Can an Unlicensed Contractor File a Lien? A Legal Primer

Understanding Mechanic’s Liens

Often used interchangeably with "construction lien," a mechanic’s lien most simply gives a contractor the right to take ownership of property should they not be paid for work that they have performed. These liens have existed since ancient Rome, but American property liens generally originated in Britain. A mechanic’s lien gives a contractor the right to file a claim against a property for money owed to them for projects completed , should there be a failure to pay within the contract terms. Filing a lien is meant to encourage an owner to be sure that they pay their contractors and suppliers.
A mechanic’s lien attaches to the property when the contractor first begins work. Once the work is completed, the property owner has 90 days to pay the amount owed or to have the lien removed from their property. When recorded, a lien can cloud the title of the property, which may prevent the owner from transferring or selling it until the lien is released. If the claim is not satisfied, the contractor can foreclose on the property in order to satisfy the debt.

Contractor Licensing Requirements

Contractors are typically required to be properly licensed for the work that they perform. Licensing assures their clients that they have at least undergone some screening, and have provided assurance that they have a fundamental knowledge of the work that they provide. The potential for providing substandard or unsafe work is diminished through licensing requirements.
The legal ramifications for hiring an unlicensed contractor can be substantial. Most often, a license is a requirement that is strictly enforced by law. Homeowners should be careful to hire a properly licensed and bonded contractor. Some states provide exceptions to license requirements for homeowners to allow owners to act as a licensed contractor when providing work upon property owned by them. Wisconsin is one state with such a homeowner’s permit. However, just because such a license may be issued does not guarantee that the person has acquired any greater skill, expertise, or ability than an unlicensed person who may have performed the work.
Prior to hiring a contractor, a homeowner should request copies of licenses. A contractor who has been properly licensed in the relevant jurisdiction should be more than willing to provide copies of said licenses. If you have any doubt as to whether the provided license is authentic, you can contact the issuing authority to confirm whether the license is legitimate.
If a contractor is not properly licensed for the work that they provide, you may be unable to pursue certain rights against the contractor. In some situations, you may be barred completely from any claims for licensure of a person providing services. For example, in Wisconsin, homeowners do not have any recourse against contractors who are not licensed. While you may still be able to pursue other remedies (i.e. fraud claims), an improperly licensed contractor is essentially immune from breach of contract claims. Similarly, civil laws are not available for most cases in which the Home Improvement Code has been violated by a contractor. For example, remedies under the Wisconsin Home Improvement Code may not be available to homeowners who hire unlicensed contractors. By seeking out an unlicensed contractor, you may be denying yourself potentially valuable remedies under the Wisconsin Home Improvement Code.
You should also consider the licenses and certifications that a properly licensed contractor possesses. Just because a person has obtained a license in one specific area does not mean that they are necessarily a qualified, competent, and experienced contractor in another area. For example, many contractors may simply obtain a general contractor license. Many states require only minimum qualifications, and the general contractor license may not have been difficult to obtain. More specialized contractors may have taken considerable additional courses and studies to become certified in specific fields.

