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When you hire a prime contractor to do construction on your home, he or she typically hires laborers and subcontractors to do some of the work, and purchases materials for the job from materials suppliers. No one would dispute that a homeowner should pay for goods or services provided to improve their home. If the contractor – or the subcontractors, workers or suppliers – who provide goods or services to improve your property aren’t paid, they can file what is called a mechanic’s lien on your home.

What is a Mechanic’s Lien?

A mechanic’s lien is a “hold” against your property that, if unpaid, allows a foreclosure action, forcing the sale of your home. It is recorded with the County Recorder’s office by the unpaid contractor, subcontractor or supplier. It means that any of these unpaid entities can claim a lien against the property until they are paid.

The prime contractor has a direct contractual agreement with the homeowner. If the contractor isn’t paid, he can sue on the contract and record a mechanic’s lien. But subcontractors, workers and suppliers don’t have a contract with the homeowner. A problem occurs when the homeowner pays the prime contractor for all or some of the work, but the prime contractor fails to pay the laborers, subcontractors and materials suppliers that were hired to do portions of the job. If they are not paid, often their only recourse is to file a mechanic’s lien on the home.

What happens when a lien is filed against your property?

A lien can result in a range of problems:

• Foreclosure, if the homeowner doesn’t pay off the lien or cannot afford to do so;
• Double payment for the same job – if the homeowner pays the prime contractor – and then has to pay the sub or supplier who wasn’t paid by the prime;
• A cloud on the title of the property, which can affect the homeowner’s ability to borrow against, refinance, or sell the property.

How can you protect yourself?

You can protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project.

Investigate your prime contractor before you sign a contract and do the following:

• Hire only licensed contractors and check the contractor’s license status on CSLB’s website at www.cslb.ca.gov;
• Make sure your contractor hires only licensed subcontractors, and check their licenses, too;
• Check with your local courthouse to see if the prime contractor has a history of litigation;
• Get a list of all subcontractors, laborers, and materials suppliers to be used by your prime contractor;
• Check with suppliers and workers about the payment history of the prime contractor;

Get a written contract and make sure it includes the following:

• A schedule that demonstrates when specific construction activities will start and end, (such as the framing, sheetrock work, or painting) and the projected payments tied to the contract price of these activities;
• Identification of subcontractors who will be performing these construction activities;
• Identification of suppliers who are providing materials necessary for these activities;

The Preliminary 20-Day Notice

If you receive a Preliminary 20-Day Notice, don’t panic. The preliminary notice isn’t a lien; it is a notice that a subcontractor or supplier has provided or will be providing goods and services to improve your property and could file a lien claim if they are not paid.

Don’t expect a 20-Day Notice from a prime contractor, however – since they have a direct contract with you, they aren’t required to send a 20-Day Notice.

These notices allow you to track who has a potential claim against your property. Subcontractors and suppliers must provide you with this notice in order to maintain their right to file a lien. If they don’t provide you with the notice, they lose the right to file a lien.

Watch the timing, however. A subcontractor or supplier can give you the Preliminary Notice before delivering supplies or starting work and up to 20 days after delivering supplies or starting work.

Preventing liens

Before you pay your prime contractor, deal with the possibility of a lien. The first step is to keep track of Preliminary 20-Day Notices and make sure you are aware of who can file a lien against you.

There are a few specific methods you can use to make sure potential lien claimants have been paid:

JOINT CHECKS

Joint checks are the simplest method of lien prevention. When the contractor presents a bill for materials or labor, compare it to the schedule of payments in your contract and the Preliminary 20-Day Notices you’ve received. Make sure that work was provided as described and then make out the check to both the contractor and the supplier, or the contractor and the subcontractor. Both parties will have to endorse the check, which will ensure that the subcontractors and suppliers get paid.

LIEN RELEASES

The release system is designed to allow property owners to track when potential lien claimants have been paid.

