“If the job is less than $25,000, I don’t need a contractor’s license.”
I’ve heard that over and over from homeowners, experienced contractors, real estate agents and even attorneys. This is pure folklore!
Here’s another one: “The county (or town) doesn’t require a building permit, so I don’t need a license.” More folklore!
These misstatements of the law are getting contractors and homeowners alike into a lot of trouble. So, what’s the correct answer? As attorneys are fond of saying, it depends. Fortunately, it’s not too complicated to figure out.
First, understand that the Tennessee Code Annotated (the “T.C.A.”) applies to the entire State of Tennessee. Some local governments within our great state do not require building permits, but the T.C.A. still applies to that county or town.
In my practice, I’ve encountered a shocking number of homeowners who have been financially ruined by unqualified and unlicensed contractors doing work in these jurisdictions without a license. In every instance, the homeowner and sometimes the contractor thought that because the local government didn’t require a building permit, they didn’t have to be licensed.
So, what’s the license limit? The simplest answer is that it almost always depends on who the parties to the contract are, how much the work costs, and where in the state the work is located. If one of the contracting parties is a homeowner, the work is between $3,001 and $24,999, and your county elected to make this part applicable in the county, then the licensing requirements found in T.C.A. §62-6-501 et. seq. apply to the home improvement project.
Some 17 years ago, the state Legislature placed home improvement contractors under the authority of the Tennessee Board for Licensing Contractors. The move and amended statute are intended to protect homeowners and, incidentally, the contractor community from unqualified contractors.
For what work the license is required is very broad and includes improvements to landscaping and driveways. Contractors can take heart that, while licensees are required to post a $10,000 bond, they are easily obtainable, and the application process is simple compared to other types of contractor’s licenses.
Currently, according to the Tennessee Board for Licensing Contractors, the Home Improvement License is required in Bradley, Davidson, Hamilton, Haywood, Knox, Marion, Robertson, Rutherford and Shelby counties.
If you’re outside of these counties, or if the cost of the work starts at and includes work for $25,000 and more, licensing limits are governed by the Tennessee Contractors Licensing Act found at T.C.A. §62-6-101 et. seq. Also note that licensing for electrical, plumbing, HVAC and other trades might be required depending on where, with whom and for what work.
Another thing to be keenly aware of is that the requirement to be properly licensed starts before the offer (including advertising) to perform the work. Also, contracts for home improvement require specific language to be included in those contracts no matter the type of license.
Beware: the statutes have serious teeth! Where it applies to contracts with homeowners, failure to be properly licensed includes default violations of the Tennessee Consumer Protection Act, personal liability for damages, attorney fees and even triple or punitive damages.
Another problem facing owners and qualified contractors regarding these limits is that they’re being skirted by misconceptions and sometimes outright dishonest actors. The limits to which a license is required are based upon the cost of the work performed by the contractor. Over and over, homeowners come to my office after everything has gone awry with permits contractors obtained for $24,900 when the work (even as plainly stated in the contract) is for more than $25,000.
These pretend contractors are even directing homeowners to obtain building permits themselves, telling them homeowners are supposed to pull permits for work on their home. While homeowners can obtain permits for work on homes where they reside, they should only be doing this if they are acting as a contractor.
The correct permitee is the person acting as the contractor. Period. When homeowners do obtain permits, the building department is supposed to have the homeowner sign a Homeowner’s Affidavit for Construction Permit. The affidavit spells out that they are not hiring a construction manager and will void the permit if they do. By swearing to this, then hiring an unlicensed contractor, they’re committing a misdemeanor.
Speaking of “construction managers,” if someone proports to be just a construction manager and not a contractor, that, too, is folklore. By definition, a contractor is a manager of construction, and therefore is required to be licensed. This could not be more clearly defined than it is in the Tennessee Contractors Licensing Act.
On a final note, legislation has been introduced that would raise the $25,000 licensing limit required by T.C.A. §62-6-101. The proposal also raises the home improvement license required by T.C.A. §62-6-501. However, given the folklore around the $25,000 limit, I fear the scale of unlicensed home improvement work will only grow.
Michael Kuebler is an attorney with Kuebler & Associates in Chattanooga. He first made a mark on the city as a carpenter during the construction of Hamilton Place Mall in the 1980s and currently practices construction and real estate law. Kuebler also remains an active general contractor with licenses in Tennessee and Georgia.