
Leaks below balconies or walkways
Because roofs and decks are major waterproofing systems, any breakdown can quickly lead to widespread damage if not addressed.
4. Drainage and Site Grading Problems
Improper drainage is a hidden but costly defect. Water that isn’t diverted correctly can undermine foundations, damage landscaping, and cause flooding or erosion.
Red flags include:
Standing water near foundations or common walkways
Erosion around slopes or retaining walls
Water flowing toward, rather than away from, buildings
Persistent dampness in garages or crawl spaces
Often, drainage problems trace back to poor site grading, inadequate waterproofing, or missing subsurface drainage systems.
5. HVAC, Plumbing, and Electrical System Failures
Mechanical and utility systems in new developments should function reliably for years. Early failures often indicate design or installation defects.
Watch for:
Repeated plumbing leaks or slab leaks
Inconsistent hot/cold water pressure
Frequent tripping of breakers or flickering lights
Poor HVAC performance or condensation issues
Sometimes these issues stem from improper venting, undersized systems, or defective materials.
6. Persistent Owner Complaints Across Multiple Units
Property managers often hear isolated complaints. But if multiple owners report similar problems – such as leaks, cracks, or HVAC failures – it’s time to investigate more deeply.
Consistent, widespread complaints are often the first sign of systemic construction issues. Keeping detailed records of these reports can be critical later if an HOA decides to pursue a defect claim.
7. Premature Deterioration of Building Materials
New construction should last for decades before major replacement is needed. When exterior finishes, roofing, paint, or waterproofing systems begin failing prematurely — within just a few years — it’s a sign that something went wrong during design or construction.
Common examples include:
Stucco discoloration or delamination
Rusting balcony railings or hardware
Paint or coating failures
Window seal failures or fogging between panes
Bottom Line - Property managers are on the front lines of identifying potential construction defects. Early detection and documentation can protect homeowners, preserve property values, and preserve the HOA’s legal rights.
When in doubt, don’t assume a leak or crack is “normal.” In many cases, these are early warnings of underlying construction defects that may justify legal action under California law.
Warranties under California’s Right to Repair Act (SB 800)
California’s Right to Repair Act, SB 800 (Civil Code §§ 895–945.5), sets out minimum “performance standards” that new-home builders must meet. If those standards are violated, homeowners may have claims under the Act. Some of the key categories include:
Fit and Finish / Workmanship & Materials
Interior finishes, cosmetic work, trim, flooring, paint, cabinetry, doors/windows, etc., must meet “industry standards” and be free from defects in workmanship and materials.
1 year from the close of escrow (or other date defined by statute) for those defects.
Plumbing, Electrical, Mechanical Systems
Plumbing, electrical, mechanical systems must be installed properly, function as intended, not materially impair habitability, and comply with building standards.
2 years for defects in systems (plumbing, electrical, mechanical) under SB 800’s standards.
Exterior Components / Water Intrusion / Moisture Barrier
Components intended to resist water intrusion (roofing, flashing, exterior walls, windows, moisture barriers) must remain weathertight; the so-called “moisture barrier” systems must prevent unintended water penetration.
5 years (for paint, surface coatings) or longer for major envelope or moisture barrier defects depending on the part of structure and the timing rules under the statute.
Structural / Major Structural Defects
The structural components of the home must perform for at least 10 years. “Structural defect” means a defect in the load-bearing portions, such that they fail to provide reasonable structural support and safety.
10 years after the date of “substantial completion.”
Other Building Standards
SB 800 provides many more performance standards in Civil Code § 896 (for example, requirements for site drainage, foundation, framing, sloping grade, separation of incompatible materials). Homeowners can assert claims for defects that violate those standards.
10 years for most standards not covered by shorter warranties, subject to statute of limitations provisions.
Why These Warranties Matter
These warranty obligations under SB 800 are a central part of the “right to repair” scheme. They:
Define which defects the builder must address under the pre-litigation and repair processes;
Fix the maximum time periods that homeowners can rely on the statutory warranty; and
Serve as a benchmark against which homeowners and builders measure repair obligations and disputes.
If a defect arises outside those time windows, a homeowner who tries to claim it under SB 800 may be barred – even if the defect is real.
Understanding California’s Right to Repair Act (SB 800)
1. What Is the Right to Repair Act?
California’s Right to Repair Act, also known as Senate Bill 800 (SB 800), is a law that gives homeowners in new residential developments certain rights when they discover construction defects.