State Laws Permitting Liens Filed by Unlicensed Contractors

Of the states that allow enforcement of a lien for services provided by an unlicensed contractor, most only make that allowance if the owner fails to respond after having received a proper notice of potential lien rights. In those states, when the owner has received a proper notice, the uniform or State variation of the Uniform Commercial Code, which governs security interests, still only allows a lien when a legal and equitable owner grants one after the fact in a case where there is a dispute.
Georgia, Maryland, Washington, and Virginia all allow enforcement of an unlicensed contractor’s lien if the owner fails to respond to a notice of potential lien; they also allow an unlicensed contractor to enforce a lien under the provisions governing mechanics liens. See Va. Code Ann. §43-3; M, D,C& A.R. Co. v. Coal & Coke Co., 77 W. Va. 337, 87 S.E. 569 (1955) (allowing a mechanic’s lien for the entire contract price if the contract is partially invalid); Md. Real Prop. Code. § 9-104; Ga. Code Ann. § 44-14-361.3. In Delaware, an unlicensed contractor has no recourse beyond the $500 mechanics lien exemption. See Heyser v. Glick, 385 A.2d 151, 152 (Del. 1978) (finding no basis for mechanics lien other than the statute authorizing it, which is an express exception to the general prohibition against recognition of mechanic’s liens for work performed by unlicensed contractors). Tennessee, Montana, South Dakota, North Dakota, Nebraska, New Jersey, Connecticut, Alabama, Maine, Louisiana, and California provide that an unlicensed contractor may assert a lien that attaches to the property in question. See Tenessee Code § 66-11-113; Mt. Code § 71-3-721; S.D. Codified Laws § 44.7-1-2; N.D. Cent. Code 35-27-14; Neb. Rev. Stat. 52-139 (prohibiting a lien absent a license but allowing a private action for collection of fees); NJ Rev Stat § 2A:44-162; Conn. Gen. Stat. 31-53(a) (allowing a lien for work performed by unlicensed contractors with possible double damages for recovery); New York Lien Law § 5 (allowing a lien for work performed by an unlicensed contractor in certain limited circumstances); Ala. Code 35-11-213; Me. Rev. Stat. 32-3301(7); La. R.S. Title 9, Chapter 1, part III, § 271 ; Cal. Civ Code § 7108 (allowing lien rights for all subcontractors, including unlicensed subcontractors, who work under an unlicensed contractor). Again, all of the above exceptions for providing lien rights for unlicensed contractors contain a notice provision or permit only the enforcement of a lien for goods supplied. Only South Carolina provides complete protection against a lien, allowing full recovery for all work performed. See Campbell v. Peters, 73 S.C. 172, 53 S.E. 505 (1907) (refusing to recognize a mechanics lien for work performed by an unlicensed contractor). We will continue to monitor the treatment of liens by unlicensed contractors; any changes to the above list will be noted in the text of this section.

Legal Precedents for Liens Filed by Unlicensed Contractors

There is a well-known case that went all the way to the Court of Appeal on the question of whether an unlicensed contractor could file a lien that the Superior Court said: "On the one hand, Business and Professions Code section 7031, subdivision (a), provides, with limited exceptions, that "[a] person who is not licensed . . . when he or she performs any acts for which a license is required" may not bring any action in court to collect compensation for the work he or she has performed. On the other hand, the relevant statutes do not state clearly whether a mechanics lien is an "action on contract" or not, leaving the matter subject to contradictory inferences.".
The conclusion of the Court was that the lien was valid, and the owner had to pay it as it was the job of the contractor to decide that he wanted to take the risk of filing a lien as an unlicensed contractor.
The scenario here was that the lien claimant had agreed to be paid in cash, that there was a dispute as to whether a license was needed or not, that no work had been done for over a year until the lien was recorded (in the meantime, the contractor brought in an unlicensed journeyman to perform the work), and that when the work was completed, the owner refused to pay. In its holding, the Court of Appeal noted that the failure of the "unartful judgement of the drafter of the mechanics lien waiver form, who in the space of two lines identified [the claimant] as ‘a Corporatio…doing business as xxxx lic. #xxxxx’." does not preclude the unlicensed contractor from making an equitable claim in the nature of a mechanic’s lien .
It seems strange that this case is still the law even though this was a commercial project and not residential and the case of Pacific Custom Pools, Inc. v. Baird, 197 Cal. App. 3d 88, 242 Cal. Rptr. 751 (1987) held that, a "contractor who performs work for which a license is required but is not a licensed contractor is barred by Bus. & Prof. Code, § 7031, subd. (a), from making three kinds of claims against the owner: (1) a suit for the contract balance due; (2) an action on an implied contract for quantum meruit; (3) a mechanic’s lien. We conclude that because a mechanic’s lien created by Bus. & Prof. Code, § 7040 et seq., gives rise to a claim of ownership of a lien against settled or settled property, the statute barring a "a suit to enforce a mechanic’s lien" bars an unlicensed contractor from asserting a mechanic’s lien.
The appeal that went to the California Supreme Court appears to have been dismissed without a decision on September 19, 1988.
In the Pacific Custom Pools, case the defendant filed a cross-complaint against the contractor and his insurer, seeking damages for work performed in reliance on an oral agreement (Breach of Contract). The appellate court reversed the judgment in favor of the defendant and the judgment against the contractor on his quantum meruit and mechanic’s lien claims, and held it was error for finding the cross-complaint of the defendant (indemnity) a valid claim without sufficient evidence of damage. The appellate court affirmed the finding on the Breach of Contract.

