License to Work: Construction Contracts Can Become Unenforceable

By Karalynn Cromeens

I’m passionate about construction contracts. If you understand the terms of your contract and you create or negotiate one that is clear and fair, it can be the best tool to help protect and grow your business. However, clients often ask me if the contract is as iron-clad as I say it is. My answer is always the same; luckily, it’s tough for an entire construction contract to be considered unenforceable. However, there are some instances where specific parts, or occasionally the entire body, of a construction contract can be rendered

Know What’s Enforceable

Most construction contracts have a provision stating that if any part of the contract is void or unenforceable, it can no longer affect the rest of the contract, and the other provisions still stand and are still enforceable. However, while most contracts have a provision protecting the rest of your contract when one piece of it is unenforceable, not all of them do. If one part of your contract is unenforceable, it likely invalidates the entire document. It is essential to include this provision in your contract if you want the rest of the documentation to be upheld. It’s also wise to do what you can to ensure all parts of your contract remain enforceable. Research what your state allows to ensure your contract’s provisions are legally enforceable under said state’s regulations.

State by State

Neglecting to attain your license in a state where it’s required, such as Georgia or California, is the only situation that could invalidate a construction contract entirely and cause it to be utterly unenforceable. If you perform work without a license, even if your client signs the contract, they are under no obligation to heed the contract in those states. You forfeit your right to be paid and essentially work for free. A license is the only thing allowing you protection via a signed contract in multiple states.

It is imperative to research the state in which your company is based and find out its mandates regarding licensed work. I recently was contacted by a contractor who had just completed a $70,000 job in California (not his home state) and had been waiting a while to collect from the client, who had spontaneously stopped making payments. He was still waiting on more than two-thirds of the owed funds for his work and reached out to see if he could take legal action. Usually, he would be able to exercise his lien rights and file a lien upon the property to expedite his compensation. After talking with him further, however, I learned he was not licensed to work as a contractor in California. Because he did not have a license there, the client had absolutely no obligation to pay him the $70,000.

It isn’t complicated to protect the validity of your contracts, but you must take these two primary precautions. Your contract is your best protection, and you cannot afford to risk invalidating it. Do your part and invest in the well-being of your business by taking these essential steps.

Karalynn Cromeens is the owner of The Cromeens Law Firm and The Subcontractor Institute in Houston. She has been a licensed construction attorney for over 16 years.

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