It applies to new homes sold by builders or developers after January 1, 2003, and it sets out both building standards and a mandatory process for handling defect claims.
The goal of the Act is to reduce litigation by requiring homeowners and developers to try to resolve defect claims through a structured repair process before going to court.
2. How the Process Works
Here’s a simplified overview of the Right to Repair Act procedures:
Notice of Claim – The homeowner must send the builder a written notice describing the defects.
Builder’s Response – The builder has a short window (usually 14 days) to acknowledge receipt and can request an inspection.
Inspection and Offer to Repair – The builder can inspect the property and must either offer to repair the defects or reject the claim with an explanation.
Repair Process – If repairs are offered, the builder must make them within a reasonable time, following the statute’s timelines and standards.
Mediation Option – The law also allows for mediation before litigation begins.
These steps are mandatory – meaning the homeowner generally can’t file a lawsuit for construction defects until the repair process is completed or the builder fails to comply with the law’s deadlines.
3. What If the Developer Doesn’t Fix the Problems?
If the builder or developer fails to respond, refuses to repair, or doesn’t complete repairs properly or on time, the homeowner can then file a lawsuit for violation of the Right to Repair Act and other claims, such as negligence or breach of warranty.
Importantly, once the builder fails to follow the SB 800 process, the homeowner is released from the pre-litigation requirements and can pursue damages for:
The cost of repairs,
Relocation expenses,
Diminished value of the home, and
Other economic losses related to the defects.
4. What the Right to Repair Act Doesn’t Cover
The Right to Repair Act only applies to new residential construction sold by a builder or developer.
It does not apply to:
Custom homes built by a general contractor for an individual homeowner;
Remodels, additions, or renovations to existing homes; or
Commercial or mixed-use buildings.
If your contractor built or remodeled a home specifically for you – rather than selling you a completed home in a development — your rights and remedies are governed by traditional contract and tort law, not SB 800.
5. How SB 800 Changed the Law After Aas v. Superior Court
Before SB 800, California’s landmark case Aas v. Superior Court (2000) 24 Cal.4th 627 applied the economic loss rule to bar homeowners from recovering money for construction defects that had not yet caused property damage or personal injury.
Under Aas, homeowners could not sue under a negligence theory for purely defective or substandard construction — only for defects that resulted in actual property damage or bodily injury.
SB 800 was the Legislature’s direct response to Aas. It overturned the effect of the economic loss rule in residential construction cases covered by the Right to Repair Act (i.e., new construction sold by a developer to the public) by creating a statutory right of action for violations of building standards, even when the defect hasn’t yet caused physical damage.
In other words, under SB 800, homeowners in covered developments can now:
Bring claims for defects that violate specific performance standards (Civil Code § 896 et seq.), even if those defects have not yet caused damage.
Recover the cost to repair the defective conditions before they lead to further damage or safety issues.
However, this change applies only where SB 800 applies — namely, to new homes sold by builders or developers. For custom homes or remodels, the old Aas economic loss rule still governs, meaning homeowners may be limited to contractual remedies unless actual property damage occurs.
Bottom Line – The Right to Repair Act gives new-home buyers a clear, structured process for getting construction defects repaired – but it doesn’t protect everyone. Before assuming SB 800 applies to your situation, it’s important to know whether your home qualifies and whether your builder followed the law’s strict timelines.
Insurance Coverage in Construction Defect Cases — What’s Covered, and What’s Not
The Basics: What a CGL Policy Is Meant to Cover
Most California contractors carry a Commercial General Liability (CGL) policy – typically the standard ISO form. It’s meant to protect contractors against liability for accidents that cause bodily injury or property damage to others.
Under the standard ISO policy, the insurer agrees to pay “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies,” but only if the injury or damage was caused by an “occurrence.”
An “occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” So, in most construction defect cases, the critical question is whether the alleged damage was the result of an accident — as opposed to faulty workmanship alone
The Key Point: Defective Work Itself Is Not “Property Damage”
California courts generally hold that the cost to repair or replace the contractor’s own defective work is not covered. The CGL policy is not a performance bond — it doesn’t insure against the contractor’s failure to do the job right.
