NARI of Greater Sacramento

TECHIE NIGHTMARES

Written by: Bryant H. Byrnes, Esq. (practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors) and Brian J. Trowbridge, Esq. of Trowbridge Law Office (practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area)

We all know who these critters are; I am referring to nouveau rich techies. They are spreading over the known universe. We all know one, or have met one, or know someone who has met one. And because they are all richer than god – and godlike, they need their temples and monuments. This is a generalization of course and not all techie’s are bad clients, but the following scenario is real. Regardless of the client’s background, these issues are more common in large, high end projects.

Generally speaking, the building trades want these people as clients. At least that’s true in the abstract.

The Situation. The reality can be much grittier and unpleasant. A recent scenario (and not the first I have seen in recent times) is as follows. The job was a dream come true – the techie residence was in the right part of Silicon Valley (i.e. accessible). It was a terribly, terribly high-end home; large scope, lots of money. It filled most of the dance card schedule of the general contractor for the next year.

The contract used was the standard one, including a schedule of payments and provisions for written and signed change orders. The agreement was signed by both parties.

And the job went well, at least for awhile. It included a number of owner requested change orders. Mid-job, there were a slew of them. They amounted to several hundred thousand dollars.

Because the client had signed and paid the previous change orders, the contractor did the work without the new signed change orders in hand.

Punked! Suddenly the techie/CFO/self-appointed big shot said, “I am not paying the full amount of the change orders. In my opinion, you are otherwise being fairly compensated.” He then marked up the Change Orders, reducing them as he deemed “appropriate”, signed them and paid them. The reduction was about 20% overall.

This fine fellow also made clear if there was any work stoppage or other such nonsense, the general contractor would be buried by the client’s attorneys.

Huh?

Front-End Measures. One can be proactive and preventative in both contract negotiations and early performance.

  • In the pre-job contract negotiations, make change orders and payment a key point of discussion. Be sure the parties are in clear agreement.
  • Screen the client. Is he or she a hard ass from the beginning? – contractor beware.
  • In the contract, make the payment schedule require frequent invoices and equally frequent payments. If possible, you want to send the invoices once a week and have a very short time frame (perhaps four days) as the turn around for payment being due.
  • Always get all Change Orders signed before the work starts. This requires that you have a representative of the clients available or the means to have the client to review and sign. While this is tough love, it is also fair and expedient.
  • Consult your attorney (of course). He/she my have further suggestions.

Past the Apocalypse. If, worse luck, your client turns on you and declines to pay, you have several choices. They include:

  • Stop work for nonpayment (hopefully per a contractual term) and negotiate payment.
  • Claim a breach of contract; terminate the contract, proceed to the dispute resolution; file a Mechanics’ Lien. The danger here of course is that the big shot may follow up on his or her claim to overwhelm you with pit-bull attorneys.
  • Simply accept the situation. But if you are going to take the hit, at least first put up a fight. Pushing back on a bully will probably lessen the likelihood that the client continues this kind of behavior for future payments.
  • Discuss the situation with your attorney (of course).

Also be sure that you accept no more unsigned Change Orders. You might consider simply not accepting following Change Orders at all.

In summary. You need to screen the client (of course). If you get a lot of guff during the contract negotiations or at the beginning of the job anticipate this kind of bad behavior. Consider if this is really a job that you want to take – as is obvious from the above comments, your options are limited if things go south.

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Questions? Bryant’s website is www.bryantbyrnes.com. Feel free to contact him by email at Bryant@bryantbyrnes.com. Brian’s website is www.trowbridgelawoffice.com and you can email him at btrowbridge@trowbridgelawoffice.com.

For Bryant’s previous articles, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.” They are also available on his website under “Articles,” and on Brian’s website under “Publications.”

As always, these articles are summary discussions only – to simply give you a heads up on various construction topics. The information contained herein is not legal advice. Every scenario is different and if you need legal advice, you should contact an attorney immediately.

MECHANICS’ LIENS – THEY CUT BOTH WAYS

Written by: Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors and Brian J. Trowbridge, Esq. of Trowbridge Law Office practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area.

In the last month, three separate lien matters have landed upon my desk.

  • A general contractor, who fired subcontractor for negligent work, was paid back by that subcontractor recording a mechanics’ lien on the job.
  • A homeowner, asking too many questions of an increasingly lax general contractor, received a recorded lien by that contractor as a push back – kind of a “screw you”.
  • A general contractor, engaged in long fight with a homeowner about a final bill, filed a lien to protect his rights when he found out the homeowner had listed the home for sale without informing him.