Here’s how the lien release system works:

• Before you make a payment, you should first get a signed conditional release from the possible lien claimants.
• You or your contractor can download a copy of this release from CSLB’s website at www.cslb.ca.gov. The prime contractor is required to get this release for you from the potential lien claimants, if you ask for it.
• After you receive the conditional releases, make the appropriate payment for the work that was done.
• After you pay, the contractor should get you an unconditional release signed by each of the claimants paid for the portion of the work being released. Make sure that the actual claimant signs the unconditional release.
• By law, you may withhold the next payment until you get the unconditional releases for the previous payment.

NOTICE OF COMPLETION

You can reduce the amount of time a contractor, subcontractor or supplier has to record a claim by filing a Notice of Completion with the County Recorder’s office after work is completed.

This notice reduces the amount of time a contractor has to record a mechanic’s lien from 90 to 60 days, and reduces the time a subcontractor or materials supplier has to record a mechanic’s lien from 90 days to 30 days.

There is a lien on your property – now what?

There are a number of reasons a lien might be invalid; for example, the work was not completed or the supplies were not incorporated into the structure. If a lien is placed on your home, you may want to consult an attorney for help in releasing the lien or identifying these issues.

Many lien claims are invalid because the contractor, subcontractor or materials supplier has failed to meet the required time lines for filing the claim. Review the Lien Requirements Checklist in this brochure, to determine if the claimant followed the required time lines.

Lien Requirements Checklist

Check to see if the Preliminary 20-Day Notice was given to you within the strict time frames.
A subcontractor or materials supplier has until 20 days after beginning work or delivering materials to serve you a Preliminary 20-Day Lien Notice. If the notice is late, the claimant loses lien rights for work done or materials delivered more than 20 days before the notice. Laborers don’t need to give you the 20-Day Notice.

Check to see if the potential lien claimant filed the mechanic’s lien within the legal time frame.
The potential lien claimant must record the mechanic’s lien within 90 days of:

• Completion of work
• When owner began using the improvement, or
• When owner accepted the improvement

If the potential lien claimant fails to record the mechanic’s lien within the appropriate time frame, the lien isn’t valid. Once a mechanic’s lien is recorded, it attaches to your title and must be removed.

As previously mentioned, if you recorded a Notice of Completion, a prime contractor has 60 days to record a lien while a subcontractor or materials supplier has 30 days to record a lien.

Check with the Superior Court to see if the subcontractor or materials supplier filed a timely Lien Foreclosure Action.
A Lien Foreclosure Action is a lawsuit to foreclose the mechanic’s lien. The lien claimant must file a Lien Foreclosure Action within 90 days of the date that he or she recorded the mechanic’s lien. Often a lien claimant with a valid claim will fail to follow through, making the lien invalid.

If the contractor, subcontractor or materials supplier fails to follow any of these strict time frames, you can petition the Superior Court to remove the lien.

Be aware that, although anyone can record a mechanic’s lien, unlicensed contractors cannot foreclose on a mechanic’s lien if the work is valued at more than $500.

Why should you remove an invalid lien?

Even when a contractor, subcontractor or materials supplier doesn’t act to foreclose on your property, the lien stays on the county records as a “cloud” on your property title until you take action to remove it. An invalid lien can make it difficult or impossible to refinance or sell your home.

Steps to remove an invalid lien

Follow the steps below to begin the process of removing an invalid lien:

• Send the lien claimant a written request by certified mail. Keep a copy of your letter and the certification as proof of your request. Include:
  • Deviations you’ve identified from the Lien Requirements Checklist.
  • A request for the claimant to remove the lien. Remind the claimant that, if the lien isn’t removed and you have to get an attorney to remove it, the court can award you attorney fees of up to $2,000.
• Keep your documentation. You may need to demonstrate to a court that “the lien claimant is unable or unwilling to execute a release of the lien or cannot, with reasonable diligence, be found.” (Civil Code Section 3154)
• Send the request to the claimant’s last known address. Do your homework to verify that you have the correct last known address.

Sometimes, sending the letter is enough to persuade the lien claimant to release the lien.

Petition to release the property from the lien

If the lien claimant doesn’t remove the invalid lien, and the time has expired to record the mechanic’s lien and take action to foreclose, you may petition the court for a decree to release the property from the lien. This is a complicated process that may require the services of an attorney. Refer to Section 3154 of the Civil Code for more information.

