Contract Law

The Need for a Contractor’s License in Virginia: Penalties & Risks

Who needs a Virginia Department of Professional and Occupational Regulation (DPOR) contractor’s license?  When are you engaged in construction activity that requires a license?  When are you just a supplier?  How much activity makes you a contractor?  What are the penalties for operating without a required contractor license?

 

If you have a contract for a hundred thousand dollars, then that is how much this problem can cost you.   If you are supposed to be licensed and are not, a debtor customer can simply refuse to pay.  The courts will definitely back the customer up and refuse to enforce an “illegal contract.” Proper licensure is also a requirement under the mechanic’s lien statute. You have to put your license number right on the first page of the lien, if a license is required. 

 

Operating without a required contractor’s license is a criminal class one misdemeanor.  There can be DPOR civil penalties.  Operating without a required contractor license would be a violation of the Virginia Consumer Protection Act.

 

This is a very legitimate police power by the state.[i]  It is best to err on the side of caution.  Even if the need for a license is arguable, it is a far better policy to have one.  The downside risks are great.  Although you may eventually prevail, even the need to argue about it will have great costs in time and legal fees.

 

What activity requires a Virginia’s Contractor License? 

 

Court case law is sparse on this question.  But it is difficult to say that no license is required if you are on the construction site and provide any labor or install any material. 

 

The Code of Virginia defines contractor broadly, stating that “any person, that for a fixed price, commission, fee, or percentage undertakes to bid upon, or accepts, or offers to accept, orders or contracts for performing, managing, or superintending in whole or in part, the construction, removal, repair or improvement of any building or structure permanently annexed to real property owned, controlled, or leased by him or another person or any other improvements to such real property.[ii]

 

Virginia case law provides a broad definition as to what constitutes an "improvement" to real property. The term has been interpreted to comprise any addition or other change in the structure of a building calculated to add to its useable value.[iii]

 

The Virginia Code provides an exception for material suppliers.  However, the exception only applies to “any material supplier who renders advice concerning use of products sold and who does not provide construction or installation services.[iv]

 

What are the Penalties?

 

In Virginia, "a contract made in violation of a police statute enacted for public protection is void and there can be no recovery thereon."[v] A claimant will be unable to enforce the contract, if the claimant is unlicensed and were aware that they were violating the statute.[vi]  There is an exception to this rule if the contractor substantially performs the contract and did not have actual knowledge that a license or certificate was required.[vii]

 

A claimant without a required contractor’s license will be unable to enforce a mechanic’s lien.[viii]  There is apparently no exception to this rule if the contractor mistakenly believes they complied with the statute. Accordingly, a contractor that substantially performs the contract and did not have actual knowledge that a license or certificate was required may be able to enforce the contract in order to obtain judgement, but will not have mechanic’s lien rights.  If the contract debtor is insolvent, this lack of security may mean that the unlicensed contractor cannot collect. 

 

Obtaining the proper license after the fact (i.e after the proposal is submitted and payment is accepted) will not satisfy the license requirements of the statute or permit recovery when the contractor was aware of the requirements.[ix] The fact that actual costs for the project inadvertently exceeded the monetary cap of the applicable license will not permit enforcement of the contract.[x]

 

Under the Virginia Code, operating without a contractor’s license is also a class one criminal misdemeanor.[xi]  The punishment for which is either a fine of no more than $2,500 or confinement in jail for no more than 12 months or both.[xii]  Depending on nature of the complaint or the activity, there can be multiple counts of violating the statute, which would increase the penalties further.  These penalties have a statute of limitations of one year, the time limit for the state to bring a case.[xiii]

 

There are also civil penalties that can be in addition to the criminal penalties. There are DPOR civil penalties of $500 per day per day of doing work, per violation (per contract).[xiv] The statute of limitations for filing a complaint is 3 years so fines can be backdated to that extent.[xv] Operating without a required contractor license would also be a violation of the Virginia Consumer Protection Act, which carries a separate potential $2,500 fine and entitles the customer claimant to attorney’s fees.[xvi] The DPOR board itself can levy additional fines, require remedial education classes, or revoke/suspend the license of a licensee for violations.[xvii]  DPOR can also ask the Commonwealth’s Attorney to seek criminal penalties. The Commonwealth has brought criminal charges.

 

A secondary Concern is Contractor Classification. Having an inadequate license is a problem, similar to having no license. Contractors are divided into three classes, A, B, and C, depending on the type of work and overall value of the project. 

 

“Class A contractors” perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $ 120,000 or more, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any 12-month period is $ 750,000 or more.

"Class B contractors" perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is $ 10,000 or more, but less than $ 120,000, or (ii) the total value of all such construction, removal, repair or improvements undertaken by such person within any 12-month period is $ 150,000 or more, but less than $ 750,000.

Class C contractors" perform or manage construction, removal, repair, or improvements when (i) the total value referred to in a single contract or project is over $ 1,000 but less than $ 10,000, or (ii) the total value of all such construction, removal, repair, or improvements undertaken by such person within any 12-month period is less than $ 150,000. The Board shall require a master tradesmen license as a condition of licensure for electrical, plumbing and heating, ventilation and air conditioning contractors.


