In California, a home improvement contract over $500 must be in writing and signed before work starts. The down payment may not exceed $1,000 or 10% of the contract price, whichever is less. The buyer usually has 3 business days to cancel, or 5 business days if the buyer is 65 or older. The rules are in Business and Professions Code (BPC) 7159 and 7159.5, with the cancel rules in Civil Code 1689.5 to 1689.7.
This is Section 5 of the exam, Contract Requirements and Execution, about 21% of the exam and the largest share (CSLB study guide).
Who must follow these rules
A "home improvement" is repairing, remodeling, altering, converting, modernizing or adding to residential property, including pools, patios, fences, landscaping and heating or air conditioning equipment (BPC 7151). A "home improvement contract" can be oral or written, with an owner or with a tenant for work on the tenant's unit (BPC 7151.2).
The written contract rules in BPC 7159(b) apply when the total price of one or more contracts, counting labor, services and materials, exceeds $500. Service and repair contracts of $750 or less follow their own rules instead (see below).
What the contract must contain
Every home improvement contract, and every change to it, must be in writing and signed by both parties before the covered work starts (BPC 7159(d)). Before work starts, the contractor must give the buyer a copy signed and dated by both. The buyer's receipt of that copy starts the right to cancel (BPC 7159(c)(3)).
| Item | Rule |
|---|---|
| Contractor details | Name, business address and license number |
| Salesperson | Name and registration number, if a salesperson was used |
| First page | Date the buyer signed; contractor's name, address and email address for the Notice of Cancellation; contractor's telephone number to help the buyer fill it out |
| Heading | "Home Improvement" in at least 10-point bold |
| Copy statement | "You are entitled to a completely filled in copy of this agreement..." in at least 12-point bold |
| Contract Price | In dollars and cents |
| Finance Charge | If any, shown separately from the contract price |
| Description | The project and the significant materials and equipment (pools also need a plan and scale drawing) |
| Downpayment | If charged, with the 12-point bold notice on the $1,000 / 10% cap |
| Schedule of Progress Payments | Each payment in dollars and cents, tied to the work and materials it pays for |
| Dates | What counts as substantial commencement; "Approximate Start Date"; "Approximate Completion Date" |
| Change orders | A "Note About Extra Work and Change Orders" |
Source: BPC 7159(c) and (d).
Other required items from BPC 7159(c):
- A promise of a full and unconditional lien release for the work paid for, after each satisfactory payment.
- A change-order form. A change order is part of the contract only if written and signed before the changed work starts.
- Near the signatures, a notice that the owner or tenant may require a performance and payment bond.
- A Yes / No checkbox on using subcontractors. If "Yes", the contractor must give, on request, a list of them with contact information, license numbers and classifications.
Required notices
BPC 7159(e) adds these notices:
- Commercial General Liability Insurance: whether the contractor carries CGL or is self-insured.
- Workers' Compensation Insurance: "has no employees and is exempt" or "carries workers' compensation insurance for all employees".
- Extra work and change orders: what a change order must state in writing.
- Mechanics Lien Warning, including that a Preliminary Notice can be sent up to 20 days after a subcontractor starts work or a supplier delivers material.
- CSLB information notice, in at least 12-point type.
- Right to cancel notice (next section).
Right to cancel: 3, 5 or 7 business days
| Situation | Cancel window | Source |
|---|---|---|
| Most home improvement contracts | 3 business days | BPC 7159(e)(6) |
| Buyer is a senior citizen (65 or older) | 5 business days | BPC 7159(e)(6), BPC 7150 |
| Repair or restoration after a declared state of emergency or local emergency | 7 business days | BPC 7159(e)(7) |
The period ends at midnight of the third (fifth for a senior) business day after the buyer received a signed and dated copy of the contract (Civil Code 1689.6(a)(2)). For a disaster repair contract, the notice gives until midnight of the seventh business day after the buyer received that copy (BPC 7159(e)(7)(A)). A business day is every calendar day except Sunday and nine listed holidays, so Saturday counts (Civil Code 1689.5(e)).
The notice must be in at least 12-point bold next to the owner's signature space, signed and dated by the owner, written in the language used in the oral sales presentation, and come with a completed, easily detachable Notice of Cancellation form in duplicate (BPC 7159(e)(6)(C)).