As one court put it, the purpose of these exclusions is to “make the contractor stand its own replacement and repair losses while the insurer takes the risk of injury to the property of others.” (Western Employers Ins. Co. v. Arciero & Sons, Inc. (1983) 146 Cal.App.3d 1027, 1031)
Common Exclusions Insurers Rely On
Here are the most commonly invoked exclusions in defective construction cases:
1. Damage to “That Particular Part” of Property (j)(5)
No coverage for property damage to “that particular part” of real property the insured or its subcontractors are actively working on.
Applies to damage during construction, not after.
Does not apply if defective work causes damage to other portions of the project. (Armstrong World Industries, Inc. v. Aetna Cas. & Sur. Co. (1996) 45 Cal.App.4th 1)
2. Faulty Workmanship (j)(6)
Bars coverage for property damage to “that particular part” that must be repaired because the insured’s work was done incorrectly.
Applies during construction.
The exclusion doesn’t apply to damage covered under the “products-completed operations hazard” (i.e., damage discovered after completion).
For a general contractor, “your work” usually means the entire project. (George F. Hillenbrand, Inc. v. Ins. Co. of N.A. (2002) 104 Cal.App.4th 784)
3. The “Your Work” Exclusion (l)
Bars coverage for damage to the insured’s own completed work — but not if the damage was caused by a subcontractor’s work.
This is often called the “subcontractor exception.”
It’s why general contractors sometimes have coverage for post-completion property damage caused by their subs. (Maryland Cas. Co. v. Imperial Contracting Co. (1989) 212 Cal.App.3d 712)
4. The “Your Product” Exclusion (k)
Bars coverage for damage to goods or products made or sold by the insured. In most construction contexts, homes or buildings are not considered “products.” (Maryland Cas. Co. v. Reeder (1990) 221 Cal.App.3d 961)
5. “Impaired Property” Exclusion (m)
Eliminates coverage for property that’s not physically damaged but is less useful because it incorporates defective work.
No coverage for mere loss of use when the problem can be fixed.
But coverage exists when there’s physical injury to other property. (Watts Industries, Inc. v. Zurich American Ins. Co. (2004) 121 Cal.App.4th 1029)
When Coverage Does Exist
Despite these exclusions, many construction defect claims are still covered — especially when:
A subcontractor’s defective work causes property damage to other parts of the project after completion.
The insured purchased a “broad form” endorsement, expanding coverage for subcontractor-caused damage.
The claim involves accidental consequential damage (e.g., water intrusion or fire) rather than the cost to redo the defective work itself.
This is where the Products-Completed Operations Hazard coverage applies — covering bodily injury and property damage that occur after the project is finished, as long as the damage arises out of the contractor’s or its subcontractor’s work and not uncompleted operations
Practical Takeaway
CGL insurance provides vital protection, but its limits are often misunderstood. Contractors should:
Review their policies carefully — especially the “your work” and “subcontractor” provisions.
Work with knowledgeable brokers to ensure they have Products-Completed Operations coverage and subcontractor exceptions.
Notify their carrier promptly if a defect claim arises — coverage often turns on timing and how the claim is presented.
Homeowners and property owners should also recognize that CGL policies are not warranties — they don’t guarantee perfect work, but they can provide important protection when defective work causes real damage.
When a Contractor Loses Their License Without Realizing It - The Hidden Trap of Lacking Workers’ Comp Coverage
In California, every licensed contractor who has employees is required by law to carry workers’ compensation insurance. What many contractors don’t realize is that if they’re required to have workers’ comp insurance but don’t, their contractor’s license is automatically suspended by operation of law—no notice from the Contractors State License Board (CSLB) required.
This rule comes from Business and Professions Code section 7125.2, which says that a license “is automatically suspended” during any period when the licensee is required to have but fails to maintain workers’ compensation insurance.
The California Court of Appeal confirmed this in Wright v. Issak (2007) 149 Cal.App.4th 1116, where a contractor lost his right to payment because his workers’ comp coverage had lapsed. The court held that the lack of insurance meant the contractor was not licensed during the job, even if he had been properly licensed before and after.
The Consequences - No Pay and Possible Disgorgement
If a contractor performs work while unlicensed—even unknowingly—the consequences are harsh. Under Business and Professions Code section 7031, the contractor:
Cannot recover any compensation for work performed while unlicensed; and
May have to disgorge (return) all money paid for that work if the client sues to recover it.
