Emergency “Board Up” Work.

It has been bandied about as long as I can remember that emergency “board-up” work doesn’t need a contract – that there are special exceptions/waivers in the Business and Professions Code to the written contract requirements for home improvement services.

This is a contractor urban myth. There are no explicit statutory exemptions for emergency services from the writing requirement if the cost of such services exceeds $500.

I not only looked in the Business and Professions Code, but actually asked David Fogt, Chief of Enforcement for the Contractors State License Board.

Business and Professions Code Section 7151 defines what are considered home improvements, as well as home improvement goods or services. If any of the statutory criteria are meet, then a written contract is required. And it doesn’t take much.

Whether boards placed over the windows and other openings on a home after a fire or other emergency situations would be considered “affixed” as to meet the statutory requirement is an interesting question. Given that such boards/materials are temporary by their very nature, they may or may not be covered under Section 7151.

However, there are no clear statutory exemptions for such emergency services. If the cost to provide such were to exceed $500, it is advisable to have a written contract.

So what does one do in a “board-up” situation? Give the client a contract of course. The tougher question is – the regular long one with all of the notices, or a short one? If one is also going to do any follow up remedial work, use the long one.

“Stearman Fees”; What In The World Are They? This also came up recently. An attorney chasing after one of my contractor clients threatened him with these critters; “…and we are going to request Stearman Fees too.” I was, for once, a bit clueless when asked about them.

Although you may not be familiar with the term now, you probably will be at some future time. The term comes from a California lawsuit in which the plaintiff was Stearman. These specific fees/costs are becoming more common as a threatened measure of recovery by homeowners against contractors in construction defect cases. (I recently saw them again in a second matter.) However, they appear only applicable to a very specific group of contractors in very specific circumstances.

“Stearman fees” or “Stearman costs” are not really fees or costs at all, but a specific type of damagesthat may be claimed by a homeowner plaintiff in an action alleging construction defects to a residential property. These damages entitle homeowners to recover any expert fees incurred for repair or expert investigative services involving the construction defect in question.

These types of damages may only be sought however against a “builder”. For the purposes of these damages, “builder” means a builder, developer, or original seller. But here is the kicker: they only apply to new residential units sold on and after January 1, 2003.

In summary, Stearman Fees only apply to those contractors who have constructed new homes which were sold after January 1, 2003. But they typically don’t apply if you are involved with a home improvement project of an existing home. The threat of Stearman Fees may come up, but they usually do not apply to remodelers.

So now you know.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

V's Demolition

Vincent Altman is the owner of V’s Demolition, which specializes in demolition, deconstruction, and jobsite protection. On deconstruction projects his company will remove and recycle the sheetrock, tile, and roofing material; take down and de-nail the frame; and salvage fixtures, cabinets, and tubs. In most cases, the property owner can offset part of the cost of deconstruction by getting the salvaged material appraised and then donating it to a nonprofit. V’s Demolition also does regular demolition work – anything from removing a chimney or deck to taking down entire buildings. Protection services include covering floors and stairs, protecting door jambs, erecting dust walls, and providing negative air machines to keep dust from entering other parts of the home.

Located in Santa Cruz, V’s Demolition serves the entire Bay Area – from Monterey to Marin and east to Contra Costa County. When asked why he joined our chapter, Altman said he wanted to network with remodelers who belong to NARI because they work to a higher level than most other contractors – and that’s a good fit for the level of service his company provides. This is especially true on high-end projects, where you might have to demo parts of the building without damaging the expensive finishes that have to remain. On those projects, Altman will do what he calls “museum grade” protection.

Altman got his start in the early 1980s, doing roofing tear-offs – which at the time was an unusual specialty. As more and more companies began to offer this service he transitioned to demolition and deconstruction work. When he is not working in the business or spending time with his family, Vincent (who goes by “V”), is an avid telemark skier.

Vincent Altman
V’s Demolition
(800) 801-8638
valtman@vsdemolition.com

The big news is the shake up at the Building Department. Vivian Day has been replaced by Ed Sweeny, who is now acting Director. I am sure there is a really interesting story behind this development, and I will have more news next month. In the past, Ed Sweeney has viewed enforcement as a low priority. NARI needs to meet with him and share our views.