Civil Code Section 3154 (f) provides that if you use an attorney and you prevail, you are entitled to attorneys’ fees up to $2,000.

Minimize your risks and take steps to protect your home

The mechanic’s lien law is complicated and confusing, and there are real risks involved for homeowners. Don’t risk foreclosure, a cloud on your title, or having to pay twice for the same job. You can take steps to avoid these problems by preparing for the possibility of a lien and employing the safeguards in this brochure to protect your home and your financial stability.

Check Out The Handyman Contract Before Signing It: Did you read and do you understand your contract? Does the 3-day right to cancel a contract apply to you? Does the contract tell you when work will start and end? Does the contract include a detailed description of the work to be done, the material to be used, and equipment to be installed? This description should include a plan and scale drawing showing the shape, size, dimensions and specifications. It should include brand names, model numbers, quantities and colors. Specific descriptions now will prevent disputes later. Are you required to pay a down payment? If you are, the down payment should never be more than 10% of the contract price or $1,000, whichever is less. Is there a schedule of payments? If there is, you should pay only as work is completed and not before.

Did your contractor give you a “Notice to Owner,” a warning notice describing liens and ways to prevent them? Even if you pay your contractor, a lien can be placed on your home by unpaid laborers, subcontractors, or material suppliers. A lien can result in you paying twice or, in some cases, losing your home in a foreclosure. Check the “Notice to Owner” for ways to protect yourself. Did you know changes or additions to your contract must all be in writing? Putting changes in writing reduces the possibility of a later dispute.

Terms of Agreement, A Consumer Guide to Home Improvement Contracts:  A contract is a legal agreement between two or more people. A written agreement is one of the most important communication tools for both the contractor and consumer. It insures there are no misunderstandings about what a job will include. A thorough contract tells how the work will be done, when it will be done, what materials will be used and how much it will cost.

In California, there must be a written contract for all home improvement projects over $500. By law, that contract must include specific information about your rights and responsibilities. This Contractors State License Board (CSLB) brochure outlines the information for you.

A home improvement contract and any changes made to that contract must be in writing, be legible, be easy to understand, and inform the consumer of their rights to cancel or rescind the contract. If you are promised something orally make sure that it is included in writing.

Disagreements over home improvement projects can cost time and money. Besides producing bad feelings, they can also lead to lawsuits or other legal action. A well-written contract prevents that.

Anatomy of a Contract

A contract should contain everything agreed upon by the consumer and contractor. It should detail the work, price, when payments are made, who gets the necessary permits, and when the job will be finished. It should also identify the contractor, give their address and contractor license number.

A good contract also has warnings and notices about the right to cancel, mechanic’s liens, and permissible delays.

Don’t sign anything until you understand the contract and agree to the terms.

Description of Work to be Done

(The Sign of a Well-Built Contract)

The best way to avoid disputes over what is or isn’t expected from a home improvement job is to write out the details in a contract.

The contract should be as specific as possible regarding all materials to be used, such as the quality, quantity, weight, color, size, or brand name as it may apply.

For example, the contract should say “install oak kitchen cabinets, manufactured by Company XYZ, model 01381A, as per the plan,” not just “install kitchen cabinets.”

Swimming pool contracts must include a plan and scale drawing showing the shape, size dimensions, and construction and equipment specifications.

Make sure the contract includes everything that is agreed to, up to and including complete cleanup and removal of debris and materials, and special requests like saving lumber for firewood or saving certain materials or appliances.

Complaints and Warranties

Be sure to get any warranty offered by the contractor for labor and materials in writing. It should specify which parts of the work are covered and the duration of the warranty. You should also request any written warranties offered by the manufacturers of materials or appliances installed by the contractor.

Consumers generally have 4 years to file a complaint about a faulty project with the CSLB. That deadline can be extended if there are additional warranties written into the contract.

Money – The Bottom Line

Price – All contracts must include the price that was agreed upon for the work. Any job $500 or more needs a written home improvement contract. And by law, the job must be completed for the agreed upon contract price.

