Construction projects in Orange County present unique challenges and opportunities, from residential developments to commercial ventures. Navigating the legal landscape is crucial for ensuring the success of your project and protecting your rights as a developer, contractor, or property owner. At Baron Law Group, we specialize in providing expert legal counsel to construction professionals in Orange County. Contact us today to learn more about our construction law services.

Regulatory Compliance

Orange County has specific regulations and building codes that govern construction projects. Ensuring compliance with these regulations is essential to avoid costly delays and legal disputes. Our attorneys have a deep understanding of Orange County's regulatory framework and can guide you through the process of obtaining permits, addressing zoning issues, and meeting environmental requirements.

Contractual Agreements

Our legal team can help you draft and negotiate construction contracts that protect your interests and minimize the risk of disputes. We can also review existing contracts to identify potential pitfalls and provide strategic advice on how to mitigate risks.

The short answer is similar to when the RMO or RME disassociates from the corporation the entity has 90 days to obtain a new RMO or RME after the dissociation. Things are a little more complicated with the death of the RMO or RME.

The RMO or RMO or RME has to be replaced within 90 days of his death. See B & P Code Section 7083 below. Where it is a sole proprietor license an immediate family member, “can request a continuance of the license to complete projects in progress and undertake new work for a reasonable amount of time” (B & P Code Section 7076). The request must be made in writing to the CSLB within 90 days of his death and will likely result in the CSLB granting you a one-year continuance. The Board will require a change in the contractors bond, plus if any of the projects last for more than a year, you or another family member would be required to obtain your own license to continue contracting. B & P 7076(a). If the entity is a corporations pursuant to B & P Code Section 7076 a new Qualifier must be inserted for them to continue, B & P Code section 7065.1 provides for a family member, if they have worked in the business for 5 of the last 7 years to qualify for a license without taking the tests. Short of that there are people who have a license and will sign no to be the RME or RMO for a fee until you or someone in the family can obtain a license. The CSLB may also agree to a second 90 day continuance for the family to obtain a new RME or RMO.

Clients all call our offices claiming they have construction defects and want to sue a contractor. Construction defects are poor or bad workmanship, i.e. the door will not close because they put the jams in wrong. There is no insurance coverage for construction defects. Why is that important to know? Because if a contractor is a fly by night operation even if you get a judgment you may be faced with collecting a small amount from his/her bond but not being able to collect the whole amount because either the contractor does not have assets or he has been in this rodeo before and has hidden all his assets so well it will be impossible to collect from them.

That brings us back to resulting damage from construction defects. If a construction defect leads to or could lead to resulting damage then the contractor's General Liability Insurance Company normally will defend the action on the contractor's behalf. They do so with what is called a "reservation of rights." That means they pay for the attorney to defend the contractor but are not agreeing they have liability under the policy. What good does that do you, if they are paying for the contractor's attorney, that means he is not paying his attorney and you are paying yours. The good news is, normally the insurance company if resulting damage can be proven will enter into a settlement of your construction defect and resulting damage claims. Why would they do that if they don't think they have liability? They do it for several reasons, one, they may have liability if the contractor performed work that did result in damages to some other work and two they are paying attorneys fees and costs which they do not want to incur to later at trial have a judgment rendered against their insured which they might then be liable for in addition to the fees and costs they incurred in defending the contractor.

If you are entering into a remodeling contract you need to have an attorney review it prior to signing it. The contract will be for thousands of dollars and call for payments that you should not be making. If you hire an attorney to review it first it might cost you a lot less than if you get burned by a contractor who asks for money that he is not entitled to up front or during the work, leaving you with a partially completed project and no money to finish. Most home remodel contracts that go bad are because the homeowner trusted the Contractor and did not do their due diligence. The first step to a successful remodel is making sure you have a contract that protects you and not the Contractor. Most Contractors have drafted their form contracts to protect themselves and may even be violating the State Contractor's Law regarding remodeling contracts. Don't get burned spend a little money up front to save a lot down the road.