That means a contractor who lets their workers’ comp insurance lapse, even briefly, could find themselves forced to refund every penny they were paid on the project.
Bottom Line - Maintaining workers’ compensation coverage isn’t just about protecting employees—it’s essential to keeping your license valid. A short lapse can silently suspend your license and lead to devastating financial consequences.
The Harsh Reality of Working Without a Contractor’s License
It all begins with an idea.
California’s contractor license laws exist to protect the public from unqualified or dishonest contractors. Because of that, the penalties for working without a valid license are among the harshest in the nation.
California Business and Professions Code section 7031 is both a sword and a shield: it allows property owners to recover all money paid to unlicensed contractors while also barring those contractors from suing for payment. This harsh statute is designed to deter unlicensed construction work by making the loss of compensation absolute.
The Shield - No License, No Right to Compensation
Under Business and Professions Code section 7031(a), an unlicensed contractor cannot recover any compensation for work performed while unlicensed — even if the work was done perfectly and the owner knew about the lack of a license.
That means if a contractor was unlicensed for even one day during a job, they lose their right to be paid for all of it. Courts describe this as a “harsh rule,” but it’s meant to deter unlicensed contracting altogether.
The Sword - Disgorgement: Returning All Money Paid
Under Business and Professions Code section 7031(b), a property owner can sue to recover all money paid to an unlicensed contractor — known as disgorgement.
This strict penalty reflects California’s policy of protecting consumers over contractors’ financial losses. Courts have repeatedly upheld this as a necessary deterrent.
Note, however, that in Eisenberg Village of the Los Angeles Jewish Home for the Aging v. Suffolk Construction Co., Inc. (2020) 53 Cal.App.5th 1209, the court held that the statute of limitations for disgorgement under section 7031(b) is one year from completion or cessation of work. Property owners must act quickly if they wish to pursue the disgorgement remedy.
Bottom Line - California’s licensing laws are intentionally unforgiving. For contractors, the message is simple: stay licensed at all times. For property owners, verify licensing before and during your project — and act quickly if you discover a lapse.
California’s Often Ignored Rules for Home Improvement Contracts
It all begins with an idea.
What California Law Requires in a Home Improvement Contract
Home improvement contracts in California are strictly regulated under Business and Professions Code sections 7159 and 7159.5. These rules protect homeowners by requiring clear, written contracts that spell out the work, price, payment schedule, and key consumer rights.
The Main Requirements
Fixed Contract Price – The total price must be stated in writing. Time and material contracts are not allowed.
Down Payment – The down payment can’t exceed $1,000 or 10%, whichever is less.
Progress Schedule Required – The contract must include a clear payment schedule that shows when each payment is due and what work will be done before that payment is made. In other words, the homeowner should never pay ahead.
No Billing Before Work Completed – A contractor cannot collect payment for work not yet completed — except for the initial down payment, which is limited to the lesser of 10% of the contract price or $1,000. Each payment must match the value of the work actually completed or materials delivered.
Written Change Orders – Any change in price or work must be in writing and signed by both parties.
Start and Completion Dates – The contract must list approximate start and finish dates.
Right to Cancel Notice – Homeowners get three business days to cancel.
CSLB and Insurance Information – The contractor’s license number, workers’ comp status, and CSLB contact info must be disclosed.
CSLB Consequences
The Contractors State License Board (CSLB) may impose serious penalties for violating section 7159, including license suspension or revocation and civil fines.
Red Flags and Practical Experience
In my experience, contractors who ignore the home improvement contract requirements often ignore other laws too — hiring unlicensed subcontractors, not obtaining workers’ comp coverage, or performing poor-quality work. A bad contract – or no contract at all – is often a warning sign of bigger problems.
Bottom Line
A compliant home improvement contract protects both sides, but especially the homeowner. If your contractor does not have a compliant home improvement contract, they could face CSLB discipline, and it may be a red flag for potential other laws and details the contractor may later ignore.
Even a Licensed Contractor Can Lose It all if They Hire an Unlicensed Subcontractor
It all begins with an idea.
Many licensed general contractors assume they’re safe from California’s harsh penalties for unlicensed work – but that’s not always true. In Kim v. TWA Construction, Inc. (2022) 78 Cal.App.5th 808, the Court of Appeal confirmed that even a properly licensed general contractor can face the same “no compensation” and disgorgement penalties if they hire an unlicensed subcontractor.
