On August 30, 2016, the Governor signed into law AB 1793, which amends the requirements under Business & Professions Code § 7031. Section 7031 both (1) prohibits unlicensed or improperly licensed contractors from suing to recover compensation for construction work requiring a license, and (2) permits property owners to sue such contractors for disgorgement of all compensation paid for such work. The strict enforcement of Section 7031 has been based on the view by the courts that despite Section 7031's harsh consequences it serves the public policy purpose of ensuring that contractors meet the minimum qualifications necessary for licensure.
This bill revises certain criteria utilized by courts to find that a contractor is in "substantial compliance" with the State licensure criteria. Under existing law, a court may determine that a contractor has substantially complied with licensure requirements if specified conditions are met, including that the contractor did not know or should not reasonably have known that he or she was not duly licensed when the performance under the contract occurred.
As amended, the Legislature has removed Section 7031(e)(3), and the statute no longer requires a contractor seeking to establish substantial compliance to show that the contractor did not know or reasonably should not have known that he or she was not duly licensed at the time he or she began performing the work for which a license is required. Effective January 1, 2017, a court may determine that a contractor was in substantial compliance with the licensing criteria if the contractor is able to establish at an evidentiary hearing that the he or she (1) had been duly licensed as a contractor in the state prior to the performance of the act or work at issue; (2) acted reasonably and in good faith to maintain proper licensure; and (3) acted promptly and in good faith to reinstate his or her license upon learning that it was invalid. [B&P Code § 7031].
The amendment becomes effective January 1, 2017.