Many property owners get in disputes with their general contractor near the end of the project. They believe that their might be multiple mechanic's liens placed on their property by subcontractors of the general or material suppliers to the general or subcontractors. The only ones the owner has to worry about are those who served via Certified mail or personally 20 day preliminary notices on the owner, general contractor and the construction lender (if any). The 20 day preliminary notice must be served within 20 days of the subcontractor or material supplier first supplying labor or materials to the Project. However, a subcontractor or material supplier can serve it after the 20 days of first starting work but it only relates back to the work or materials supplied 20 days previous to the service of the Preliminary Notice. For example if a supplier of drywall ships drywall to the Project on May 1, 2021 and does not serve a Preliminary Notice until after May 21, 2021 they can not lien the project but if they serve the Preliminary Notice on May 22, 2021 and then ship more drywall on May 30, 2021 they can lien the Project for the second shipment of drywall but not the first.

Always contract an attorney regarding Mechanic's Liens and 20 day preliminary notices early on if there is any doubt.

The Preliminary or 20 Day Preliminary Notice is a form that is served or given within 20 days of a claimant, other than the Direct Contractor, providing labor or materials to the private works Project. Civil Code Section 8204 provides:

"(a) A preliminary notice shall be given not later than 20 days after the claimant has first furnished work on the work of improvement. If work has been provided by a claimant who did not give a preliminary notice, that claimant shall not be precluded from giving a preliminary notice at any time thereafter. The claimant shall, however, be entitled to record a lien, give a stop payment notice, and assert a claim against a payment bond only for work performed within 20 days prior to the service of the preliminary notice, and at any time thereafter.

(b) A design professional who has furnished services for the design of the work of improvement and who gives a preliminary notice not later than 20 days after the work of improvement has commenced shall be deemed to have complied with Section 8200 with respect to the design services furnished, or to be furnished."

https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=8204.&lawCode=CIV

The CSLB says a mechanic's lien is: A "hold" against your property, filed by an unpaid contractor, subcontractor, laborer, or material supplier, and is recorded with the county recorder's office. If unpaid, it allows a foreclosure action, forcing the sale of the property in lieu of compensation. https://www.cslb.ca.gov/Consumers/Legal_Issues_For_Consumers/Mechanics_Lien/What_Is_A_Mechanics_Lien.aspx

The mechanic's lien is a form filed with the county recorder of the county the property upon which the work or materials were supplied when one of the people listed in the statute was not paid for the work or materials supplied. It prevents the owner from selling or refinancing the property until the lien is removed. The lien can be bonded around i.e. a bond can be posted which in essence takes the place of the lien and the person supplying the labor or material then can pursue a lawsuit against the bond instead of the property. The lien can also be removed by the contractor releasing the property from the lien. Further, if foreclosure of the lien does not take place within 90 days of its filing the owner can demand release of the lien within ten days via certified mail and if the lien claimant fails to remove the lien the owner can petition the Court to have it removed and if successful the claimant must pay the attorneys fees for the petition.

The requirements of what must be contained in a home remodel contract are specified in Business and Professions Code Section 7159. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=7159.

The CSLB has a sample contract that can be reviewed to determine if your home remodel contract has the terms required by law to be included. https://www.cslb.ca.gov/About_Us/Library/Guides_And_Publications/default.aspx#GHICCONS

Violations of the contracting law can result in fines from the CSLB and even grounds for the contract to be terminated.

Consult with a licensed attorney to bring your home improvement contract into compliance.

Owners often believe that because work was done on their project a year or more ago they have no write to file suit against a contractor when the work proves to be defective. However, a lawsuit on the written contract can be filed up to 4 years after the contract was entered into. Further, the statute of limitations for patent defects (once that could reasonably observed after the construction takes place) is 4 years and the statue for latent defects (once that could not reasonably be observed i.e. a kinked pipe in the wall that starts leaking but no one sees it until there is mold on the drywall) is 10 years.

So, if you are experiencing construction defects within these time frames you can still file a lawsuit against the contractor.

So many client's of ours end up in trouble because they hire unlicensed subcontractors. They tell me I've used the guy a hundred times and his work is always good. He's cheaper than the other subs and does great work. But, Contracting with an unlicensed person violates the California Licensing Law at Business and Professions Code Section 7118. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?lawCode=BPC&sectionNum=7118.