If the contract price needs to be changed, it MUST be done with a written “Change Order”, which then becomes a part of the contract.

Down Payment – If the contract calls for a down payment before work starts, the down payment can not be more than one thousand dollars ($1,000) or 10 percent of the contract price, whichever is less, for a home improvement job or swimming pool, excluding finance charges. There are no exceptions for special order materials.

Schedule of Payments – A home improvement contract must include the payment schedule. It should show the amount of each payment and explain what work, materials or services are to be performed for that particular payment.

Payments to the contractor cannot exceed the value of the work performed.

Swimming Pools – With swimming pool contracts, the final payment may be made at the completion of the final plastering phase of construction (Provided that any installation of equipment, decking, or fencing required by the contract is also completed). To learn more about hiring and dealing with swimming pool contractors, see the CLSB’s free publication, Before You Dive Into Swimming Pool Construction.

Finance Charges – Must be laid out separately from the contract amount.

Sales Commission – If the contract provides for a payment of a salesperson’s commission out of the contract price, that payment shall be made on a pro rata basis in proportion to the schedule of payments made to the contractor.

Salespersons – A salesperson cannot legally sign a home improvement contract for the contractor unless they are registered with the CSLB.

Mechanics Liens

Consumers are required to receive a “Notice to Owner” warning about property liens. Anyone who helps improve property, but who is not paid, may place what is called a mechanics’ lien on the property. A mechanics’ lien is a claim made against the property and recorded with the county.

Even if the contractor is paid in full, unpaid subcontractors, suppliers, and laborers involved in the project may record a mechanics’ lien and sue the property owner in court to foreclose the lien. A property owner could be forced to pay twice or have the court sell their home to pay the lien. Liens can also affect a consumer’s personal credit along with the ability to borrow and refinance.

Consumers can protect themselves from liens by getting a list from the contractor of all the subcontractors and material suppliers who will work on the project along with the dates when they will start. After 20 days it is possible to get suppliers and subcontractors to sign lien releases when their portion of the work is completed.

Another option for consumers is to pay with a joint check. Write a joint check payable to both the contractor and the subcontractor or material supplier.

For other ways to prevent liens, get the free CSLB Publication, A Homeowners Guide To Preventing Mechanics Liens.

Canceling

The Three-Day Right to Cancel – The Home Solicitation Sales Act requires a seller of home goods or services to give the buyer three days to think about whether or not to buy the offered goods or services.

To cancel, the buyer need only give the contractor written notice of his or her intent not to be bound by the contract — there is no penalty or obligation on the part of the buyer. Under the law when the contract is canceled the seller can be required to return the entire contract amount and, if a service has been provided, to return the consumer’s property to the way it was before the contract, and return any materials to the contractor that were applied to the project.

The purpose of the three-day right to cancel is to protect consumers from the pressure they often feel from door-to-door solicitors.

Unless the contract is negotiated at the contractor’s place of business, the buyer qualifies for the 3-day right to cancel.

The Exception

Service and Repair Contracts
One major exception to the “three-day right to cancel” is a ‘Service and Repair’ contract that covers emergency repairs or services that are requested by the consumer on short notice.  The right to a three-day notice is automatically canceled the moment the contract is signed and the contractor begins working on a service and repair contract.

A Consumer Guide to Filing Construction Complaints: It is illegal for an unlicensed person to perform contracting work on any project for which the combined total cost for labor and materials is $500 or more. CSLB works to curtail underground economy contracting activities and reduce unlicensed activity through stings, sweeps, and other enforcement actions.

For a complaint involving an unlicensed contractor, CSLB may issue a warning letter, a citation, or refer the complaint to the local district attorney for review and possible prosecution. CSLB has limited jurisdiction over unlicensed operators and cannot require an unlicensed person to make repairs to your project or pay restitution.

California Complaint Jurisdiction

Complaints within CSLB’s jurisdiction involve alleged violations of California Contractors License Law. CSLB has jurisdiction over licensed and unlicensed contractors for up to four years from the date of an illegal act.

