What are the risks for Owner-Builders?

What is an owner-builder?  First let’s define exactly what is an Owner-Builder is, according to the Contractors State License Board (CSLB) an owner-builder is what the term indicates: a person who owns the property and acts as their own general contractor on the job, and either does the work themselves or has employees (or subcontractors) working on the project.  The work site must be their principal place of residence that they have occupied for 12 months prior to completion of the work.  The homeowner cannot construct and then sell more than two structures during any three-year period.  Any individual or group of individuals who own property on which they plan to construct, alter repair, improve or remodel a building or structure is considered an owner-builder.  Also, a tenant may be considered an owner-builder (on a case by case basis).

The Limitations

An owner-builder is not required to have a contractors license.  However, there are still some limits.  If he or she does the work themselves or through their own employees with wages as their only compensation, and the structure is not intended for sale, then a license is not required.  The owner-builder must contract with licensed subcontractors. This license exemption limits the number of structures offered for sale on the construction of single-family residential structures to less than four within one calendar year.  If the owner-builder hires a General Building (“B”) contractor than the number of structures is unlimited.

If the following exists, a homeowner imporving his or her place of residence is exempt from licensure: The homeowner has not taken advantage of license exemption on more than two structures during any three-year project.  The homeowner has resided in the residence for 12 months or longer prior to the completion of the work.  The construction work is performed prior to the sale of the property.

There is one trade that property owners are prohibited from performing themselves and that is well-drilling work, which is covered under the Well Drilling (C-57) classification.

The owner-builder license exemption applies to any individual who builds homes for resale under the following conditions: Only licensed contractor tradesmen are hired to perform all project work (as long as no more than four structures each calendar year are intended for resale.  A General Conractor who is properly licensed is hired to perform the work or subcontracts the completion of all the work on the project.  In this case there is no restriction on the number of structures completed each calendar year. The owner-builder performs the work and resides in the completed structure for one year prior to resale and applies the license exemption to not more than two structures in a three-year period.

The Risks

Making mistakes on a construction job can be costly and take extra time to correct and repair unless you are knowledgeable about construction.  An owner-builder should be educated about mechanics liens and how to prevent them.  Suppliers and sub-contractors who are not paid on time may file mechanics liens against your property.  If your workers are injured, or any sub-contractors are not licensed or do not carry workers compensation insurance or liability insurance, and they are injured, you could be required to pay for their injuries or rehabilitation through your homeowners insurance or be faced with serious lawsuits.

It’s important to be cautious of individuals who prey upon unsuspecting homeowners claiming to be contractors but who are actually unlicensed.  They may make false promises offering to help you with the owner-builder process for some kind of consulting or supervisory fee, but in doing so they are breaking the law.

It would be wise to remember that an owner-builder takes on full responsibility for all phases of the construction project including its integrity.

California licensed contractors must undergo and FBI check before they are issued a contractor license.  They also must demonstrate their knowledge in their craft, be tested, bonded, and fingerprinted.

When an illegal contractor does a poor job or disappears after receiving a down payment, it’s the owner-builder that’s left to deal with the problems.  Never give a down payment or pay anyone claiming to be a contractor without doing a license check.  If you take the time to do your homework and hire only licensed contractors, you’ll save yourself a load of trouble and headaches.

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