Not only can you be disciplined including a fine and up to suspension or forfeiture of your license, but the owner could sue you for disgorgement of all monies it paid that you received for the unlicensed contractor's work under Business and Professions Code Section 7031. https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=7031.&lawCode=BPC

The disgorgement includes labor and materials, so if you already paid the unlicensed subcontractor and the owner finds out it will come after you for the refund and you will probably never get the money back from the unlicensed subcontractor.

If you are an owner and contracting for work on your property the first thing you should do when interviewing prospective contractors is check the CSLB web site to determine if the contractor is licensed by the California State Contractors Board. Go to: https://www.cslb.ca.gov/OnlineServices/CheckLicenseII/CheckLicense.aspx

Make sure the license number given matches the name of the contractor. If it doesn't there could be a problem with the person you are dealing with using someone else's license number and not really being licensed.

Next check to make sure they have the correct license. A General Contractor normally hires subcontractors to perform the work but might have his own employees performing non-specialty work. For example he may have his own crew come own and perform demolition but hire an electrician to perform wiring on your project. If people are performing work on your project like electrical or plumbing make sure they have the proper license to perform that work. Likewise, prior to signing a contract with a General Contractor ask for the name and license number of the subcontractors performing the specialty work and make sure they are properly licensed to perform that work and have workers compensation insurance if they are not a sole owner doing all the work on the project.

Contractors and homeowners beware, failing to pull permits is a mistake!

Contractors under the Contractor's State Licensing Law in California are required to pull permits on every project that a permit is required on. The Business and Professions Code governing contractors in California at Section 7090 creates a rebuttable presumption that construction performed without a permit is a willful and deliberate violation of the law. This means contractors can be fined and/or lose their license for failing to pull a permit when required. Worse they could end up sued by the Owner for the cost of any and all destructive testing or damage caused by failing to pull the permit.

Homeowners, don't pull your own permits! If you do so you become what is termed an Owner/Builder and have liability for workers injuries and if any issues arise with construction you could be liable for the mistakes. This could be very costly, if you are paying a licensed contractor to perform and supervise the work, make them pull the permits.

Likewise, homeowners, do not be fooled by a contractor telling you that you can save money by not pulling permits. The contractor is either worried about shoddy workmanship that he intends to perform or is trying to get the work underway and done quickly so he wants to avoid the wait for the permits and the delays and potential changes required by inspections. While it might be nice to save a few dollars on the remodel or construction by not pulling permits, homeowners should think twice. If a building inspectors sees work being done he can stop your project and potentially red tag it so you can't live there until permits are pulled and inspection of previous work performed. Further, even if you can hide the fact that work is being done, if there are no permits and you later sell the home you could be sued for failing to pull the permits and have to pay the new buyer to either come into code compliance or potentially tear out all the improvements done and start over. The risk is too high, don't let saving a few dollars on pulling permits create large issues later on.

The Code is clear that if at any time during the course of a construction contract a contractor is unlicensed it has no right to collect for the work performed or materials incorporated into the Project, with only one exception if they were license prior to entry into the contract or performance, acted reasonably and in good faith to maintain proper licensure and acted promptly and in good faith to restore their license. Otherwise, the Contractor must disgorge (return) all monies paid to it by the owner.

Business & Professions Code Section 7031:

(a) Except as provided in subdivision (e), no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that they were a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person, except that this prohibition shall not apply to contractors who are each individually licensed under this chapter but who fail to comply with Section 7029.

Thinking of remodeling your home, new kitchen, new bath? Before you sign a contract know what should be in the contract. Most Home Remodel contractors are not following the required law in drafting their contracts. The Contract is required under the Business & Professions Code to have numerous provisions. Most Contractors do not follow the Code which was enacted for your protection. Contractors don't follow the Code because a Court has held that failure to provide the notice required in the Code is a ground for disciplinary action; it does not, however deprive the contractor of the right to maintain an action on the contract. Gonzales v. Concord Gardens Mobile Home Park (1979) 90 Cal. App.3rd 871.