The term “contractor” includes individuals or firms that offer services to improve real property, including, but not limited to, home building, remodeling, room additions, swimming pools, painting, roofing, landscaping, plumbing, electrical, heating and air conditioning, and installation and repair of mobile homes.

CSLB’s complaint investigation procedures are designed to protect the public in matters pertaining to construction and to assist in the resolution of construction-related complaints.

CSLB’s intent is to achieve timely and efficient complaint resolution through early intervention and mediation.

CSLB may provide help to consumers through mediation, arbitration, referral to other agencies, or providing information on other avenues for individual redress. These may include referring consumers to small claims court or referring consumers with private arbitration clauses in their contracts to the applicable arbitration process. Where appropriate, CSLB will take legal action against a contractor for violations of California Business and Professions Code.

How Complaints are Handled

Complaints involving a threat to public health and safety, and cases where consumers have suffered a significant financial injury, are given the highest priority.

CSLB also prioritizes complaints based on:

• The order of receipt;
• The nature and seriousness of the allegations; and
• Available CSLB resources, including budget and staffing

Every written complaint is reviewed to determine if it falls within CSLB’s jurisdiction. CSLB’s intake and mediation representatives will send you a written confirmation that your complaint has been received. A notice is also sent to the contractor to encourage resolution of the complaint without further intervention by CSLB.

MEDIATION
If the complaint is not resolved at this point, CSLB may ask you to provide additional information and/or documentation. You may also be contacted by a CSLB Consumer Services Representative (CSR). If mediation is appropriate, the CSR will contact you and the contractor and attempt to mediate the dispute.

If mediation is unsuccessful, the CSR may refer the complaint to the appropriate settlement option. These options could include referral to a CSLB arbitration program, assignment to an Enforcement Representative (ER) for investigation, or referral to alternative civil or dispute resolution methods. CSLB will determine the appropriate option, based on the facts of the case.

INVESTIGATION
If the CSR determines that the complaint requires further investigation, it will be assigned to an ER. The ER’s investigation will determine if there is clear and convincing evidence to support a violation of Contractors License Law. The investigation may include interviews with you, the contractor, other parties to the contract, and any other parties who can furnish relevant information.

DISCIPLINARY ACTION
Violations of the law by a licensed contractor may result in a citation or charges against the contractor that could lead to suspension or revocation of the contractor’s license. Citations may contain civil penalties of up to $5,000 and/or orders of correction requiring the contractor to make repairs to your project or pay you to hire others to do so. (If a disciplinary action is undertaken, the state Attorney General represents the CSLB to prosecute the case. The Attorney General is not counsel for the complainant, but counsel for the CSLB.)

SMALL CLAIMS COURT
Investigation by CSLB does not guarantee restitution to complainants. If your primary interest is to gain restitution, you should pursue the matter in small claims court or consult with an attorney. If you are considering legal action to recover damages of $7,500 or less, CSLB can provide you with information about filing a small claims court action. You can also consult the small claims court directly for information and assistance. Additional “self-help” information can be found online at www.courtinfo.ca.gov. If your damages are more than $7,500, you should consult with an attorney.

If you prevail in a civil or arbitration case against a licensed contractor, send CSLB documentation of the disposition. CSLB will notify the contractor that the license will be suspended if the judgment or award is not satisfied.

How to File a Complaint

You may file a complaint by mail or online.

• If you choose to file the complaint by mail, either download a copy from the CSLB Web site or call, 800.321.CSLB (2752).
• If you choose to file the complaint online, simply fill in the CSLB Web site form and submit the information.

Regardless of whether you submit your complaint by mail or electronically, you will need to submit copies of all relevant documentation to the CSLB. For example, send copies of all contracts (all pages, front and back), change orders, cancelled checks (front and back), and any other pertinent information, and mail them to the appropriate office detailed below.

Failure to enclose all documentation could result in a delay in the review and processing of your complaint. CSLB cannot process incomplete or unsigned complaint forms; incomplete forms will be returned.