The Rule Under Business and Professions Code Section 7031
Business and Professions Code section 7031(a) makes it clear: a contractor who is not “duly licensed” at all times during performance may not recover any compensation for the work performed. Subsection (b) goes further — allowing the property owner to sue for disgorgement, forcing the contractor to refund all money paid for the work.
The Kim court held that a general contractor cannot escape these penalties simply by claiming their own license was valid. If the general hires an unlicensed sub, the general is considered to have performed the unlicensed work — and loses the right to compensation for that portion of the project.
The Court’s Reasoning
In Kim, the homeowner sued for disgorgement after learning that the general contractor’s subcontractor was unlicensed. The court sided with the homeowner, finding that section 7031 applies to the entire “construction enterprise,” not just the individual who signs the contract.
The Court explained that allowing generals to benefit from unlicensed subs would defeat the purpose of California’s strict licensing laws, which are intended to protect the public from unqualified contractors and ensure accountability at every level.
The Consequences Are Severe
Even a short period of unlicensed subcontracting can trigger:
Loss of the right to payment for the affected work;
Disgorgement of money already paid under section 7031(b); and
Potential disciplinary action by the CSLB for aiding or abetting unlicensed activity.
Practical Takeaway
For general contractors, the message is clear: verify every subcontractor’s license before work begins — and monitor it throughout the project. A lapse by your sub can put your entire payment at risk.
For property owners, the Kim case reinforces that California’s licensing laws offer strong protection. If your contractor used unlicensed subs, you may have a right to recover what you paid.
Thinking About Firing Your Contractor? Read This First.
It all begins with an idea.
When a home construction project goes sideways, many homeowners’ first instinct is to fire the general contractor. But in California, that can be a costly mistake. Many construction contracts require that before an owner can terminate the contractor, the owner must first provide a written notice of default and a reasonable opportunity to cure the problem.
Failing to follow that procedure can turn the tables — instead of holding the contractor liable, the owner may be found to have wrongfully terminated the contract and breached it themselves
The Law: Strict Compliance Required
California courts strictly enforce contractual termination provisions. As the court explained in Clark v. Tide Water Associated Oil Co. (1950) 98 Cal.App.2d 488, failing to provide a written notice of default and an opportunity to cure is “fatal” to a claim for damages.
Similarly, Hansen v. Fresno Jersey Farm Dairy Co. (1934) 220 Cal. 402 held that when a contract requires written notice, an oral warning doesn’t count. The California Supreme Court in American-Hawaiian Engineering & Construction Co. v. Butler (1913) 165 Cal. 497 went further, holding that the notice must “fairly and fully advise the contractor of what the owner demands, and what the owner will do in the event of noncompliance.”
In short: if your contract says the contractor must get a written notice and time to fix the problem before being terminated, you must follow that procedure to the letter. Otherwise, the termination is ineffective, and you may lose your right to recover damages
Why the “Opportunity to Cure” Matters
California Civil Code §1511 provides that a party’s performance is excused if it is prevented by the act of the other party. That means if a homeowner fires a contractor without allowing them a chance to repair or complete the work, the contractor’s obligations are excused — and the homeowner can’t recover for alleged defects.
The purpose of this rule is practical: it prevents unnecessary litigation and gives contractors the chance to fix issues before the relationship is terminated. Courts view it as a matter of fairness and efficiency — both parties get the opportunity to make things right
Wrongful Termination = No Recovery
If an owner terminates a contractor without following the required notice and cure process, the owner’s claims for breach of contract and damages may fail entirely. Courts have consistently held that such terminations are “ineffectual and vain.”
In those situations, the owner not only risks losing their damage claims, but could also be liable for the contractor’s damages arising from the wrongful termination — including lost profits and unpaid balances
Practical Takeaway for Homeowners
Before you terminate your contractor:
Review your contract carefully. Look for any clause about “notice,” “default,” or “opportunity to cure.”
Put everything in writing. Oral complaints don’t count.
Give the contractor a fair chance to fix the problem. Courts require strict compliance with cure periods.
Consult an attorney before acting. A quick conversation with a construction lawyer can prevent expensive mistakes.
Terminating a contractor feels like taking control — but done the wrong way, it can cost you the right to recover anything at all.