Is Renting your contractors license Illegal… Not if you are following the law!
I’ve always answered by quoting the Business and Professions Code that covers this issue. I also stress that they must have first hand knowledge of the work being done under the license they are qualifying. This direct supervision could be in the form of on-site visits, progress reports, photo’s, etc. You, as the qualifier, are responsible to ensure that the work being done meets plans, specs, and is to code. By not doing this, you are putting yourself at great risk of losing your personal assets, and being removed from any other license you may be qualifying. My recommendation is to do on-site visits. If the CSLB were to receive a complaint about a project that you are required to oversee, you better have your i’s dotted and t’s crossed. The only way to effectively do that is to make site visits.
Although the article below is stating that it is illegal to “rent” your license, it also states that you can qualify up to three licenses per year if you show that you own at least 20% ownership in that company. The CSLB shouldn’t ask a question, answer it with a No, then tell you the law says yes. Mixed signals only confuses the issue.
What the CSLB doesn’t do, is require that you prove you actually own 20%. You’re only required to list 20% on the license application. When I complete a clients application, I notify them of the 20% rule, but there is nothing to keep the company and qualifier from having a side letter stating that the qualifier doesn’t own any voting shares. That agreement will also state what the compensation will be to the qualifier. The qualifier is obviously not going to work for free, so compensation will be part of that agreement. I’m not sure why the CSLB has chosen to use the word “rent” other than to attempt to keep qualifiers from doing what the law allows.
In the case cited in the article, the qualifiers who accepted payment but didn’t maintain direct knowledge of the work being done did deserve to be punished. But I feel the CSLB needs to either have more control (lol me suggesting the government should have more control is funny) over qualifiers who qualify more than one license, or they should change the law. Doing nothing but catching the bad guy after the fact is not following their mandate to protect the consumer…
Perils of Renting Your Contractors License
Are you a retired, expired or “inactive” contractor? Have you been asked to serve as the qualifier for someone else’s license for a monthly fee without having to be involved in day-to-day business operations?
If you receive such a solicitation, your first question should be “Is that legal?” The answer: No.
Companies throughout the state have been offering to “rent” contractor licenses so their business can qualify to conduct a construction operation. Licensees have been offered several hundred dollars per month to do this. But, amendments to Business and Professions (B&P) Code section 7068.1 clearly state that an individual has to have direct control and supervision of his or his employer’s or principal’s construction operations or face disciplinary and misdemeanor criminal charges (punishable by up to six months in jail, by a fine of $3,000 to $5,000, or both).
Licensees also can be held liable in a civil court for damages that may arise from defective work done by the business entity they qualify. Violations of Contractors State License Law result in the qualifier being held responsible, regardless of his or her knowledge or participation in the prohibited act or omission.
Construction performed by unqualified individuals who illegally obtain a license by using an absentee qualifier is a threat to the public. Consumers are put at risk when substandard work is performed by unskilled individuals; the cost to correct deficient work can be exorbitant, often exceeding the original contract amount.
The ongoing case against revoked licensee Avi Gozlan (see story on preceding page ) provides a sobering example of what can happen when qualifiers are not actively involved with the licenses they qualify. Gozlan was one of 13 people indicted by the Ventura County Grand Jury in August for a telemarketing scheme that used licenses that were obtained from nonparticipating qualifiers as a front to sell phony or inferior home improvement services.
Three qualifiers already have pleaded guilty to felony conspiracy charges in the Southern California case in which thousands of consumers are believed to have been defrauded.
Remember that when you’re the qualifier for a license, you need to have direct supervision and control of business activities. California contractors cannot act as a qualifier for an additional individual or firm unless there is a common ownership of at least 20 percent. An additional firm may be a subsidiary or joint venture of the initial company where at least 20 percent of the equity is owned by the initial firm. Also, a qualifying individual can be the qualifier for not more than three firms in any one-year period.
CSLB’s website includes more information that describes the duties and responsibilities of a qualifier: http://www.cslb.ca.gov/applicants/ContractorsLicense/ExamApplication/BeforeApplyingForLicense.asp
via CLC Newsletter Fall 2013.