The DBI has also instituted a new automated inspection scheduling arrangement; you can now call anytime 24/7 and schedule an inspection. DBI’s newly-activated Scheduling Number is: (415) 575-6955. However, I suggest you visit the web site first as the procedures are a little complicated. http://sfdbi.org/Modules/ShowDocument.aspx?documentid=792.

Anyone who has experienced this new system is encouraged to write a review for our members. We will share member comments with Mr. Sweeney when we meet with him.

There is a new policy that waives all permit fees for any soft story seismic upgrades done to buildings in San Francisco. Further, any such upgrade done under current rules will be exempt from further requirements for a period of 15 years from the date of completion. This will encourage owners to do the work now as it will make them exempt from any new requirements imposed in the future. There is a mandatory upgrade law in the works for all soft story buildings so you should encourage your clients to take advantage of this policy.

The NARI National Government Affairs Committee has been meeting regularly with the EPA concerning the Lead Safe rules they have promulgated. One of our issues is how these rules will be enforced. They recently responded to our questions about this. It came as no surprise that they admitted they will be focusing on those that ARE certified as opposed to going after those who are out there operating without any certification. By their own estimates, there should be about 900,000 certified contractors, but as of today, only about 90,000 have actually been certified. The claim they don’t have the resources nor the ability to discover who the 810,000 outlaws are, so they will be spending 100% of their enforcement dollars looking at us to insure we have all our t’s crossed and I’s dotted. Look out!

We all know that California law requires that a contract for home improvement between an owner and a contractor must be in writing and contain specific provisions (see Business & Professions Code section 7159). Although I am sure that every contractor reading this article would never enter into an oral contract for home improvement, it has been known to occur.

Oral agreements for home improvements are generally unenforceable because they are contrary to California’s well established public policy of protecting unsophisticated consumers. In addition, the writing requirement acts as a procedural safeguard protecting all parties against the possibility of fraudulent claims. However, the following California case is an example of when a contractor may enforce an oral contract for payment – but only when certain factors are present.

The Case.
Hinerfeld-Ward, Inc v. Lipian, decided in 2010, involved a high end home improvement project. Although mandated by law, the homeowners did not have a written contract with the contractor. The owners (the Lipians) retained Hinerfeld as their contractor and work proceeded for the next two years, generating 19 invoices. The Lipians then disputed certain charges on the 20th invoice. (That darn 20th invoice.) At that time, the Lipians owed their contractor over $200,000.

The Lipians terminated Hinerfeld. Hinerfeld, in turn, sued for payment. The Lipians claimed they owed nothing because the oral contract with Hinerfeld was void and thus unenforceable. They contended that California’s statutory requirement that all “home improvement” contracts must be in writing prevented the court’s enforcement of the “void” oral home improvement contract. The trial court disagreed and awarded the contractor Hinerfeld damages and attorneys’ fees.

The Factors.
On appeal, the court set forth factors to establish when it would be unjust to declare an oral contract void and thus unenforceable. The factors included: i) the homeowners Lipians were sophisticated individuals and not within the class of unsophisticated consumers intended to be protected by the statute; ii) the contract in question, for a unique, long-term, ever evolving construction project, was not the type that California’s public policy would declare void; iii) the owners’ relationship with their architect as their representative was long-term and well-established, and served to protect the owners’ interests; and iv) the owners had accepted the benefit of the agreement. In summary, the court said that “…this is a compelling case warranting enforcement of the oral home improvement contract…” All the factors combined to support enforcement in favor of the contractor.

And there is even an odd twist. California law restricts the ability of a homeowner to hold back progress payments by limiting any amount withheld to 150% of the value of the disputed item. Rather than paying the amount that was undisputed, the Lipians withheld the entire amount of the billing, thus violating the statute. This aggressive tactic of withholding the entire amount seriously back-fired. The court strictly applied the statute against the Lipians. Their violation cost them the additional statutory penalties and attorneys’ fees.