For complaints on work performed in Imperial, Los Angeles, Orange, Riverside, San Bernardino, and San Diego counties, mail forms to:

Norwalk Intake & Mediation Center
12501 East Imperial Highway, Suite 620
Norwalk, CA 90650

For complaints on work performed in any California county not mentioned above, mail forms to:

Sacramento Intake & Mediation Center
P.O. Box 269116
Sacramento, CA 95826-9116

CSLB Arbitration Programs

CSLB administers two arbitration programs: a mandatory program for disputes involving alleged damages of $12,500 or less, and a voluntary program for disputes involving allegations of damage between $12,500 and $50,000.

Complaints must meet stringent criteria to qualify for referral to a CSLB arbitration program. CSLB staff will determine whether the dispute meets these criteria.

For more information on these programs, review CSLB’s Mandatory Arbitration Program or Voluntary Arbitration Program guides. Both are available on the CSLB Web site at www.cslb.ca.gov, or by calling 800.321.CSLB (2752).

Information Disclosure

Upon request, CSLB provides information about the status of a licensed contractor’s license and bond, as well as pending and prior legal actions.

If you want basic information about the status of a contractor’s license or complaint disclosure, consult the CSLB Web site at www.cslb.ca.gov, or call the CSLB’s automated phone response system at 1-800-321-CSLB (2752).

If you would like information about pending or prior legal actions against a contractor, visit the CSLB Web site at www.cslb.ca.gov and click on “Check a Licensed Contractor” or call the legal action disclosure unit at the appropriate CSLB office listed below:

Northern California 916.255.4041

Southern California 562.345.7656

What You Should Know Before You Hire a Contractor

• Read What You Should Know Before You Hire a Contractor, available online at www.cslb.ca.gov or at (800) 321-CSLB.
• Take your time before you make a decision about hiring a contractor.
• Get at least three bids and check references.
• Hire only licensed contractors. Anyone performing home improvement work valued at $500 or more must be licensed by the Contractors State License Board.
• Get the contractor’s license number and verify it online at www.cslb.ca.gov or at (800) 321-CSLB.

What You Should Know About the Contract

• Get your contract in writing and don’t sign anything until you understand the terms.
• Ask a friend or relative to review the contract before you sign it.
• Include in your contract: a specific description of work to be done, materials to be used, total cost of the project, and start and completion dates.

What You Should Know About Unscrupulous Contractor Scams . . .

Door-to-Door Solicitations

A solicitor offers to do roofing, painting or paving work at a reduced price. Once payment is made, little or no work is done and the project is abandoned.

High Pressure Sales

An unscrupulous contractor pushes for an immediate decision about work, which makes it impossible for the homeowner to get competitive bids, check licenses or review references.

Scare Tactics

A deceitful contractor offers to perform a free inspection, then claims that faulty wiring, bad plumbing, or a leaky roof put the homeowner in peril. The alarmed homeowner agrees to unnecessary and over-priced work.

Demand for Cash

A contractor demands cash payments, sometimes going so far as to drive the victim to the bank to withdraw funds. With money in hand, the unscrupulous operator takes the money and runs.

Illegally Large Down Payments

A dishonest contractor takes more for a down payment than is allowed by law, claiming to need instant cash for supplies and to pay workers. By law, a down payment cannot exceed 10 percent of the project price or $1,000, whichever is less.

Verbal Agreements

A contractor states that a written contract is unnecessary—promising to deliver on the verbal agreement. The shady operator takes advantage of the situation to perform shoddy work—or none at all.

What You Should Know About Payments

• Don’t pay cash.
• Include a payment schedule in your written contract.
• Don’t pay more than 10 percent of the job or $1,000, whichever is less, as a down payment.
• Don’t let payments get ahead of the work.

What You Should Know About the Contractors State License Board

• The CSLB provides information about a contractor’s license, bond and workers’ compensation insurance status, as well as pending and prior legal actions.
• Free consumer publications and complaint forms are available from the CSLB.
• Go to CSLB’s Web site at www.cslb.ca.gov, call (800) 321-CSLB, or write to CSLB, P.O. Box 26000, Sacramento, CA 95826 for information.

