First Department Holds That a Business-Entity Owner of Residential Property Can Avail Itself of the Protections of the New York City Home Improvement Contractor’s License Requirement
Print Article- Posted on: Jan 26 2024
In order to protect homeowners, home improvement contractors are frequently required by municipalities to be licensed. Unlicensed home improvement contractors are precluded from collecting payments due from homeowners. Brightside Home Improvements, Inc. v. Northeast Home Improvement Services, 208 A.D.3d 446, 449 (2nd Dep’t 2022). This BLOG has discussed such issues [here] and [here]. Along these lines, CPLR § 3015(e) requires that causes of action against a consumer arising out of work performed by a plaintiff whose business requires licensure by state or local authorities for the performance of such work, must allege in its complaint that, inter alia, it “was duly licensed at the time of services rendered” or the cause of action will be subject to dismissal.
The purpose of such licensing legislation was previously described in this BLOG when we noted that in Millington v. Rapoport, 98 A.D.2d 765 (2nd Dep’t 1983), in reversing the court below and dismissing plaintiff’s complaint which sought to foreclose a mechanic’s lien, the Court stated:
Since the purpose of [New York City’s Administrative Code] is to protect the homeowner against abuses and fraudulent practices by persons engaged in the home improvement business, it is well established that the lack of a license bars recovery in either contract or quantum meruit. Since strict compliance with the licensing statute is required, recovery is barred regardless of whether the work was performed satisfactorily or whether the failure to obtain a license was willful. The fact that the homeowner was aware of the absence of a license or even that the homeowner planned to take advantage of its absence creates no exception to the statutory requirement [citations omitted].
Our prior BLOG articles addressed situations where the homes being improved were owned and occupied by individuals. On January 25, 2024, the Appellate Division, First Department, decided KSP Construction, LLC v. LV Property Two, LLC, in which the owners of the residential property being improved were LLCs. The First Department was called on to determine whether a business entity could “avail itself of the protections of the New York City home improvement contractor’s license requirement.” To keep you off the edge of your seats, the Court answered the question in the affirmative.
The facts of KSP, which are abridged for editorial purposes, go something like this. Plaintiff/contractor commenced action to recover damages for work it performed renovating a townhouse in Manhattan owned by several LLCs. Defendants/owners moved to dismiss the complaint because plaintiff/contractor did not have the requisite license from the New York City Department of Consumer Affairs and the motion court granted the motion. In an amended complaint, the contractor added an allegation that it was “not required to possess a valid home improvement contractor’s license at the time it performed the renovation work because the project was commercial in nature, and because defendant owners are business entities that therefore cannot reside in the townhouse.” Both parties moved for summary judgment on the amended complaint. To support their motion, defendants/owners submitted an affidavit from their manager in which he averred that, inter alia: the property was going to be used as his personal residence after the completion of the extensive renovations; the certificate of occupancy for the property indicates that it is “residential”; the deed for the property shows a transfer to defendants; and, the contractor was terminated for cause. The motion court granted summary judgment to defendants/owners, concluding that the licensing requirement for home improvement contractors was applicable to business entities, and denied the motion of plaintiff/contractor.
The First Department affirmed. New York’s Administrative Code relating to home improvement contractors (the “Code”) provides that “[n]o person shall solicit, canvass, sell, perform or obtain a home improvement contract as a contractor from an owner without a license therefor.” Code § 20-387(a). The Court noted that the articulated purpose of the licensing provisions of the Code is to “‘safeguard and protect … homeowner[s] against abuses and fraudulent practices.’” (Quoting Code § 20-385.) The Court also recognized that the licensing requirement of the Code is not a “ministerial act” and requires “strict compliance”, “with the failure to comply barring recovery regardless of whether the work performed was satisfactory, whether the failure to obtain the license was willful or, even, whether the homeowner knew of the lack of a license and planned to take advantage of its absence.” (Citations and internal quotation marks omitted.)
The Court found that there was no dispute that plaintiff was a contractor without a license and, therefore, the only question was whether defendants were “‘owners’ within the meaning of Administrative Code § 20-387(a), and, if so, whether the agreement between the parties was a ‘home improvement contract’” as defined in Code § 20-386(6). The Court posited that if “the answer to both of those questions is yes, then plaintiff was required to have a home improvement contractor’s license to recover for the work; if the answer to either question is no, then plaintiff did not need a license.” (Footnote omitted.)
While it is “tempting” to assume that an “‘owner’ must be an individual,” the Court said, “the City Council expressly defined the term ‘persons’ as it is used in the Home Improvement Business subchapter to mean ‘an individual, firm, company, partnership or corporation, trade group or association (…Code § 20-386[1]).’” (Footnote omitted.) The Court concluded that defendants were “persons” under the Code and “owners” under Code § 20-386(4). Further the Court determined that the plaintiff and defendants were parties to an oral “home improvement contract,” which is expressly permitted under the Code. Code § 20-386(6) Finally, the Court determined that plaintiff’s work constituted a “home improvement” as defined by the Code. Code § 20-386(2). Accordingly, the Court concluded that the motion court “correctly granted defendant owners’ cross-motion for summary judgment.”
Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP.
This article is for informational purposes and is not intended to be and should not be taken as legal advice.