The Moral.
The lesson here is that in any business relationship it is important to “get it in writing” to avoid this kind of thing. But this case demonstrates that even if a statute requires a written contract, exceptions may exist – especially when a strict reading would work an injustice.

This case also offers a number of lessons on how to manage and document a successful home construction project – some of them strategic, some of them psychological, and some of them legal. So look it up on Google.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

Located in the heart of San Francisco, the new Ferguson Design Center is a private environment designed exclusively for designers, developers, builders and their clients.

Once you see it, don’t hesitate to make an appointment to return!

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

As covered in my previous article, beginning January 1st, 2012 the Contractors State License Board will begin processing applications for issuance of limited liability company contractor licenses. Until now contractors could be sole proprietors, partnerships, or corporations, but not limited liability companies.

Giant, Death Penalty Faux Pas. In my last article, I repeatedly referred to “an” LLC. My fourth grade teacher promptly contacted me and correctly pointed out it was properly “a” LLC. I stand corrected and red faced.

Previous Article. In Part One, I covered what a limited liability company is and some of its advantages and disadvantages in comparison with corporations. Here is brief summary to jog the memory:

Limited liability companies (LLCs) are a flexible form of business entity that blends elements of partnership and corporate structures. It is a legal form of company that provides liability protection to its owners.

Often incorrectly called a “limited liability corporation” (instead of company), a LLC is a hybrid business critter. The primary characteristic it shares with a corporation is limited liability. The primary characteristic it shares with a partnership is the availability of pass-through income taxation. It is considered more flexible than a corporation and it is well suited for companies with a single owner.

It is important to understand that “limited” liability protection does not mean that the LLC owners are always absolutely protected from personal liability. Similar to “piercing the veil” attacks on corporations, courts can and sometimes do “pierce the veil” of a LLC when some type of fraud or misrepresentation is involved.

California Senate Bill 392. Starting January 1, 2012, this bill amends the California Business & Professions Code Sections 7071.65 and 7071.19 to allow contractor’s licenses to be issued to LLCs. This law brings California in line with the majority of states that permit a contractor to be formed as a LLC.

Advantages (and differences from corporations). The advantages of a LLC – and mitigating for a change – are several.

Costs. As discussed in Part One, start up costs are a bit less expensive than for corporate formation.

Good for Certain Large Contractors. LLCs perhaps would be a good fit for contractors who are involved in real estate development joint ventures. They would also provide planning opportunities for developers who desire to create special purpose general contractors. For instance, affordable housing developers frequently desire to act also as a general contractor in the development of affordable housing due to differing guidelines many state housing agencies have with respect to fees that can be charged for development activities, as opposed to general contracting activities. Expanding contractor licensing to LLCs creates greater flexibility than a corporation for these developers in structuring such arrangements.

Disadvantages. There are also disadvantages to being a LLC – thus mitigating switching from a present corporation to a LLC.

Additional Surety Bond Requirements. Addressing concerns about leaving construction employees without recourse for non-payment of wages, additional bond requirements were enacted. For a LLC to hold a contractor’s license, in addition to the $12,500 contractors’ bond required it must file and maintain an additional surety bond in the amount of $100,000 for the benefit of employees to ensure payment of wages, interest, and fringe benefits.

Increase in Required Insurance. LLCs will also be required to maintain an errors and omission insurance policy in an amount not less than $1,000,000, and up to $5,000,000, depending on the number of persons listed on the personnel record of the LLC.

Business Taxation. Both corporations and LLCs must pay California business entity income tax. Because the LLC entity income tax is based on sales, all other things being equal a LLC would appear to be required to pay more.

So, Switch? If you are presently a corporation, should you switch to a LLC? If you are a large player, or plan to be one, and want more flexibility in structuring your entity, consider it. But run the numbers first, and for heaven sakes, also talk with your CPA.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? His website is www.bryantbyrnes.com. Feel free to contact Bryant by email at bhbatty@pacbell.net.

Casearstone Counter Tops

Caesarstone

Caesarstone is the original quartz countertops and surfaces manufacturer.