The topics below came up in the three current matters. While some if not most of the following discussion has been in previous columns – and there are many, many books and articles on the subject – the mechanics’ lien is a sufficiently important subject that it merits periodic review.

Technical Requirements. Today’s mechanics’ liens now are not your grandfather’s liens. In addition to the specific and technical requirements of the lien document content, recording the lien itself has become more complicated. Starting in 2012, a claimant needs to prepare and record three separate documents – the claim of the lien, a notice, and a proof of service – as opposed to only the claim of lien form.

So if you haven’t recorded a mechanics’ lien for a number of years, make sure you are familiar with and abide by the present recording requirements.

Exacting Content Requirements (What To Include/Look For). This is the other side of the coin to the above section. In addition to the very strict (and short) timing requirements of when one must record the mechanics’ lien with the county recorder, one must get the contents right and all of the required information included.   We have one recent example of failing to do this – a lien that had the proper names but did not include the required addresses.

Tactical Considerations. The recording of a lien is usually going to be fuel on the fire; it is going to escalate the dispute. Unless this is the desired consequence, be sure the lien amount is worth it. A mechanics’ lien for $500.00 rarely makes sense.

The specific circumstances matter. Usually, if the dispute is not settled a mechanics’ lien must be “perfected” within the 90 days of recording. This means that the litigation must be commenced.

There are two situations where a mechanics’ lien has maximum effectiveness: first, when there is a sale of the property pending; and second, when a loan has not yet closed. Because a recorded lien becomes part of the record of title of the property, buyers/lenders/title companies usually won’t complete the sale or loan unless they are removed.

Don’t Forget the Preliminary 20-Day Notice. If you are not in direct contract with the homeowner, meaning you are a subcontractor or supplier, you must provide a proper Preliminary Notice (aka 20-Day Notice). This should be provided before work begins or before materials are delivered. At the latest it should be sent within 20 days of beginning work or delivering materials.

The Take Away. When properly used a mechanics’ lien is an effective collection tool. But the above pointers are merely the tip of the iceberg in terms of necessary tasks and concerns – preparation and recording must be done carefully and properly. Unless you’re both an old hand at this and current on the present requirements, it goes without saying it’s a good idea to consult with counsel.

And do so sooner than later. In addition to the litany of procedural requirements, the time periods involved are short, and sometimes can be made even shorter by a clever adversary.

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Questions? Bryant’s website is www.bryantbyrnes.com. Feel free to contact him by email at Bryant@bryantbyrnes.com. Brian’s website is www.trowbridgelawoffice.com and you can email him at btrowbridge@trowbridgelawoffice.com.

For Bryant’s previous articles, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.” They are also available on his website under “Articles,” and on Brian’s website under “Publications.”

As always, these articles are summary discussions only – to simply give you a heads up on various construction topics. The information contained herein is not legal advice. Every scenario is different and if you need legal advice, you should contact an attorney immediately.

CALIFORNIA GENERAL CONTRACTORS – MULTIPLE TRADES

Written by: Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors and Brian J. Trowbridge, Esq. of Trowbridge Law Office practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area. 

Other than carpentry or framing, can general contractors (Class B) perform contracts for projects that involve less than two unrelated building trades?

The law governing the classifications are set forth in California Business & Professions Code Sections 7008 and 7056-7059 and is regulated by the California’s Contractors State License Board (CSLB), which issues licenses for three classifications. For those who haven’t taken the licensing test in recent times, they are:

  • Class A general engineering contractor – whose principal business is in connection with fixed works requiring specialized engineering knowledge and skill;
  • Class B general building contractor – whose principal business is in connection with any structure built, or to be built, requiring in its construction the use of at least two unrelated building trades or crafts.; and
  • Class C specialty contractor (which includes an extensive number of
    subcategories) – whose principal business is in connection with specialized trades requiring use of the contractor’s art, experience, science and/or skill to construct and complete projects under their classification.