You can do more to protect yourself before hiring a contractor than the Contractors State License Board can do to help after you’ve been harmed.

Before you sign a contract;

Get free information from the Contractors State License Board at www.cslb.ca.gov.

Voluntary Arbitration Program Guide:    Many disputes between consumers and contractors can be resolved efficiently and satisfactorily through arbitration. Arbitration is usually defined as an informal process in which two or more persons agree to let an impartial third person or panel make a final decision in a dispute between them. Because of the many advantages arbitration can offer, the Contractors State License Board (CSLB) offers arbitration for the resolution of disputes that meet certain criteria. The CSLB will pay for the hearing, the arbitrator, and the services of one board-appointed expert witness per complaint. Only contractors with good records qualify for participation in arbitration. Complaints involving deceptive or fraudulent practices will continue to be investigated by the CSLB.

Criteria

For a case to qualify for voluntary arbitration under Business and Professions Code Section 7085 when all of the following apply:

1. The dispute must involve present or future damages greater than $12,500 and less than $50,000;
2. The contractor must possess a license that was in good standing at the time of the alleged violation;
3. The contractor must not have a record of prior violations;
4. The contractor must not currently have a disciplinary action pending against him or her; and
5. The parties must not have previously agreed to private arbitration of the dispute, either in their contract or otherwise.

Depending on the type of defect, the complaint must be filed within either four or ten years after the alleged wrongful act or omission causing the dispute occurred, or within the duration of any written warranty for which breach is alleged. The four-year time period applies to disputes involving patent defects and the ten-year time period applies to disputes involving latent structural defects (Business and Professions Code Section 7091).

Mandatory And Binding Arbitration

“Voluntary” and “binding” are key terms to understand before entering into arbitration. Participation in this program is voluntary for both parties; if either party chooses not to participate, the dispute in question will not be arbitrated but will instead be investigated by the Contractors State License Board.

If both parties agree to arbitration, however, they will be agreeing to binding arbitration. In other words, both the consumer and contractor must comply with the decision of the arbitrator. In binding arbitration, parties who refuse to comply may be taken to court and have a judgment entered against them. In addition, licensed contractors who fail to comply with an award that is issued against them may have their licenses suspended or revoked.

This brochure provides the information necessary to understand the CSLB Arbitration Program for the resolution of complaints in which the damages are between $12,500 and $50,000.

The CSLB Arbitration Program

An arbitration forum has been selected to arbitrate construction disputes for the CSLB. The arbitration forums have expert arbitrators throughout California who have been trained to resolve consumer/contractor disputes. All have undergone intensive training to ensure that both parties receive a fair hearing. The arbitration forum will contact you after the CSLB asks that your dispute be scheduled for a hearing.

How To Obtain Arbitration Services

Parties to a construction contract should consider arbitration when communications have broken down, the consumer has filed a complaint with the CSLB, and the board has determined that the dispute could be effectively handled through arbitration.

Once both parties agree to arbitration, and a representative of the board determines that a complaint qualifies for arbitration, the representative will send a Submission to Voluntary Arbitration form to the consumer and the contractor. The respective parties will fill in their names, addresses, and outline the claims and relief they are seeking.

The CSLB will send copies of the signed submission forms to the other party so that both of them will know exactly what issues are in dispute and what remedies are being sought. In most cases, a party will not be permitted to add to the issues in dispute or to increase the amount of damages sought after the submission form is sent to the opposing party.

Both parties can then prepare their cases for presentation at the arbitration hearing. A copy of the signed submission to arbitration forms will also be sent to the arbitration forum selected to handle the case.

Scheduling The Hearing

When the arbitration forum receives a signed Submission to Voluntary Arbitration form, it will prepare a candidate list of arbitrators to conduct the hearing. Each party may strike any unacceptable arbitrator from the list and rank the remaining in preferential order. If possible, the arbitration forum then appoints a mutually acceptable arbitrator from the returned lists and sets a hearing date, time, and place that is most convenient for all parties. If the parties cannot agree on an arbitrator from the submitted lists, the arbitration forum can appoint one from its pool of arbitrators. Similarly, if the parties cannot agree on a hearing date, the arbitrator has the authority to fix the date, time, and place for the hearing.