The company is headquartered in Southern California with offices in Los Angeles, San Francisco, Seattle, Colorado, Miami, New York, Atlanta, St. Louis and Dallas.

Caesarstone produces premium quartz countertops and surfaces, complementing any design application, from traditional to contemporary, for both home and commercial applications.

Caesarstone products are available through kitchen and bath retailers, fabricators, architects, designers, builders and distributors nationwide.

Offering a Residential Lifetime Warranty, Caesarstone countertops and surfaces are nonporous, stain, scratch and heat resistant. Caesarstone has earned the respected Good Housekeeping Seal from the Good Housekeeping Research Institute and is in compliance with stringent international environmental standards, including ISO 14001(environmental management system), ISO 9002 (quality management standard), and NSF (public health and safety).

A sustainable material, Caesarstone is GREENGUARD certified and is a member of the U.S. Green Building Council (USGBC).

For more information about Caesarstone and its products, please call uf toll-free at (877) 978-2789, or visit the company’s website:

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

Beginning January 1st, 2012, the Contractors State License Board will begin processing applications for issuance of limited liability company contractor licenses. Until now, contractors could be sole proprietors, partnerships, or corporations, but not limited liability companies.

So what is a limited liability company? For those that may be considering a change in their entity status, below is a brief discussion of what a limited liability company is – including its advantages and disadvantages.

Limited liability companies (LLCs) have become a most popular choice for small to medium-sized businesses when compared to corporations or partnerships. Often described as the combination of a partnership and a corporation, the LLC combines a corporation’s liability protection with a partnership’s tax flexibility.

Advantages (and differences from corporations). The advantages of an LLC are several.

Less paperwork. Aside from filing the Articles of Organization, LLCs have very few paperwork requirements. Unlike corporations, LLCs are not required to keep meeting records regarding company decisions and business issues. Nor are annual meetings and minutes required.

Flexible management. An LLC can take whatever management structure the members deem fit to operate the business. Only one member is required. Unlike corporations, LLCs are not required to have a Board of Directors or Officers. LLCs instead use titles such as: member, manager, managing director, and chief executive officer.

Liability Protection. Unlike a partnership or a sole proprietorship, the personal assets of an LLC member are not at risk by operating as an LLC. Similar to a shareholder in a corporation, an LLC member is only liable for business loss judgments, and lawsuits up to their ownership interest in the company.

Taxation. LLCs are treated as a “pass-through” entity by the IRS. This allows members to report their share of profits or losses on their individual tax returns. The IRS does not assess taxes on the company itself. This avoids the “double taxation” that corporations experience.

Profit Distribution. Profits are distributed to members in any fashion deemed suitable. The ownership interest of an LLC member may not be an indicator of the amount of profits received or losses claimed.

Disadvantages. There are also disadvantages to being an LLC.

Entity Structure. All California LLCs are required under state law to have a Limited Liability Company Operating Agreement. Being there is no requirement for Officers and/or a Board of Directors; this agreement must address the rights and duties of the members, contributions, distributions of profits, etc. It is up to the members to prepare this.Annual Franchise Tax. Unlike corporations, at present LLCs are required to pay the annual minimum franchise tax of $800.00 during the first calendar year.

Annual Franchise Tax. Unlike corporations, at present LLCs are required to pay the annual minimum franchise tax of $800.00 during the first calendar year.

Double Taxation. In some instances, double taxation occurs – the company’s profits are taxed by the IRS at the business level.

Various Perhaps Confusing Titles. The principals of LLCs use many titles — member, manager, managing member, chief executive officer — which can be difficult for others to determine whom actually has the authority to act on bhelaf of the LLC. (As stated above, LLCs are not required to have a Board of Directors.)

Part Two. Stay tuned for next month’s article discussing further the comparison of LLCs to corporations, and whether it makes sense to switch to an LLC if you are already doing b usiness as a corporation.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the SFBA NARI Board of Directors. Questions? Feel free to contact Bryant by email at bhbatty@pacbell.net.