There are differing opinions and interpretations of the rule regarding “Class B” general building contractors and their ability to take “multi-trade” contracts. The Business and Professions Code Section on point states in relevant part – and emphasis added:

7057. (a) Except as provided in this section, a general building contractor is a contractor whose principal contracting business is in connection with any structure built, being built, or to be built, for the support, shelter, and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of at least two unrelated building trades or crafts, or to do or superintend the whole or any part thereof.    (b) A general building contractor may take a prime contract or a subcontract for a framing or carpentry project. However, a general building contractor shall not take a prime contract for any project involving trades other than framing or carpentry unless the prime contract requires at least two unrelated building trades or crafts other than framing or carpentry, or unless the general building contractor holds the appropriate license classification or subcontracts with an appropriately licensed contractor to perform the work. A general building contractor shall not take a subcontract involving trades other than framing or carpentry, unless the subcontract requires at least two unrelated trades or crafts other than framing or carpentry, or unless the general building contractor holds the appropriate license classification. The general building contractor shall not count framing or carpentry in calculating the two unrelated trades necessary in order for the general building contractor to be able to take a prime contract or subcontract for a project involving other trades.

Historically, the CSLB has interpreted § 7057 (which was first enacted well back in the day in 1947) as a Class B licensed contractor may only take a contract for any project involving trades other than framing or carpentry unless the prime contract requires at least two other unrelated building trades or crafts and a licensed individual performing two or fewer trades must possess a valid specialty license a “Class C” license, as discussed below. The CSLB does not limit the “B” to self-performing as many trades as he or she may choose (with some specific exceptions such as fire protection or well drilling) and contractors may also take a general building contract and sub-contract 100% of the job as long as they use properly licensed sub-contractors for each trade or craft.

In 1996, a general contractor that took contracts involving less than two unrelated trades and subcontracted out 100% of the job to properly licensed sub-contractors took its case to the California Court of Appeals in Home Depot, U.S.A., Inc. v Contractors State Licensing Board.

The Court looked at the CSLB’s regulation prohibiting a licensed general building contractor from taking a contract or subcontract unless the contract involves at least three unrelated building trades or crafts or the contractor holds the required specialty license and concluded that it is invalid in some circumstances. The Court looked at the legislative intent of § 7057, which was not to protect specialty building trades, but “enacted for the safety and protection of the public against imposition by persons inexperienced in contracting work, and for the prevention of fraudulent acts by contractors…”

The Court examined § 7057 for the definition of a Class B general building contractor and interpreted the statute: “Contrary to the Board’s position, this statutory definition does not limit a general building contractor’s operation solely to contracts involving more than two unrelated building trades or crafts. …. The language of § 7057 allowed a general building contractor to accept contracts that require the use of two or fewer building trades or crafts and still be acting within this license classification so long as the contractor’s principal contracting business is in connection with structures that require the use of two or more unrelated building trades or crafts in their construction.”

The Court noted that nothing in the language of § 7057 required a general building contractor to absolutely limit his or her contracting work to projects involving more than two unrelated building trades or crafts and concluded that the CSLB’s interpretation of § 7057 as regulated in its rule 834(b) is invalid. However, probably as a result of the Home Depot case, the legislature revised Business and Professions Code § 7057 shortly after, in 1997. Under the current version of Section 7057 (see above) there are different rules for taking a prime contract versus taking a subcontract.

 The statute now provides that a General Contractor may enter into a prime contract for two or fewer unrelated building trades or crafts as long as: (1) the contractor holds the appropriate specialty license, or (2) the contractor subcontracts with an appropriately licensed contractor to perform the work. However, a General Contractor shall not take a subcontract involving trades other than framing or carpentry unless (1) the subcontract requires at least two unrelated trades or crafts (not including framing or carpentry), or (2) unless the General Contractor also holds the appropriate specialty license classification.

How does this judicial ruling and statute affect the general contractor?

The CSLB will allow a general contractor to take a prime contract that involves two or fewer specialty trades (not including carpentry and framing) as long as the general contractor subcontracts with an appropriately licensed specialty contractor to perform the work. However, as a general contractor you can only take a subcontract if it requires at least two unrelated trades or crafts or is limited to framing or carpentry.

A “quick” rule of thumb, if a job requires three or more trades or crafts, not including framing or carpentry, a general building contractor is allowed to contract for such project whether it is a prime or sub- contract. If there are less than three trades or crafts involved, it depends on whether you are entering into a prime or sub- contract and you should check the current rules.

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Questions? Bryant’s website is www.bryantbyrnes.com. Feel free to contact him by email at Bryant@bryantbyrnes.com. Brian’s website is www.trowbridgelawoffice.com and you can email him at btrowbridge@trowbridgelawoffice.com.

For Bryant’s previous articles, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.” They are also available on his website under “Articles,” and on Brian’s website under “Publications.”