Case Preparation

Each party will be responsible for his or her own case presentation at the hearing, including relevant documents. Any documents previously sent to CSLB for the complaint file will not be forwarded to the arbitration forum. Parties may hire an attorney to represent them, at their own expense, or they may present their own cases. In either instance, case preparation is very important. Both parties should review the submission form for an understanding of all issues and as preparation for gathering relevant evidence. Any documents previously sent to the CSLB for the complaint file will not be forwarded to the arbitration forum.

Expert Witnesses

The CSLB will pay for one state-appointed expert witness per case.

An expert witness is a person who has extensive work experience and is competent to evaluate the work that is in dispute. If an expert witness is needed, the Contractors State License Board will hire one prior to referring the dispute to arbitration. This expert will become the state-appointed expert for the dispute. The CSLB has the discretion to hire an expert, depending on the circumstances of the dispute. If the the CSLB hires an Industry Expert to qualify the complaint as an arbitration referral, a second expert will not be hired.

When a state-appointed expert is used, both parties will receive a copy of the report of the expert witness shortly after the dispute is referred to the arbitration association. Either party may use the expert witness at the arbitration hearing. A party who wishes to use the testimony of the state-appointed expert at the hearing will be responsible for making arrangements with the expert witness to ensure his or her attendance at the hearing. At the time the referral is made to the arbitration forum, the name, address and telephone number of the Industry Expert is provided to the parties. If that information is not provided, the Enforcement Representative that handled the complaint and the referral should be contacted for the information. Arrangements to have a state-appointed expert testify should be made with the expert at least 15 days prior to the scheduled hearing.

The consumer or the contractor may use an expert who is not appointed by the state.

A party who uses the services of an expert witness who is not appointed by the state will be responsible for arranging and paying for the services of the expert witness. A party will not be able to collect this cost from the opposing party.

To locate an expert who is not appointed by the state, consult local sources, references, trade associations, building exchanges, or the yellow pages of the telephone book. The local office of the CSLB can also provide you with a list of expert witnesses who you can hire to assist in your dispute.

The Hearing

Arbitration hearings are conducted in an informal setting and are designed to bring out the facts involved in a case. The informality of the setting should not be considered as a casual discussion. The witnesses and information that the parties bring or do not bring, will have a tremendous bearing on the outcome of the hearing. Preparation for the hearing is essential. The award is binding.

The consumer presents his or her claims, evidence, and witnesses first, and then the contractor follows with his or her claims, evidence, and witnesses. Parties may be represented by legal counsel if they wish, but at their own expense. The rules that govern arbitration hearings under this program are found in Business and Professions Code Section 7085.5.

When a hearing is completed, the arbitrator has 30 calendar days in which to render a decision. The arbitrator has the authority to rule on the claims and to award money damages.

The Award

The arbitrator’s award is final and binding on both parties. In other words, the contractor and the consumer must abide by the terms of an award. If either party does not comply, the other may petition the superior court to have the award confirmed and made a judgment of the court. The court can then enforce the award as its civil judgment.

The procedure for enforcing awards can be found in the Code of Civil Procedure starting with section 1285. However, if court enforcement is necessary, an attorney should be consulted.

Consumers or contractors who wish to appeal an award in court must do so at their own expense. The CSLB will not represent parties in court. A consumer or contractor’s refusal to accept the terms of an award will not preclude the CSLB from taking action after an award is granted.

The CSLB has the authority to discipline contractors who do not comply with an arbitration award. Most awards will specify a final date for compliance. If the award is against the contractor and the contractor does not comply within the time specified in the award, the consumer should notify the CSLB’s Sacramento Case Management office at P. O. Box 26888, Sacramento., Ca. 95826. The board will investigate the report of noncompliance, and, if appropriate, suspend the contractor’s license. If the contractor complies with the arbitrator’s award within 90 days, his or her license may be reinstated; otherwise, it will be revoked.