California Business and Professions Code Section 7031 does two things at once: it strips unlicensed contractors of any right to sue for payment, and it gives the people who hired them the right to recover every dollar paid for the work. The quality of the work doesn’t matter. Whether the contractor finished the job doesn’t matter. If a license was required and the contractor didn’t have one for the entire project, the statute treats the payment as recoverable and the contractor’s claim for compensation as legally dead.
The Payment Bar Under Section 7031(a)
Subdivision (a) closes the courthouse door to any unlicensed contractor trying to collect for work that required a license. The framing of the lawsuit doesn’t change the result. Breach of contract, quantum meruit, unjust enrichment, fraud — all of them fail. The California Supreme Court confirmed in Hydrotech Systems, Ltd. v. Oasis Waterpark that Section 7031 contains no implied exceptions for foreign companies, one-time projects, or other “exceptional” circumstances, and that it bars fraud claims when the alleged damages are really the unpaid contract price.1Justia. Hydrotech Systems Ltd v Oasis Waterpark (1991)
The license has to be valid for the entire duration of the project. A license that was active on the day the contract was signed but lapsed during construction still triggers the bar. Even a property owner acting in bad faith — someone who deliberately withholds payment after the work is done — owes nothing to an unlicensed contractor. The statute deliberately puts the whole risk of nonpayment on the person who chose to work without a license.2California Legislative Information. California Code Business and Professions Code 7031
What Consumers Can Recover Under Section 7031(b)
Subdivision (b) is the consumer’s remedy. Anyone who hired an unlicensed contractor can sue to recover every dollar paid, not just the contractor’s profit margin. That includes what the contractor spent on materials and labor. Pay $80,000 for a kitchen remodel, later discover the contractor was unlicensed, and the full $80,000 is on the table.2California Legislative Information. California Code Business and Professions Code 7031
The remedy is intentionally punitive. Courts have consistently refused to offset the value of completed work against the disgorgement amount. The contractor gets no credit for the cabinets already installed or the hours already worked. You don’t have to prove anything went wrong with the job. The lack of a license is the entire case.
The deadline is short. Courts have applied a one-year statute of limitations to Section 7031(b) claims, running from the date the unlicensed contractor finishes the work. Consumers who discover a licensing problem should not sit on it.
Attorney Fees Are Not Automatic
Section 7031(b) does not give the winning consumer a right to attorney fees. Unless the original contract has a fee-shifting clause, each side pays its own lawyer. On smaller contracts, litigation costs can eat significantly into the recovery. Small claims court handles disputes up to $10,000, or up to $12,500 in some cases, and can be a practical route for lower-value jobs.
When a License Is Required
Section 7031 only matters if the work required a license in the first place. Business and Professions Code Section 7026 defines contracting broadly to cover anyone who builds, alters, repairs, improves, demolishes, or works on any building, road, parking facility, or other structure, whether personally or through others.3California Legislative Information. California Business and Professions Code BPC 7026 General contractors, subcontractors, and specialty contractors are all included. Even submitting a bid counts.
As of January 1, 2025, a license is required when the total project cost — labor and materials combined — reaches $1,000 or more, when the project requires a building permit, or when the person hires employees to do the work. Assembly Bill 2622 raised the threshold from the previous $500 figure.4Contractors State License Board. Handyperson Exemption to Increase to $1,000 in 2025 Splitting a larger project into pieces to stay under $1,000 is not permitted.5California Contractors State License Board. Before Applying for a License When No Exam Is Required
Who Has to Prove the License
When licensing is disputed in court, subdivision (d) puts the burden on the contractor. The contractor has to produce a verified certificate from the Contractors State License Board confirming they held the proper license classification throughout the entire project.6California Legislative Information. California Business and Professions Code BPC 7031 The person challenging the license doesn’t have to produce anything. Just raising the issue is enough. Without a CSLB certificate, vague testimony or expired paperwork won’t save the contractor.
The Substantial Compliance Exception
Subdivision (e) is a narrow safety valve. It’s not available to someone who was never licensed in California. It exists only for contractors who held a valid license and had a brief, unintentional lapse.2California Legislative Information. California Code Business and Professions Code 7031 At an evidentiary hearing, the contractor has to show all three of the following:
- Prior licensure. A valid California contractor’s license was in place before the work began.
- Good faith maintenance. The contractor took reasonable steps to keep the license current, such as submitting renewal paperwork on time and being tripped up by an administrative error.
- Prompt correction. Once the lapse was discovered, the contractor acted immediately to fix it.
Courts read these requirements strictly. A contractor who forgot to renew, or who kept working for weeks after learning about the lapse, will almost certainly lose. The exception targets genuinely accidental gaps, not carelessness.
Liens and Security Interests Are Void
Subdivision (c) makes any security interest taken to guarantee payment for unlicensed contract work unenforceable. A lien or other security interest the contractor took against the property as collateral is void.6California Legislative Information. California Business and Professions Code BPC 7031
The same reasoning reaches mechanic’s liens. California law lets anyone record one, but an unlicensed contractor cannot foreclose on a mechanic’s lien for work that required a license.7California Contractors State License Board. What if a Mechanics Lien Is Filed on Your Property The lien can still cloud title until it’s removed, but the contractor has no way to enforce it. Property owners can petition the court to have the lien released.
Licensed Generals, Unlicensed Subs
Section 7031 also reaches down the chain. California appellate courts have held that a licensed general contractor cannot recover payment for work performed by an unlicensed subcontractor. Allowing a general to collect for unlicensed work just because they hired someone else to do it would defeat the point of the licensing requirement.
Verify Before You Sign, and Recheck During the Job
The cleanest way to avoid the whole problem is to verify the license before signing anything. The CSLB maintains a free online lookup where you can search by license number, business name, or individual name.8California Contractors State License Board. Check a License The tool shows whether the license is active, what classifications it covers, and whether complaints or discipline are on file. Every licensed contractor in California also carries a pocket license card. Ask to see it.
One check at the start of the job isn’t enough for longer projects. A license can lapse mid-project because of an expired bond, dropped insurance, or a failed renewal. If that happens, everything Section 7031 does applies: the contractor loses the right to sue for payment, the security interests become void, and the full disgorgement remedy opens up for the owner. On multi-month jobs, it’s worth rechecking the CSLB record along the way.