Sanctions for Working Without a License

For a variety of reasons, a contractor may work without a license. Maybe s/he is not aware that a license is required. Perhaps license fees are too high for the contractor to justify the length of time necessary for licensure, or perhaps the likelihood of obtaining even one or a few jobs is simply not enough of a return to make the license worth the time and cost. Or perhaps the contractor believes that a license is not required because he "doesn’t pull permits" and only does small jobs. Depending on the circumstances, the contractor’s lack of a license could spell disaster. It could also make the difference between winning a lawsuit and losing.
A contractor often requires a business license or local contractor’s license in addition to his state license. For example, a contractor performing construction services in California would generally require a state contractor’s license from the California Department of Consumer Affairs. Most municipalities also require a business license or a local contractor’s license. Depending on the municipality, a contractor may be required to obtain a license to work within that municipality’s jurisdiction. If a contractor only works in one city or town under one county building department, this may be sufficient, but if a contractor travels or has greater ambitions, multiple licenses may be required.
Depending on the state in which a contractor is working, most individuals who "contract" to provide labor or materials for work on any improvement at a property are "contractors". For example, in California, any "Contractor" is defined as "any person who undertakes to, or offers to or agrees to, undertake to construct, alter, repair, or improve any structure…." California Business and Professions Code § 7026. The definition of contractor is sufficiently broad to include just about anyone who performs work on a property or improvement. The phrase "undertakes to, or offers or agrees to, undertake" appears to include any informal arrangement with a homeowner or builder to perform work at a property, even if the contractor does not collect from the homeowner. This could apply equally to someone who contracts to provide labor or materials but is simply paid by a subcontractor or general contractor for the performance of labor or provision of material. It could easily apply to a handyman who shows up at a homeowner’s house on short notice to help with a broken door handle.
As you can see, "contractor" is a broad definition and the consequences that arise from working as an unlicensed contractor are significant and far reaching. Imagine that a homeowner decides to commence construction litigation. The handyman, subcontractor, or other individual who was not licensed at the commencement of the work could be barred from recovering any compensation for the work that they provided. These remedies may be technically limited under state laws and codified remedies, but courts are often willing to follow the intent of the statute even where the letters of the statutes fall short. The result may be a complete forfeiture of any compensation for work performed during the "illegal" period while the contractor lacked a license. This remedy may seem harsh, but it is intended to encourage compliance with the licensing law.
The prohibited work may also include work "directly related to" the hiring of unlicensed contractors. For example, "The period of time during which a person is unlicensed shall not be excluded" in determining the costs associated with work performed. That said, even if a contractor is licensed at the time the contractor files a lien, if the contractor performed unlicensed work, the court has discretion to invalidate the entire lien or at least a portion of the amount claimed by the contractor to the extent it includes unlicensed work. In that event, a contractor may be barred from filing a mechanics lien and therefore forced to accept whatever payment or compensation it receives, even if that amount is significantly below the reasonable value of the work.
Construction contractors often assume that a project will proceed without issue. As a result, contractors at times unwittingly work for an owner who has not paid a general. Later, when the contractor wants payment, it finds itself at odds with the general contractor and the business relationship becomes acrimonious. When that happens and the contractor wants to file a lien, it may learn that the developer is under no obligation to pay for work performed by an unlicensed contractor.

