Do You Need a Contractor's License?

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Who Should Be LicensedThe rules for licensing contractors varies from state to state, but most states require a license for home-improvement trades such as construction, HVAC, plumbing and electrical work.

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Know Your Local Laws

Not all states strictly enforce licensing laws, but many do.

Cities and counties may also require licenses in addition to state licenses.

Licensing CostsThe fees to obtain a license vary by state, but aren’t typically cost-prohibitive.

As an example, below are the costs for a general contractors license in Florida (as of 2014)

● Application fee: $200-400● Exam fees:

○ $135 paid to state licensing board○ $80 paid to state dept. of business and professional regulation

In at least 39 states, licensed contractors must also carry workers' compensation, liability, and property damage insurance.

A Licensed Contractor Is Protected Against Workplace Injury

A contractor's license requires worker's compensation insurance.

If your employee falls off a ladder and breaks a bone, the insurance company will pay the bill. This keeps many businesses from going bankrupt.

Street Art - Falling Off The Property Ladder by William Murphy is licensed under CC BY 2.0 - https://www.flickr.com/photos/infomatique/5465865674

What If You Are Injured and Not Licensed and Insured?

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If a contractor is working in a home and is injured on the job, the employee could sue the homeowner for medical bills and lost wages. This is not good for your business reputation.

A licensed and insured contractor protects their clients from these types of risks

Fines and Criminal Charges

Contractors who are caught doing contracted work without a license will be fined.

For repeat offenses, the fines are often increased and the contractor may face criminal charges.

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Having a License Makes You Trustworthy

A license shows your clients that you aren't a fly-by-night contractor. It proves that you have the knowledge and you know your trade."Contractors review plans" by U.S. Army Corps of Engineers is licensed under CC BY 2.0 - https://www.flickr.com/photos/usacehq/5056771149

Tax BenefitsLicensed contractors can often legally write-off business costs such as gas, tools, trucks, and office space (home or commercial space)

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Legal ConsequencesIf something goes wrong on a job, such as an employee suffering an injury, a lawyer can use your lack of license against you as evidence of negligence.

According to the Florida Bar, there are least 8 possible consequences that can result from unlicensed contract work:

● Loss of contractor’s contract rights● Loss of lien and bond rights● Treble Damages (permits a court to triple the amount of damages awarded to plaintiff)● Damages for violation of building code● Administrative sanctions● Criminal penalties● Possible action for "disgorgement" (being forced to give up profits)● Cause of action for "unfair trade practice" (unfair methods of competition)

Unlicensed work performed under a contract is not a defense in court (see Earth Trades, Inc. v. T&G Corporation)

Other Drawbacks of Not Being LicensedIn some areas, you might not be able to get a permit for the work you want to do.

You are limited to the number of jobs you're legally allowed to work annually.

Licensed work increases the value of the building. Construction performed without a permit does not help in the sale of a building.

Without permits and inspections (which is required for licensed contractors), homeowners insurance may deny a claim if there is a fire or other disaster, whether or not it was the contractors fault, because the insurance company can't prove that the construction met minimum code. The homeowner will usually come after the contractor for damages in these cases.

Thank You For ReadingFor more information about construction law, visit http://www.gouldcooksey.com

The information contained in this presentation is general information and should not be construed as legal advice to be applied to any specific factual situation.

Sources:

http://www.contractortalk.com/f11/advantages-contractors-license-15138/index2/http://www.myfloridalicense.com/dbpr/pro/cilb/index.htmlhttp://www.angieslist.com/articles/how-unlicensed-contractors-can-cost-you.htm