[i] The purpose of the statute as stated by the Supreme Court of Virginia is “protect[ing] the public from inexperienced, unscrupulous, irresponsible, or incompetent contractors.” F.S. Bowen Elec. Co. Inc. v. Foley, 194 Va. 92, 96, 72 S.E.2d 388, 391 (1952); see also Bacigalupo v. Fleming, 199 Va. 827, 832, 102 S.E.2d 321, 324 (1958). 

[ii] Va. Code Anno. §54.1-1100 (Michie 1950).

[iii] See Sellers v. Bles, 198 Va. 49, 55 where the Supreme Court of Virginia defined "improvement" to be "a comprehensive term, which includes in its meaning any development whereunder work is done and money expended with reference to the future benefit or enrichment of the premises."

[iv]Va. Code Anno. §54.1-1101 (Michie 1950).

[v] See F.S Bowen Elec. Co. v. Foley, 194 Va. 92, 100, 72 S.E.2d 388 (1952)

[vi] Va. Code Anno. §54.1-1115 (Michie 1950); Bacigalupo v. Fleming, 199 Va. 827, 832, 102 S.E.2d 321, 324 (1958)[Enforcement of the contract is denied to the unlicensed contractor as a penalty for his failure to comply with the registration laws].

[vii] Va. Code Anno. §54.1-1115(c) (Michie 1950)[C. A construction contract entered into by a person undertaking work without a valid Virginia contractor's license shall not be enforceable by the unlicensed contractor undertaking the work unless the unlicensed contractor (i) gives substantial performance within the terms of the contract in good faith and (ii) did not have actual knowledge that a license or certificate was required by this chapter to perform the work for which he seeks to recover payment] See Dodson Roofing Co. v. Johnson, 32 Va. Cir. 400, 401-402 (City of Richmond 1994)[Va. Code Anno. §54.1-1115(c) did not punish a contractor who was aware of the general licensing requirements of the statute, but not the substantive ones, and believed he was in compliance because he had an employee with a contractor’s license); See also J. W. Woolard Mechanical & Plumbing, Inc. v. Jones Dev. Corp., 235 Va. 333, 335-336 367 S.E.2d 501(1988)[The legislative history and the case law together evidence an intention to strike a balance to penalize those whose violations of the statutory scheme are knowing, but to excuse those who perform in good faith and whose violations are inadvertent].

[viii] Va. Code Anno. §43-3 (D) (Michie 1950)[D. A person who performs labor without a valid license or certificate issued by the Board for Contractors pursuant to Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1, or without the proper class of license for the value of the work to be performed, when such a license or certificate is required by law for the labor performed shall not be entitled to a lien pursuant to this section].

[ix] See Tuggle Masonry, Inc. v. Dailey, 80 Va. Cir. 219, 220-221 (Hanover County 2010)[Contractor had a Class C license when submitting the proposal but obtained a proper Class A after receiving payment for work performed; court held that the statute did not have a saving provision for contractors who come into compliance after the fact and therefore the contract entered prior to the acquisition of the class A license was void].

[x] See Daniel Jones Remodeling, L.L.C v. Johnny Cheng-The Chiu, Et Al. CL-2007-14511 (Fairfax County Cir. 2008)[The statute creates no exception for a contractor innocently or otherwise exceeding the monetary limits of his license].

[xi] Va. Code Anno. §54.1-1115 (Michie 1950).

[xii] Va. Code Anno. §18.2-11(Michie 1950); There are cases where the Commonwealth has decided to level criminal charges. Haley v. Commonwealth of Virginia, No. 2023-98-4, 2000 WL 29989 (Va. Ct. App. Jan. 18, 2000) (appealing conviction for contracting without a state contractor license); Sams v. Commonwealth of Virginia, No. 1007-96-2, 1997 WL 147445(appealing conviction of two counts of unlawfully and feloniously practicing a profession or occupation without first obtaining a valid license or certificate); McCary v. Commonwealth of Virginia, 42 Va. App. 119, 128, 590 S.E.2d 110, 115 (Va. Ct. App. 2003) [McCary’s failure to obtain a license is probative of his fraudulent intent].

[xiii] The statute of limitation for misdemeanor generally is one year.  Va. Code Anno. §19.2-8 (Michie 1950). However, this statute later says prosecution of any misdemeanor violation of professional licensure requirement must commence within one year of the discovery of the offense by the complainant, but in no case later than five years from occurrence of the offense. 

[xiv] Va. Code Anno. §54.1-1115 (Michie 1950).

[xv] Va. Code Anno. §54.1-307.1 (Michie 1950).

[xvi] Virginia Consumer Protections Act (Virginia Code Va. Code Anno. §59.1-196 (Michie 1950). Under Va. Code Anno. §54.1-1115 (Michie 1950), operating without a valid Virginia’s contractor license or certificate when one is required or operating without the proper class of license as defined in §54.1-1100, is a violation of the Virginia Consumer Protections Act if it involves a consumer transaction. This statute authorizes a fine of no more than $2,500 per violation found. In addition, the statute authorizes the Commonwealth/Attorney General to recover expenses incurred by the state in investigating and preparing the case not to exceed $1,000 per violation and Attorney’s Fees. This has a civil statute of limitations of two years per Va. Code §59.1-204.1.

[xvii] The DPOR could theoretically assess the $500 per day for each violation and $2,500 for each violation of the licensing statue over the one to five years.  An individual Complainant could seek only actual damages and/or individual penalties.