Urban Ore

We are a supply-driven retail business and occupy more than 3 acres with nearly all secondhand goods. The outdoors Building Materials department features a well-organized inventory of windows; sinks; tubs; toilets; ceramics and stone; pipe; lumber; and garden supplies. Inside the 33,000-square-foot warehouse are 22 categories of doors; cabinets; a hardware department; furniture; housewares; books; art, office supplies, and home electronics; clothing; collectibles and jewelry; and old gas stoves.

We acquire materials by salvaging at the City’s transfer station; picking things up in response to calls; and receiving incoming materials from contractors and the general public. We receive many things for free as an environmentally friendly reuse disposal service, although we buy some items for cash or trade credit, typically paying no more than 20% of anticipated sale price. Both sales and receiving are open to the public 360 days a year.

Receiving closes at 5:00PM, and sales continue until 7:00PM. Come to explore or shop. Be sure to bring a truck!

Urban Ore
900 Murray Street
Berkeley, CA 94710

Bryant H. Byrnes, Esq.

By: Bryant Byrnes, Esq.

In last month’s article I discussed the small claims court process and procedures – preparing the complaint, filing it, service, etc. (If you missed the article, please visit SFBA NARI’s website and click on the link “In the News/Newsletter” under “For the Trade.”) What follows is a discussion of the small claims hearing itself.

The Small Claims Trial In General. It takes place in a regular superior courtroom, but the differences from a regular trial are several. First, no attorneys are allowed to represent parties (unless one is a party herself or himself). Second – and more important to you – most of the judges are not regular superior court judges. They are older, experienced volunteer attorneys who get a thrill from wearing a judge’s gown and pounding the gavel. (“Order! I will not tolerate any more untowards behavior!”) They may be probate specialists, criminal defense attorneys, or in personal injury. As a result, your particular judge may not know a lot about breach of contract and/or construction. That is why I think the “small claims brief” discussed below is an important tool for your success.
The Hearing Itself. What if the other party does not show up? Easy; you win as a matter of course if your paperwork is in order.
It is when the defendant does show up that you have some work to do. And this is when a brief is recommended.

The Brief. A brief is a written statement setting out the legal position of a party. Here it should be short, about two or three pages.

Your small claims brief should have a brief recital of the facts, a brief statement of relevant law, and the attachments of documents to your case. Theses attachments typically are the contract, change orders, and invoices – and any collection letters. Keep in mind that as the plaintiff you have the “burden of proof.” This means you have to prove to the judge that it is more likely than not that your version of the facts – that you did the work, the work was fine, but you were not paid – is correct.

Because the judge frequently may not know much about construction or contract law, the brief gives the basic law and facts that he or she needs to render a decision. Always bring three copies of the brief and its attachments – one for the judge, one for the defendant, and one for yourself.

While a good idea regardless, it is when the other party shows up that the brief is crucial. It can be used as your script to explain to the judge what has happened. It is also a way to get your key documents (which are attached) to the judge.

Since you are the plaintiff, you get to go first. (“OK, Mr. Flutterblast, tell me what happened.”). What usually works is to hand the judge a copy of the brief and say you would like to briefly recite the facts. The judge may or may not want you to; sometimes he or she simply reads it and says “OK” – and then lets the defendant talk.
Another reason the brief is important is judges rarely rule immediately from the bench when it is contested. When he or she sits down later to review the papers and decide the case, the brief with its facts and documents makes it much simpler to render an award for you.

The Winner? Now what. Once you win, what do you do? You should take your judgment and turn it into an Abstract of Judgment. An Abstract of Judgment is a fill-in-the-blank court form which summarizes the court judgment and when filed with the appropriate County Recorder’s office becomes a lien on the debtor’s property. And should the defendant debtor refinance or sell the property, the judgment (with rare exception) must be paid.

In the meanwhile, the interest on the judgment is 10 percent per year. Judgments are good for 10 years and may be renewed prior to that for another 10 years.

Previous Articles. You’ll find previous articles on this blog under Legal Advice Column.

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Bryant H. Byrnes, Esq. practices construction law in the San Francisco Bay Area and is counsel to the NARI Board of Directors. Questions? Please feel free to contact him by email at bhbatty@pacbell.net.