Lack of proper licensing can have a tremendous impact on your ability to secure payment for work performed. In some states, lack of licensure inhibits claims for payment. In others, lack of licensing can be a complete bar to recovery. Lack of licensure can actually create a claim where an owner can force disgorgement of all monies paid to the unlicensed contractor for work performed.
A recent District of Columbia case highlights the extreme risk associated with failure to comply with applicable licensing regulations.
Background of District of Columbia law
The District of Columbia has long required all contractors who perform work on home improvement jobs to obtain a license to act as a "home improvement contractor." Unlike the states that have some elasticity in the requirements, the District of Columbia took a harsh approach to failure to comply with the regulations. Specifically, contracts for work to be performed by unlicensed contractors were deemed void from the initiation of the contract.
In application, this bright line test has resulted in some harsh cases. The courts have ruled that an owner can accept the benefit of a fully and properly performed contract. The owner has a complete defense to payment. Indeed, the owner can even institute its own offensive claim for disgorgement of funds paid to the contractor and will win under the law of the District of Columbia.
The recent case
The September 2007 decision in the case of Carlson Construction v. Dupont West Condominium addresses the question of exactly what constitutes "home improvement." In Carlson, a contractor was hired to renovate the common areas of a condominium structure. The scope included work in the vestibule, lobby, elevators, mailroom and hallways. The contractor was not retained to perform work on the units.
The condominium association made a single progress payment. Before the work was completed, the association learned the contractor was not licensed as a home improvement contractor. The association refused to make further payments. The contractor sued for breach of contract, and the association counterclaimed seeking return of all funds paid.
The trial court ruled that the regulations required contractors working on condominium projects to obtain home improvement contractor licenses. Based on the regulations, the trial court granted summary judgment to the association and ordered the contractor to refund all monies paid.
On appeal, the District of Columbia Court of Appeals affirmed the trial court's rulings. Reviewing the statute, the court found that "home improvement" as defined included work on "residential property." This language expressly included individual apartments. The court found no reason to distinguish between apartments being included and condominiums being excluded from application of the license requirements. The statute further expressly required licensure for areas that were "appurtenant" to residential property. As such, even common areas were included within the license requirements. The court upheld summary judgment in favor of the owner and return of all funds paid to the contractor.
Failing to research and obtain required licenses could have extremely harsh results. The result in the Carlson case highlights the potential financial impact of lack of licensure, in addition to potential criminal or administrative complaints. At its heart, however, this type of case emphasizes the need to avoid self-inflicted misery. Prudent contractors can and should learn from this lesson. Fully research and obtain required licenses in accordance with the laws of their subject states.
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