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Unlicensed Home Improvement Contractors Are Not Entitled To Payment Or To File Mechanics Liens

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  • Posted on: Nov 2 2018

It is a good idea for homeowners to make sure that hired home improvement contractors are licensed.  Licensure, however, is just as important from the perspective of the home improvement contractors because their rights and remedies could be impacted if they are not.  New York case law and statutory law address this issue.

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].

The potentially harsh results for an unlicensed contractor is highlighted by the Millington dissent in which it was urged that an estoppel should apply in this case because one of the defendants “is an attorney, [who] knew at all times that plaintiffs were unlicensed, delayed compensating them in the course of their work and waited until the job was completed before raising the claim that the lack of a license should operate to defeat payment. Thus, defendants are not the innocent, unsuspecting parties that the licensing requirement was designed to protect.”

Similarly, the Court of Appeals, in Richards Conditioning Corp. v. Oleet, 21 N.Y.2d 895 (1968), in reversing the Second Department’s unanimous affirmance of the trial court’s judgment in favor of the foreclosing mechanic’s lienor, dismissed the complaint and stated:

The finding of substantial performance is supported by the record. However, plaintiff cannot recover on the agreement since the installation was not licensed and since it employed unlicensed personnel to install the air conditioning system. The air conditioning system is a “refrigerating system” … and, therefore, may not be installed by unlicensed persons. Since the purpose of the regulatory scheme is to protect the public health and safety, lack of an installer’s license bars recovery on the agreement [citations omitted]”.

Further, a “home improvement contractor who fails to possess and plead possession of a valid license as required by relevant laws may not commence an action to foreclose a mechanic’s lien.”  Nicotra v. Manger, 64 A.D.3d 547 (2nd Dep’t 2009) (citations omitted).

Consistent with the case law, CPLR § 3015(e) requires that if a “plaintiff’s cause of action against a consumer arises from the plaintiff’s conduct of a business which is required by state or local law to be licensed by [the various licensing agencies listed therein], the complaint shall allege, as part of the cause of action, that plaintiff was duly licensed at the time of services rendered and shall contain the name and number, if any, of such license and the governmental agency which issued such license [and that] the failure of the plaintiff to comply with this subdivision will permit the defendant to move for dismissal pursuant to paragraph seven of subdivision (a) of rule thirty-two hundred eleven of this chapter.”

These issues were recently discussed in two decisions of the Appellate Division, Second Department issued1 on October 31, 2018.  In the first case, Kristeel, Inc. v. Seaview Development Corp., plaintiff, a steel subcontractor not licensed to perform home improvements in East Hampton, sought to foreclose a mechanic’s lien.  The defendants were the general contractor constructing two new homes and the business entities developing the homes “on speculation”.  The plaintiff subcontractor commenced the action after the defendant general contractor defaulted in its payment obligations.  Supreme court, according to the decision and order appealed from, in denying defendants’ motion to dismiss, held that: (1) CPLR § 3015(e) did not apply because “no Suffolk County license is required for the construction of a new home (emphasis in original);” and, (2) East Hampton Town Code, which defined “home improvement” to include new construction, did not apply because the homes were being “speculatively built” and the “plaintiff has not entered into a home improvement contract with an “owner” of the home and instead entered into a contract with a development corporation (not a “person”) who in turn entered into a contract with the limited liability companies that are the owners of the residences.”

In reversing supreme court “on the law,” the Kristeel Court held that: (1) a complaint seeking recovery of contract damages or for quantum meruit for the breach of a home improvement contract is subject to dismissal if licensing compliance is not alleged; and, (2) “a home improvement contractor who fails to possess and plead possession of a valid license as required by relevant laws may not commence an action to foreclose a mechanic’s lien.”  The Court further held that, while plaintiff was required to have a license for the construction of new homes in East Hampton, it was not so licensed and even though they were business entities, the defendant owners were entitled to the protections of CPLR § 3015(e) and the local licensing laws.

The second case, Crippen v. M. Adamao, was decided (as relevant here) under General Business Law § 772 (“GBL 772”), which provides, in pertinent part, that:

Any owner who is induced to contract for a home improvement, in reliance on false or fraudulent written representations or false written statements, may sue and recover from such contractor a penalty of five hundred dollars plus reasonable attorney’s fees, in addition to any damages sustained by the owner by reason of such statements or representations. In addition, if the court finds that the suit by the owner was without arguable legal merit, it may award reasonable attorney’s fees to the contractor.

The Crippen Court penalized the contractor for falsely and/or fraudulently representing in the construction contract that the contractor was licensed to perform the work when its license “was suspended when the contract was executed.”  This is yet another basis to penalize an unlicensed contractor.

The Crippen plaintiff commenced the action alleging that, among other things, defendants violated GBL 772 by “fraudulently inducing the plaintiff to enter into the home improvement contract premised on the false representation in the contract that the defendants held a valid home improvement license.” After trial, plaintiff was awarded, inter alia, restitution damages, a statutory penalty in the amount of $500.00 and legal fees pursuant to GBL 772.

On appeal, the Second Department held that the award of the statutory penalty of $500.00 was proper as was an award of attorney’s fees.  As to attorney’s fees, however, the Court set aside the trial court’s award of $56,141.58 and remitted same to supreme court “for a new determination of statutory counsel fees.”  The Court also held that the award of restitution damages was improper because “restitution damages are not provided for under [GBL 772].”

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