How the buyer cancels
The buyer may cancel by emailing, mailing, faxing or delivering a written notice (BPC 7159(e)(6)(B)). Notice goes to the address or email address in the contract. A mailed notice is effective when mailed, properly addressed with postage prepaid. Any written notice showing the buyer does not intend to be bound works; the form is optional (Civil Code 1689.6(d)–(f)).
After a cancellation, the contractor must return everything the buyer paid within 10 days of receiving the notice. The buyer must make delivered goods available at the residence; if the contractor does not pick them up within 20 days of the notice, the buyer may keep them (BPC 7159(e)(6)(B)).
When the 3-day notice is not required
Under BPC 7159(e)(6)(A), the 3-day (or 5-day) notice is not given when the contract is:
- negotiated at the contractor's place of business;
- subject to the 7-day disaster notice instead;
- covered by the Alarm Company Act (with conditions).
Separately, the buyer can waive the cancel right for emergency repairs initiated by the buyer (or the buyer's agent or insurance representative) that are needed right away to protect people or property, by signing and dating a separate statement describing the emergency (Civil Code 1689.13).
Down payment: $1,000 or 10%, whichever is less
BPC 7159.5(a)(3) caps the down payment at $1,000 or 10 percent of the contract amount, whichever amount is less. The contract amount includes profit, labor and materials but excludes finance charges (BPC 7159.5(a)(1)).
| Contract price | 10% | Maximum down payment |
|---|---|---|
| $5,000 | $500 | $500 |
| $8,500 | $850 | $850 |
| $10,000 | $1,000 | $1,000 |
| $25,000 | $2,500 | $1,000 |
Progress payments: never ahead of the work
- Except for the down payment, the contractor may not request or accept payment that exceeds the value of work performed or material delivered. This includes advance payments from a lender (BPC 7159.5(a)(5)).
- Payments due before completion need a schedule in dollars and cents tied to specific work and materials (BPC 7159.5(a)(4)).
- If asked, the contractor must provide a lien release for the work paid for. The owner may withhold further payments until it is provided (BPC 7159.5(a)(6)).
Bond exemption. A contractor furnishing a performance and payment bond, lien and completion bond, or registrar-approved bond equivalent or joint control covering full performance and payment is exempt from the down payment cap, the payment schedule rule and the rule against taking payment ahead of the work, and may accept payment before completion (BPC 7159.5(a)(8)). The lien release rule still applies.
Service and repair contracts ($750 or less)
A "service and repair contract" must meet all four conditions in BPC 7159.10(a):
- The contract amount is $750 or less.
- The buyer initiated contact to request the work.
- The contractor sells nothing beyond what is reasonably necessary to fix that problem.
- No payment is due or accepted until the work is completed.
If any condition is not met, the full home improvement rules apply, including the right to cancel, regardless of the contract price (BPC 7159.10(b)). Only one service charge is allowed, and replaced parts must be offered to the customer (BPC 7159.14(a)).
First-page contact details and email cancellation
The current Civil Code 1689.7(b) and BPC 7159(c)(3)(B) require the first page to show the contractor's name, address, email address and a telephone number for help with the Notice of Cancellation, and BPC 7159(e)(6)(B) lets the buyer cancel by email. Compare older forms or study notes with the current statute text.
What happens if the contract does not comply
- Failing to include the required information, notices and disclosures is cause for discipline (BPC 7159(a)(5)). If the Notice of Cancellation is missing, the buyer may file a complaint with CSLB (BPC 7159(a)(6)).
- Breaking the written-contract, down payment or excess-payment rule is a misdemeanor: a fine of $100 to $5,000, up to one year in county jail, or both. In a place damaged by a natural disaster under a Governor's state of emergency or a presidential emergency or major disaster declaration, the court must impose the maximum fine (BPC 7159.5(b)(1)).
- Until the seller complies with the notice rules, the buyer may cancel (Civil Code 1689.7(g)).
- A change order that does not state the scope, price change, and effect on payments or completion date is not enforceable against the buyer (BPC 7159.6).
Sources
BPC 7150, 7151, 7151.2, 7159, 7159.5, 7159.6, 7159.10, 7159.14; Civil Code 1689.5, 1689.6, 1689.7, 1689.13; CSLB Law and Business Examination Study Guide.