Robert Angelillo is an attorney with Meyer, Suozzi, English & Klein in Mineola, N.Y., where he practices construction law and litigation.

Contracting Without a License Can Be Perilous

A recent case in Manhattan underscores a critical licensing requirement for any project in New York City that involves upgrades to a residence.

by Robert C. Angelillo

The City of New York has home improvement licensing regulations in its administrative code designed to protect homeowners from defective work and fraudulent business practices on residential construction projects.

These regulations generally require that any contractor or subcontractor seeking to perform a home improvement contract have a license from the city's Department of Consumer Affairs, even for units that are in existing multifamily properties. Contractors also need to renew the license periodically.

The regulations define a "home improvement contract" as any agreement, oral or written, that requires a contractor to perform any work in, to, or upon an existing residential property.

Courts that have heard cases involving these regulations have stated that they are to be "strictly" enforced.

A case decided in July by the New York County Supreme Court, Young's L&M Construction, Inc. v. Kelley, shows that they mean it.

In the case, the contractor, New York-based Young's L&M, signed a written contract for the construction of a yoga studio at 707-709 Washington Street in Manhattan. Although the studio itself was commercial, the certificate of occupancy for the premises permitted employees of the studio to live there.

Shortly after signing the contract, Young's and the owner, Kelley, agreed to two modifications that required the contractor to perform construction work on the residential portion of the premises, amounting to about 13 percent of the project.

After Young's completed the contract, Kelley refused to pay for some of the work the contractor performed. Young's first filed a mechanic's lien and then sued Kelley, seeking to recover the outstanding balance claimed under the contract and to enforce its lien.

In response, Kelley did not argue that the contractor's work was incomplete or defective. Instead, Kelley argued that the contractor had no right to sue for the amounts outstanding under the contract because Young's did not have a home improvement contractor's license.

Young's in turn argued that Kelley had already paid it for all amounts due for the residential work and that the outstanding sums were for commercial work only.

The court agreed with Kelley and threw out Young's case, basing its decision on the home improvement licensing regulations.

The court found that because Young's was not a licensed home improvement contractor, it had no right to receive payment for any of the work it performed for the defendant, even the commercial aspects. It explained that, when it comes to home improvement licenses, it makes no difference if some, or even most, of the work under a contract is commercial because the regulations say any work in a residence requires a contractor to have such a license.

The court also found that without the license, Young's could not enforce its mechanic's lien.

While this case applied the New York City regulations, this forfeiture of payment rule applies in any city or county in the state that has enacted home improvement licensing requirements.

Finally, showing just how strictly the court in the Young's case viewed the home improvement licensing regulations, it also referred the matter to the local District Attorney's office, as well as to New York City's consumer affairs agency and Corporation Counsel's office, for further investigation into possible criminal penalties for the violation. Under the licensing regulations, these penalties can include both fines and jail time.

As this case shows, commercial contractors should be aware of the home improvement licensing regulations and confirm whether they will need one from the appropriate jurisdiction before soliciting and signing contracts. As is clearly shown in the Young's case, even if a contract is primarily for commercial work, if any portion involves residential premises, the contractor must have a license.

If contractors perform the work without one, not only do they risk non-payment, they might also find themselves as a defendant in a criminal case.