The Code provides as follows:

Business & Professions Code § 7159

(a) (1) This section identifies the projects for which a home improvement contract is required,

outlines the contract requirements, and lists the items that shall be included in the contract, or

may be provided as an attachment.

(2) This section does not apply to service and repair contracts that are subject to Section

7159.10, if the contract for the applicable services complies with Sections 7159.10 to 7159.14,

RMO stands for Responsible Managing Officer and RME stands for Responsible Managing Employee. In order for a corporation or LLC to be licensed they must have either an RMO or RME. The RMO or RME are the qualifier of the license and they are responsible for exercising direct supervision and control of the employer’s (or principal’s) construction operations. If the qualifier is an RME, they must be a bona fide employee of the firm and may not be the qualifier on any other active CSLB license. The RME must be permanently employed by the firm and actively engaged in the operation of the contracting business at least 32 hours per week or 80 percent of the total business operating hours per week, whichever is less.

An RMO can merely be an officer of the entity with no ownership but may have to post an additional bond for his/her license. If the RMO has at least ten percent interest in the entity, a license bond is not needed. However, if the RMO owns less than twenty percent (20%) ownership, the RMO is restricted to being the RMO to one corporation.

The same person may serve as the qualifier for more than one active license at a time provided that one of the following conditions exists:

You want to enter into a Home Improvement Contract with a client but don’t really like risking your own money to purchase materials. What can you do? You can request a downpayment but the downpayment is limited to $1,000 or 10% of the contract price whichever is less. But the Code Section in relevant part says:

B & P Code Section 7159.5 “This section applies to all home improvement contracts, as defined in Section 7151.2, between an owner or tenant and a contractor, whether a general contractor or a specialty contractor, that is licensed or subject to be licensed pursuant to this chapter with regard to the transaction.

(a) Failure by the licensee or a person subject to be licensed under this chapter, or by their agent or salesperson, to comply with the following provisions is cause for discipline:

(1) The contract shall be in writing and shall include the agreed contract amount in dollars and cents. The contract amount shall include the entire cost of the contract, including profit, labor, and materials, but excluding finance charges.

(2) If there is a separate finance charge between the contractor and the person contracting for home improvement, the finance charge shall be set out separately from the contract amount.

The case of Moorefield Construction, Inc. v. Intervest-Morgage Investment Company decided in September 2014, held that despite the priority mechanics' lien rights provided for by statute a general contractor could waive its mechanics' lien rights through signing a subordination agreement with the construction lender. In Moorefield, the construction lender required the general contractor to subordinate its mechanics' lien rights to those of the lender. When the project owner defaulted on the contruction loan the general contractor recorded its mechanics' lien for $2.2 million dollars and foreclosed upon the lien. The trial court held that the subortination was void because the lien rights were guaranteed under the California Constitution. On appeal, the court looked at Civil Code Section 3262(a) (which has been replaced in nearly the exact language by Civil Code Section 8122) and found that while the owner and the general contractor may not waive or release others claims the general contractor could release its own claim.

Thus, if you are acting as a general contractor do not agree to subordinate your mechanics' lien rights to the lender or if you are faced with no alternative be sure that there is adequate construction financing and controls in place so that a stop notice remedy will insure payment. Note that subcontractors cannot be compelled to waive their mechanics' lien rights, therefore if you as a general are, you should make absolutely sure all of your subcontractors and material suppliers take the steps necessary to perfect their mechanics' lien rights in case of a default by the ower.

CSLB can now take administrative action against any licensed or unlicensed contractor who commits violations related to the fraudulent use of a contractor license. Business and Professions Code Section 7114 prohibits aiding or abetting an unlicensed person to evade the provisions of the licensing law. or allowing one's license to be used by an unlicensed person, or acting as agent or partner or associate, or otherwise, of an unlicensed person with the intent to evade the provisions of the licensing law and constitutes a cause for disciplinary action. A licensee who is found by the registrar to have violated the law can be ordered to pay a specified sum to an injured party, including, but not limited to, payment for any injury resulting from the acts of the unlicensed person.