As always, these articles are summary discussions only – to simply give you a heads up on various construction topics. The information contained herein is not legal advice. Each scenario is different and if you need legal advice, you should contact an attorney immediately.

RECURRING THEMES IN BUSINESS ENTITY/LICENSE CHANGES AND OTHER LICENSING TIDBITS

Written by: Bryant H. Byrnes, Esq. (practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors) and Brian J. Trowbridge, Esq. of Trowbridge Law Office (practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area)

CSLB Approval Required for Change in Business. For those of you contractors who may be considering changing your business from a sole proprietor to a corporation (and it is generally a good idea), you should beware that the Board requires notification and issuance of a new license for such business entity changes. Licenses are associated with the business and not necessarily the qualifier. Thus, licenses are not really simply transferable from one business to another, even if the qualifying person is the same for both.

To obtain this new license, one must submit a new Application for Original Contractors License (Exam Waiver). (If you previously took the exam for your current license, passed it, and are applying for the same classification previously held, no exam is required.) One must pay the required fees (of course), post a new bond, and provide proof of workers’ compensation insurance (or file an exemption) for the new business under the new business name.

Like Your Old License Number? There are a few exceptions where the Board will allow one to keep the old license number. For example, if the original license is for a sole ownership business which is incorporating and the sole owner/qualifier will own more than half of the corporation, the original license may be reissued. A request must be submitted with the application.

Wait For It! Remember, until you are approved and the new license is issued by the Contractors State License Board (or until the license is reclassified by the CSLB), one cannot contract in the name of the new corporation without the proper license in hand. I suggest submitting the application as soon as possible to the Board to avoid any lapse in licensing.

This can be confusing; let me give the most common example. Incorporation starts with the Secretary of State, which is a different and separate governmental critter from the Board. One files the Articles of Incorporation with the Secretary of State. When the stamped Articles are returned, this indicates the entity is now a corporation and open for business. Many contractors at this point presume the process is complete. But further approval is needed from the Board – which takes several months – before the new corporation can do business as a contractor.

Essentially, there is a point where the corporation is in existence, but the contractors’ license has not yet been transferred/reissued to the corporation (the board can be slow in doing this). You cannot contract as the corporation until a new license is issued or the previous one is reissued.

When the business type changes and the contractor starts operating as a corporation but a new license is not issued, the risk is huge – the business faces all the legal risks of being an unlicensed contractor. This includes exposure of the contractor to the Business & Professions Code Section 7031 requirement of disgorgement of all monies paid by a client.

Properly Licensed as a Partnership? Contractors will sometimes loosely use the term “partner” or “partnership.” Be careful in this situation. The Board considers a partnership a separate entity – like a sole proprietorship or corporation – that requires a separate license. I recently came across an issue with a contractor client regarding whether the business was properly licensed as a partnership. The contractor was licensed as a sole proprietorship, but the business perhaps operated as a partnership.

Be sure that you are operating in a manner that aligns with the entity type the CSLB has on file for you. If you are a partnership you should consider incorporating for additional protections.

Corporate License Stays with the Corporation. We note that once you have a new contractors’ license issued to a corporation, or your sole proprietor license reissued to a corporation, that license number stays with the corporation. If for some reason you need to change entities or create a new entity, you should be entitled to apply for a new license with exam waiver, but you will receive a new license number.

Member News & Events

News

Emser Tile has teamed up with Homes for Our Troops and has several local projects coming up and they could really use your help.  Everything is needed from labor to supplies.  Contact Karl Kruger (916.361.1900) for more information.  For more about Homes for Our Troops click here.

Floor to Ceiling Kitchen, Bath & Flooring is looking to hire a designer.   Must be proficient in:
20/20 proficient/ordering
cabinets/follow up to delivery
Consultations with potential clients
Sales/Product selection
In home measuring
If interested please contact Debbie Paulson (916.714.7723)

 

If your company has news or an upcoming event you would like us to post please email the details to admin@narisacto.org.

YOUR FRIENDLY SMALL CLAIMS COURT

Written by: Bryant H. Byrnes, Esq. (practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors) & Brian J. Trowbridge, Esq. of Trowbridge Law Office (practices construction law, business law, succession and estate planning, and employment law in the San Francisco Bay Area)

Occasionally a contractor will have a client that does not pay for the work done. If the amount owed is small to moderate, a small claims action may be the cost-effective means of recovery.

