California- Limit to Down Payment Request
CaliforniaA California Company, manufactures custom windows/doors/ iron forge for high end residential. Some projects are new builds and some are complete remodels. The company provides onsite installation on 90% of projects. In regards to down payment law in California, can the company request higher than the 10% down- this phase includes design work for approval, procuring long lead foreign materials etc? If not, should the company request 2 separate orders from client- 1 for Fabrication (PO) and 2 for onsite install, o/h, etc (contract)? Will this then allow the fabrication to request a larger down payment for the design and procurement of long lead materials? My assumption is on the second order it would cap at the 10% or 1,000 which ever is less?
2 replies
Whether or not the down payment requirement applies is going to depend on who your contract is with and the nature of the project. Home improvement contracts under Business and Professions code section 7159 are subject to the down payment limit of 10% or $1000, whichever is less. Home improvement contracts are required when your contract is directly with an owner or a tenant for work on a residence – other than a new build (ground up construction).
So, if you are contracting for a new build, or your contract is not with the owner or a tenant, the down payment limit will not apply. If the limit does apply, the safest approach is to limit your down payment to the 10% or $1,000, whichever is less. Using two contracts, one for fabrication and the other for installation is a potential work around. But I would be concerned if both contracts are with the licensed entity as the CSLB may not view this an a legitimately separate transaction. If this is a situation that happens routinely, you might consider creating a separate entity to run the fabrication under so that only the installation contract can be considered a home improvement contract and so that the other contract can be construed simply as a contract for the sale of materials. Depending on the specifics of your business, this solution may be feasible. But I would recommend a more thorough review by and attorney before making such a change.
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The limit on down payments applies only to contracts for home improvement.
In the below if the fabrication and installation are separated into two contracts, it appears that the limit on down payments would not apply to the fabrication contract but would apply to the installation contract.