A bond of Qualifying Individual is required if the license is qualified by a Responsible Managing Empolyee (RME). The bond is in addition to the bond for the license. A bond is required for a Responsible Managing Officer (RMO) if the officer does not own at least ten percent (10%) or more of the voting stock of the corporation. The bond amount is $12,500. The bond must be written by a surety company licensed through the California Department of Insurance. The business name, license number and qualifier's name must appear on the bond and be exactly the same as the information on the CSLB's records. The bond must be received at the CSLB's Headquaters Office within ninety (90) days of the effective date of the bond.

When you file a lawsuit in California claiming you are a license contractor be ready to prove it at trial or lose. Business & Professions Code Section 7031(d) requires that you prove you were licensed at all relevate times during the contract you are trying to collect on and in the category of license that you would need to perform the work.

It states: "If licensure or proper licensure is controverted, then proof of licensure pursuant to this section shall be made by production of a verified certificate of licensure from the Contractors' State License Board which establishes that the individual or entity bringing the action was duly licensed in the proper classification of contractors at all times during the performance of any act or contract covered by the action. Nothing in this subdivision shall require any person or entity controverting licensure or proper licensure to produce a verified license. When licensure or proper licensure is controverted, the burden of proof to establish licensure or proper licensure shall be on the licensee."

So how does your opponent controvert licensure or proper licensure? All they have to do is file the normal general denial to your complaint and your license becomes an issue. If you and your attorney show up at trial and do not have a "verified certificate of licensure from the CSLB establishing you were licensed in the proper classification of contractors at all times during the performance of any act or contract covered by the action" you will lose by default. Think you can just run back to the office and make a quick call to the CSLB or get a continuance to produce the document? Think again! The Appeals Court in Advantec Group, inc., v. Edwin's Plumbing Co., Inc., 153 Cal. App.4th 621 (2007)ruled that on the cross-complaint filed by the plumber therein that because the plumber failed to have the certificate from the CSLB the trial court granted a nonsuit (i.e. the plumber lost his cross-complaint) and the Appellate Court confirmed the trial courts ruling. The plumber asked for a continuance of trial to obtain the certificate and the trial court denied the continuance and the Appellate Court ruled that the denial was proper. The appellate court held that by filing a general denial to the cross-complaint the cross-defendant controverted the licensing and the plumber was required to have the verified certificate ready at trial and that failure to do so constituted grounds for the nonsuit.

So may contractors call stating they have a problem and are not being paid for the work they did. The first question that we ask is what does the Contract say. Amazingly, most contractors respond: "I don't know." The problem that is most prevalent in the construction industry is that Developers and General Contractors have become very sophisticated when it comes to drafting contracts and make them very one sided in their favor. Most Generals and Subcontractors want the work at the price they quoted so they will sign just about anything that is sent to them, happy to get the job. It is not that expensive to have an attorney review the contract prior to your signing it and while 80% of the time there will probably be no issues and the job will go smoothly those other 20% of the times the contract and its terms come into play. If you made changes to eliminate the favoritism toward the Developer or General you will be happy you spent a few dollars when litigation happens. Clauses such as arbitration and mediation can cost you thousands of extra dollars. Other clauses can force you into working overtime when the owner feels you are moving too slow. Clauses can subject you to penalties if you don't complete on time. It makes sense to know what the bargain is before you sign the contract. Call and we will gladly assist you with suggested changes before you sign on the dotted line.

Construction Contracts have not typically contained escalation clauses but in the age of Covid they may be a necessity.

An Escalation Clause is merely a paragraph in the contract that states in essence, the Contractor is basing the pricing on the current cost of material and labor and because of factors beyond the control of the contractor, i.e. the drywall price is $X per square foot, if that increases above 5% the Owner agrees to pay the escalation in price.

