Severe Repercussions for Unlicensed Contractors

By Melinda Gentile

Contractors - general contractors and subcontractors alike - performing work on construction projects, must be licensed by the Department of Business and Professional Regulation (the "Department") and, in many cases, with the county and municipality where the work is performed. The contractor must be licensed either on the effective date of the contract for the work, if such a date is established, or at least when the work begins. Florida law provides severe repercussions for contractors who fail to obtain and maintain the requisite licenses.

Florida Statutes dictate that an unlicensed contractor who enters into a contract for construction on or after October 1, 1990, will be unable to enforce the contract, in law or equity, and thus, unable to maintain an action for breach of contract. Fla. Stat. §489.128(1)(2004). In Deep South Systems, Inc. v. Heath, 843 So. 2d 378 (Fla. 2d DCA 2003), an unlicensed sub-subcontractor brought an action to recover its final payment due for work on a series of contracts. The trial court entered judgment on behalf of the unlicensed sub-subcontractor but the Court of Appeals reversed, holding the terms of the contract unenforceable by the sub-subcontractor since it was unlicensed. Prior to 2000, §489.128 contained the following sentence: "(I)n the event the contractor obtains or reinstates his or her license, the provisions of this section shall no longer apply." Accordingly, since 2000, contractors can no longer correct a license defect and avoid the repercussions contained in §489.128 by subsequently obtaining the necessary license(s). The Florida Legislature's removal of the cure language in §489.128 effectively means that the ability to cure a license defect is no longer available.

Florida law also mandates that when a contract is unenforceable as a result of the contractor's unlicensed status, the contractor may not assert a lien or bond claim. §489.128(3). Further, in the event that an unlicensed contractor is sued for work performed pursuant to a contract deemed unenforceable as a result of the contractor's licensing status, the unlicensed contractor will be unable to assert otherwise available contractual defenses in response to the claim. This was established in John Hancock-Gannon Joint Venture v. McNully, 800 So. 2d 294 (Fla. 3d DCA 2001).

The repercussions do not end there. Fla. Stat. §768.0425(2)(2004) requires that unlicensed contractors pay an injured party/entity three times the actual compensatory damages caused by its negligence, malfeasance or misfeasance. Further, Florida law requires unlicensed contractors pay the injured party/entity the costs and attorneys' fees resulting from the company's unlawful and/or negligent acts. Note that the damages to be tripled are not confined to personal injuries and include other categories of damages, including economic.

Moreover, according to Fla. Stat. §489.13(3)(2004), unlicensed contractors may be fined up to $10,000 by the Department, plus the amount of the Department's reasonable investigation and legal costs in connection therewith. Unlicensed contractors who hold themselves out as being properly licensed may even be found guilty of a misdemeanor and could face a year in prison and the charges escalate to a felony if the contractor is a repeat offender.

Florida law also provides an incentive for owners, general contractors and others to contract with those properly licensed. Initially, note that only those unaware of the contractor's unlicensed status will enjoy the above-stated benefits when a claim is asserted by or against an unlicensed contractor. In John Hancock-Gannon Joint Venture v. McNully, a homeowner sued an unlicensed roofing contractor for breach of contract after problems were detected with the work. The Court noted that if the owner knew of the contractor's unlicensed status the owner would be prevented from suing the contractor for breach of contract.

Further, those who knowingly enter into contracts with unlicensed contractors will likewise not be able to assert claims against the unlicensed contractor's payment and performance bond surety. In Kvaerner Construction, Inc. v. American Safety Casualty Insurance Company, 847 So. 2d 534 (Fla. 5th DCA 2003), a properly licensed general contractor sought to recover damages from an unlicensed subcontractor's performance bond for delay damages after the Project was halted due to the subcontractor's unlicensed status. The court held that since the general contractor knew the subcontractor was unlicensed before and during its work on the project, the contract between the two companies was not only void - i.e. the general contractor could not recover from the subcontractor for breach of contract - but the general contractor could not recover from the unlicensed subcontractor's performance bond surety. Thus, it is in everyone's best interest to only contract with properly licensed contractors.

Florida law clearly places the onus on all parties to ensure that contractors are properly licensed. The severe penalties imposed upon unlicensed contractors, as well as those who knowingly contract with unlicensed contractors, underscore the policy of the licensing requirements - to protect the public from shoddy construction and financially unstable contractors.

Melinda Gentile is a partner in the Miami office of Peckar & Abramson. Associate Adam P. Handfinger assisted with this article.