The General Assembly Adds Some Clarity to Contracts and Unlicensed Contractors

Originally posted 2018-03-26 11:02:41.

courthouse photo — *Photo by Free-Photos*

For years, the statute regarding performing construction without a valid license (Va. Code 54.1-1115) was a bit murky. While that statute listed several prohibited acts, among them contracting without the proper class of license or use of the license of another, the consequences of such activity, in particular the effect that such action would have on the enforcement of a construction contract (Section C of the statute), were less than clear.

During the most recent General Assembly session, a few changes were made to sections B and C of the statute at the behest of the Virginia Bar Association Construction Section Council in hopes of clarifying the consequences for Virginia construction professionals that contract without a license and their customers. HB 732 changes (effective July 1, 2018) Subsection C of the statute to read:

C. No person shall be entitled to assert the lack of licensure or certification as required by this chapter as a defense to any action at law or suit in equity if the party who seeks to recover from such person A construction contract entered into by a person undertaking work without a valid Virginia contractor’s license shall not be enforceable by the unlicensed contractor undertaking the work unless the unlicensed contractor (i) gives substantial performance within the terms of the contract in good faith and ~~without~~ (ii) did not have actual knowledge that a license or certificate was required by this chapter to perform the work for which he seeks to recover payment. (changes in original House Bill)

As you can see, the language is more direct and should be more easily interpreted by courts and importantly, more easily understood by the construction community in Virginia. Even with this change, I recommend that you consult an experienced Virginia construction attorney to discuss your rights under the laws affecting construction in Virginia.

Have any thoughts on the above? I welcome and encourage your comments below, please share your thoughts. Also, please subscribe to keep up with the latest Construction Law Musings.

Related Musings:

Hi, Chris, it’s been some time since my last post, but I couldn’t resist this one.

On reading the language of the statute it looks to me like it may only spawn more litigation in future (because of the way it is constructed). Section (ii) requires one to know affirmatively the state of mind of the individual that is not licensed. How exactly is that supposed to work? In my experience this is almost without exception impossible to prove. So even though the intent is to allow an unlicensed individual to charge and collect, the burden of proof is unrealistic. This begs the question: Was the intent really to allow unlicensed persons from charging for work performed while not licensed? Seems to be a Catch 22.

A simpler and more readily enforceable statute has been the standard in California for many years. It states that any person not properly licensed lacks standing in court, cannot sustain any action, and can be forced to disgorge ALL monies received for work performed (if the individual was unlicensed at ANY point during the work). This applies to individuals that never applied for a license, applied and obtained a license during the work, or had a license but allowed it to lapse, etc. This is the case even if the consumer knew of the unlicensed status before hiring the individual to do the work. This appears inequitable on its face, perhaps, but was nevertheless sustained by the courts. Courts have ruled the penalty, although onerous, is justifiable based on the over-arching public policy objective of protecting consumers from violators.

There are very narrow grounds on which an appeal can be sustained – wherein a contractor has the burden of showing the lapse of the license was a legitimate administrative oversight/error (i.e. inadvertent lapse of required insurance, or proof that a license renewal payment was intended but not recorded, etc.).

The California approach reverses the ‘concept’ of the above-cited new Virginia language.

The above statute disallows the unlicensed individual from seeking additional compensation, IF (s)he confesses to knowing what (s)he did was wrong. If there is no such confession, the unlicensed person can apparently still pursue payment.

In California, the contractor is barred from bringing a matter forward… AND the consumer can both refuse to pay after learning of the unlicensed status, and seek return of all monies already paid out. This is regardless of whether the work was performed properly or not (that is simply not a ‘condition’).

Unless a statute is clearly discernible and enforceable, the unintended consequences can be a) legal proceedings that are an ‘iffy’ risk for anyone bringing a case, b) long delays in obtaining a result and c) individuals ignoring the statute anyway because of the time/money needed to pursue recovery (with still-uncertain results).

2 Responses to The General Assembly Adds Some Clarity to Contracts and Unlicensed Contractors

howard i. littman, aia emeritus says:

March 29, 2018 at 7:51 PM

Hi, Chris, it’s been some time since my last post, but I couldn’t resist this one.

On reading the language of the statute it looks to me like it may only spawn more litigation in future (because of the way it is constructed). Section (ii) requires one to know affirmatively the state of mind of the individual that is not licensed. How exactly is that supposed to work? In my experience this is almost without exception impossible to prove. So even though the intent is to allow an unlicensed individual to charge and collect, the burden of proof is unrealistic. This begs the question: Was the intent really to allow unlicensed persons from charging for work performed while not licensed? Seems to be a Catch 22.

A simpler and more readily enforceable statute has been the standard in California for many years. It states that any person not properly licensed lacks standing in court, cannot sustain any action, and can be forced to disgorge ALL monies received for work performed (if the individual was unlicensed at ANY point during the work). This applies to individuals that never applied for a license, applied and obtained a license during the work, or had a license but allowed it to lapse, etc. This is the case even if the consumer knew of the unlicensed status before hiring the individual to do the work. This appears inequitable on its face, perhaps, but was nevertheless sustained by the courts. Courts have ruled the penalty, although onerous, is justifiable based on the over-arching public policy objective of protecting consumers from violators.

There are very narrow grounds on which an appeal can be sustained – wherein a contractor has the burden of showing the lapse of the license was a legitimate administrative oversight/error (i.e. inadvertent lapse of required insurance, or proof that a license renewal payment was intended but not recorded, etc.).

The California approach reverses the ‘concept’ of the above-cited new Virginia language.

The above statute disallows the unlicensed individual from seeking additional compensation, IF (s)he confesses to knowing what (s)he did was wrong. If there is no such confession, the unlicensed person can apparently still pursue payment.

In California, the contractor is barred from bringing a matter forward… AND the consumer can both refuse to pay after learning of the unlicensed status, and seek return of all monies already paid out. This is regardless of whether the work was performed properly or not (that is simply not a ‘condition’).

Unless a statute is clearly discernible and enforceable, the unintended consequences can be a) legal proceedings that are an ‘iffy’ risk for anyone bringing a case, b) long delays in obtaining a result and c) individuals ignoring the statute anyway because of the time/money needed to pursue recovery (with still-uncertain results).
Christopher G. Hill says:

March 30, 2018 at 8:31 AM

Thanks as always for the comments Howard. This statute puts the burden on the contractor, not the homeowner to show both substantial performance and lack of knowledge of license being a necessity. This burden shifting solves your concerns in the most part, but I see your point.