For the typical contractor, small claims court is a dreaded prospect. He or she is concerned about lost work time, snarky judges who hate contractors, and unsatisfactory results.

We disagree. Done properly, small claims court can be a great way to recover on a claim against a deadbeat client.

Jurisdiction/Money Limits. In small claims court, the monetary limits for claims are $5,000 for businesses and $10,000 for individuals and, now, sole proprietors.  Anyone can file as many claims as they want for up to $2,500 each. However, they can only file 2 claims in a calendar year for more than $2,500.

But even if one has a claim for more than $5,000 (or $10,000 for a sole proprietor), if the claim is not for substantially much more consider the option of small claims. I believe the better practice in such a case would be to state the full amount – for example, $8,000 owed – but then ask for the maximum of $5,000 (or $10,000). This may incline the small claims judge to slop it over a bit and award you the $5,000 maximum in damages.

Venue. As a technical legal term, this means the proper specific courthouse in which to bring your claim. Every large county probably has four or five different possible courts for small claims.

As you will see in the court paperwork when starting the action – which is on your appropriate Superior Court website online – the “proper” venue can be one of several places. In a breach of contract claim it can be where the work was done – or where the defendant has his residence. Be careful to get this right.

Complaint. This is the document which procedurally starts the lawsuit by stating what the claimant (the “plaintiff”) wants. For small claims, it is essentially a fill-in-the-line/check-the-box form online.

Filing the Complaint. I always think it is best to be filed at the proper court by hand rather than mail. Not only will the filing process go much more quickly, but you usually also have some say as to court dates.

Service. “Service” means being sure the other party properly receives the notice of the case. If they are not properly served, they don’t have to show up. It is always my recommendation that you use a professional process server who knows the tricks of the trade. Check online or ask your attorney for a recommendation.

What you will get back from this process person upon successful service is a “proof of service” document, stating that the person was served. It must be filed with the court at least five days before the proceeding.

The Small Claims Trial in General. It takes place in a regular Superior Court courtroom, but the differences from a regular trial are several. First, no attorneys are allowed to represent parties. Second – and quite importantly – most of the judges are not regular superior court judges. They are older, experienced volunteer attorneys who get a thrill from wearing a judge’s gown and pounding the gavel. They may be probate specialists, criminal defense attorneys, or in personal injury and may not know a lot about breach of contract and/or construction. That is why I think the “small claims brief” discussed below is an important tool for your success.

The Hearing Itself. What if the other party, the defendant, does not show up? Easy; you win if your paperwork is in order.

It is when the defendant does show up that you have some work to do. This is when a small claims brief is golden.

The Brief. A “brief” is a written statement setting out the legal position of a party. Here it should be short, about two or three pages.

Your small claims brief should have a brief recital of the facts (no pun intended), a brief statement of relevant law, and the attachments of documents to your case. Theses attachments typically are the contract, change orders, and invoices – and any collection letters. As the plaintiff you have the “burden of proof.”; you have to prove to the judge that it is more likely than not that your version of the facts – that you did the work, the work was fine, but you were not paid – is correct.

Always bring three copies of the brief and its attachments to court – one for the judge, one for the defendant, and one for yourself. It can be used as your script to explain to the judge what has happened. It is also a way to get your key documents (which are attached) to the judge.

Judges rarely rule immediately from the bench when a claim is contested. When he or she sits down later to review the papers and decide the case, the brief with its facts and documents makes it much simpler to render an award for you.

Since you are the plaintiff, you get to go first. The defendant goes after you.

The Winner! Now What? You should take your judgment from the court and turn it into an Abstract of Judgment. An Abstract of Judgment is a fill-in-the-blank court form which summarizes the court judgment. When filed with the appropriate County Recorder’s office it becomes a lien on the debtor’s property. Should the defendant debtor refinance or sell the property, the judgment (with rare exception) must be paid.

The interest on the judgment is 10 percent per year. Judgments are good for 10 years and may be renewed prior to that for another 10 years.

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Questions? Bryant’s website is www.bryantbyrnes.com. Feel free to contact him by email at Bryant@bryantbyrnes.com. Brian’s website is www.trowbridgelawoffice.com and you can email him at btrowbridge@trowbridgelawoffice.com.

For Bryant’s previous articles, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.” They are also available on his website under “Articles,” and on Brian’s website under “Publications.”

As always, these articles are summary discussions only – to simply give you a heads up on various construction topics. The information contained herein is not legal advice. Each scenario is different and if you need legal advice, you should contact an attorney immediately.

 

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