Possible Remedies for Non-Payment

When an unlicensed contractor finds itself embroiled in a payment dispute, the issue of whether there is any possible remedy depends upon the circumstances surrounding the particular situation. As set forth above, even if a lien is recorded against the property, it may be unenforceable. However, that does not mean that an unlicensed contractor cannot use other legal avenues to collect payment for its work. It must first be noted that the rights of unlicensed contractors vary widely from state to state. This article discusses the rights of unlicensed contractors in California and that state’s particular rules and exceptions for unlicensed contractors and their claim to recovery. As noted elsewhere in the article, an unlicensed contractor cannot recover on a theory of contract, quantum meruit or in equity to enforce a mechanic’s lien unless they can make the following showing: A party seeking to enforce a contract subject to licensure bears the burden of showing they are licensed. (See Commercial Code section 3302; Quacchia v. Chapin (1885) 68 Cal. 214, 216.) The same rule applies in the context of suing or enforcing an equitable lien or a quantum meruit action. (See Huber v. Berlan (1892) 96 Cal. 137, 141; Civia v. Fasulakos (1969) 271 Cal. App. 2d 788, 797.) An unlicensed contractor may seek recovery on any oral agreement to compensate the worker for his/her labor if the work is performed in connection with "minor work on a single-family structure performed on an owner-occupied house/construction project established in compliance with all applicable state and local licensing laws." (Bus. & Prof. Code, section 7031, subd (b).) Another means by which a contractor may recover is to sue in quantum meruit. In a quantum meruit action, a plaintiff seeks to recover the fair market value of the services provided. (See URS Corp. v. Atkinson Ware Construction Co. (2007) 164 Cal. App. 4th 206, 218.) A quantum meruit recovery is available if the contractor shows either: (1) that he is licensed at the time he sued, or (2) he was in substantial compliance with the licensure requirements. (See Green Trees v. Napa Valley Lumber, Inc. (1975) 48 Cal. App. 3d 141 , 142.) Substantial compliance exists if the contractor establishes that he/she meets all but a minor aspect of the licensure requirement. (See URS Corp. v. Atkinson Ware Construction Co., supra, 164 Cal.App.4th at p. 218.) Similarly, an unlicensed contractor may assert an equitable lien. An equitable lien arises by operation of law for the value of the materials and/or services furnished without regard to whether the materials are supplied or the work is done at the special instance and request of the owner. (See URS Corp. v. Atkinson Ware Constr. Co., supra, 164 Cal.App.4th at p. 218.) An equitable lien is not a statutory lien and no writing is required to create it. (See Ibid.) An equitable lien may be asserted even though the contractor is unlicensed. (See Abelson v. National Union Fire Ins. Co. of Pittsburgh (1999) 72 Cal. App. 4th 8, 19.) And there is no need for the contractor asserting an equitable lien to comply with the pre-lien notice statutes applicable to mechanic’s liens. (See California Union Square, LLC v. Moorefield Const., Inc. (2013) 221 Cal.App.4th 1306, 1319.) Finally, an unlicensed contractor may seek to recover under common counts. Common counts are generally used to plead a claim for money had and received, money paid, money lent, for goods sold and delivered or for work and labor done. (See 9 Witkin, Cal. Procedure (4th ed. 1997) Pleading, section 427, page 454.) Generally speaking, the essential elements of common counts are the plaintiff’s ownership of money or property, its right to possession, and the defendant’s disposition of the money or property to plaintiff’s detriment. (See University of Southern California v. Banker’s Specialty Co., Inc. (2012) 208 Cal.App.4th 511, 518.) The other four elements of a common count are not required to be pleaded in every case. (Ibid.) Rather, the purpose of the statute is to enable a defendant to make an informed choice of a defense on the debtor’s nonliability or the existence of an offset. (Ibid.) In sum, regardless of the unlicensed contractor’s contract and lien rights to recover the amounts owed it for work, an unlicensed contractor still has other avenues provided under the law that may enable it to collect the money that it is owed.