A Sample Escalation Clause might read:

ESCALATION CLAUSE FOR SPECIFIED BUILDING MATERIALS

The contract price for this residential construction project has been calculated based on the

current prices for the component building materials. However, the market for the building

materials that are hereafter specified is considered to be volatile, and sudden price increases

could occur. The Builder agrees to use his best efforts to obtain the lowest possible prices from

available building material suppliers, but should there be an increase in the prices of these

specified materials that are purchased after execution of contract for use in this residential

construction project, the Owner agrees to pay that cost increase to the Builder. Any claim by the

Many homeowners do not check on a contract with the CSLB to determine that they are licensed and that they carry worker's compensation insurance. It's easy to go to the CSLB web site and put in the license number on the contractors card or their name and see if they are licensed and carry workers compensation insurance. Go to: https://www.cslb.ca.gov/OnlineServices/CheckLicenseII/CheckLicense.aspx and check them out. Some contractors will show they have no employees and therefore do not need workers compensation insurance. That is fine if they are hiring only licensed subcontractors to perform the work, but if they are bringing their own crew to do work and they have no workers compensation insurance and someone gets injured then the homeowner can potential have liability. Just think if someone falls from the 2nd story or gets electrocuted installing the 220 line for an appliance. The potential liability could be horrendous. If the contractor shows no workers compensation insurance ask for the name and license number of all the subcontractors working on the project and check them out. General Contractor's are always trying to avoid paying for workers compensation to make more profit. Protect yourself with these easy steps.

The project was going along smoothly but you started to notice things were not quite what you expected. Issues with electrical or plumbing, new windows leaking when it rains, flooring misaligned and a myriad of other mistakes that should not be made. What do you do? Documentation is the key. Take pictures, write to the contractor via letter not text and not verbally. Point out what appears to be incorrect and ask that it be corrected. Note that if corrections are not made that payments will be stopped. But what if the contractor walks off the job? That is the difficult choice owners have, do they stop payments and risk the contractor walking away, or keep paying, keep documenting and wait until the end of the project and withhold final payment, hire an attorney and expert and sue for construction defect damages. If you notice defects you should immediately contact an attorney to, at the least, monitor and advise you as you proceed. Have the attorney review your contract and see what rights you have to terminate the contractor or withhold payment. Lawsuits are expensive and completing a half finished project that has defects is difficult but the alternative is potentially have more issues in the long run that could be worse that mere aesthetics.

When you sign a contract with a client everyone is happy, but it may not always remain that way, that is why you need to think about collection as soon as the contract is signed. Hope for the best but prepare for the worst. You need to get a Preliminary 20 day Notice sent out as soon as the Contract is Signed. If you can’t find the form call our office and we will provide one. Preliminary Notices are required by all subcontractors and if there is a lender or you are contracting with someone other than the owner of the real property (i.e. a tenant) they are required for Prime or General Contractors. The form must contain the name of the owner or reputed owner, the contractor (if you are a subcontractor) who you are contracting with, and the name of any construction lender. The form must be mailed certified return receipt requested to each of the parties listed or personally delivered with proof of delivery. The form must contain a general description of the work you are performing and the approximate dollar amount of the work to be performed. Ask for this information immediately after the contract is signed, the owner and/or general/prime contractor is required to provide it.

Construction contracts universally contain a requirement that any change order or extra work order be in writing and signed prior to the work being performed. Generally, when project directives are issued that change the scope of work but no formal written change order is issued or amount for the change agreed to, it leads to a constructive change. Such constructive changes have long been the subject of much dispute in the construction industry.

However, the California Appellate Court for the first district in Ted Jacob Engineering Group, Inc. v. The Radcliff Architects (2010) 187 Cal. App.4th 945, 114 Cal.Rptr.3rd 644 held that when the parties agree to a sum for a certain scope of work and the work changes during the course of the project that even though no written agreement was signed by both parties for the change in scope and the cost thereof, it is understood that the contractor may either stop work or proceed and subsequently pursue fair and reasonable compensation for such work.

The Court stated that: “[t]o hold otherwise would compel a contractor to walk off the job in the face of what it believes to be major changes in the scope of work required of it with significant consequences if its judgment is later proven wrong, or alternatively forfeit any right to seek compensation for that work, regardless of the extent of the additional burdens imposed.” Id. at 966