Construction is complete. You’ve done a splendid job — in your own humble opinion. More importantly, the owner is very pleased with your work. You shake hands, instruct your crew to round up the remaining supplies, and head back to the office. You direct accounting to send the final bill.
Weeks pass without payment. You’ve tried to contact the owner to no avail. Your initial excitement over the project turns to frustration as you add the file to your collections mound.
Eventually, you have your day in court. Surprisingly, the owner shows up — with a lawyer. And he has a defense. Your mind is racing. What argument could he possibly have that would preclude payment? He never complained about your work. He even called it “flawless.”
You needn’t wait long to find out. After a few moments of heated argument, the judge dismisses your claim for payment. Your contractor’s license had expired.
The scenario just described is not far-fetched. Indeed, it is a very real consequence of conducting construction work in both Virginia and North Carolina without a contractor’s license.
The Virginia Code requires a contractor’s license for construction work in excess of $1,000. In addition, it prohibits “contracting for, bidding upon, removing, repairing, or improving real property owned, controlled, or leased by another person without a license.” Any contractor1 who engages in construction without a license may be found guilty of a Class 1 misdemeanor and fined up to $500 per day for violation. Reinstatement does not retroactively revive an expired license.
The law was passed as an exercise of the Commonwealth’s police power. It is penal in nature and designed “to protect the public from inexperienced, unscrupulous, irresponsible, or incompetent contractors.”2 Owners contracting with unlicensed contractors cannot make claims against the contractor for not having a license. Rather, they can argue the contractor’s lack of licensure as a defense for non-payment. Asserted effectively, the defense nullifies contracts.
However, the law provides a safe harbor to lessen the harshness of noncompliance. One cannot assert the lack of a contractor’s license as a defense in a lawsuit to enforce payment if the contractor has given substantial performance under the contract in good faith and is without actual knowledge that a license was required.3 This is one time when ignorance of the law can be an excuse.
Courts have provided further protection for contractors by looking at the individualized facts of each case. If the owner has full knowledge of the statute and knows the contractor is without a license, yet the owner proceeds anyway, it will be barred from asserting lack of licensure as a defense.4 An owner who intends to assert lack of licensure as a defense from the very beginning must warn the contractor.5 A contractor who has passed the contractor’s exam but has not received a license is covered because it was eligible to get the license.6 In addition, a contractor who mistakenly believes that having a full-time employee with a license is sufficient for a corporation’s licensure will also be shielded.7
Simple knowledge of the statute’s existence is not enough to show actual knowledge of the statute’s requirements when a contractor does not fully understand the legal effects and practical application of the licensing requirements.8 Failure to renew a license, however, may create a rebuttable presumption that the contractor had actual knowledge of the statute’s requirements.9 Considering the possible effects of noncompliance, both criminally and civilly, it is best that contractors strictly observe Virginia’s licensing requirement.
North Carolina Law
North Carolina law requires a contractor’s license for construction work in excess of $30,000. In addition, it prohibits “[a]ny person, firm, or corporation not being duly authorized” from “contract[ing] for or bid[ding] upon the construction of any of the projects or works enumerated in [the law].” Any general contractor10 who engages in construction without a license may be found guilty of a Class 2 misdemeanor.
Using an expired or revoked license will constitute a violation of the statute. Reinstatement does not retroactively revive an expired license. All licenses expire on December 31st of the year they were issued or renewed and shall become invalid 60 days thereafter unless renewed by the North Carolina Licensing Board for General Contractors. A contractor may recover for expenditures on labor and materials during the 60-day period following expiration, but not for any time thereafter.11
The law was passed as an exercise of the state’s police power. It is penal in nature and designed to “protect the public by insuring confidence and integrity within the construction industry.”12 An owner contracting with an unlicensed contractor can assert the law as a defense for non-payment. Asserted effectively, the defense makes contracts entered into by unlicensed contractors illegal and unenforceable. An unlicensed contractor is likewise precluded from recovering in quantum meruit (recovery for the reasonable value of services).13
There is no substantial performance or good faith exception to the rule in North Carolina. The consequences of noncompliance with the licensure statutes are very real and unsympathetic. Accordingly, if you are a general contractor, you should obtain a contractor’s license from the North Carolina Licensing Board.