Starting January 2026, updates were made to California law regarding Home Improvement Contracts under California Business and Professions Code §7159.
All contractors working on residential projects in California should understand these requirements. In the past, many contractors only included basic information in their contracts, such as the contractor’s name, contact information, scope of work, and contract price.
However, today the rules governing home improvement contracts are much stricter. Contractors must now include more detailed disclosures and legal notices in their contracts.
Failure to comply may result in:
- penalties from the California Contractors State License
- customer complaints
- contract disputes
- potential license suspension or revocation
Below are some of the most important contract requirements every contractor should know.
What Is a Home Improvement Contract?
Under California law, a Home Improvement Contract is an agreement between a contractor and a homeowner (or tenant) for construction work performed on a residential property.
This includes work such as:
- remodeling
- repairs
- installations
- ADU construction
If the total contract price exceeds $500, the agreement must comply with BPC §7159.
However, the construction of a completely new residence on a vacant lot is generally not considered a home improvement project.
Basic Requirements Contractors Should Know
A home improvement contract must:
- be in writing
- be signed by both parties
- be completed before work begins
Contractors should avoid verbal agreements, especially for projects exceeding $500. Always make sure the agreement is properly documented.
Provide a Signed Copy Before Work Begins
Before work starts, the contractor must provide the homeowner with a copy of the contract signed by both parties.
This requirement ensures the homeowner clearly understands the terms of the agreement. Many contractors overlook this detail, which may result in CSLB complaints, contract disputes, or situations where the contractor cannot legally enforce payment.
Contractor Information Must Be Clearly Listed
The contract must clearly identify the contractor, including:
- contractor name
- business address
- contractor license number
Contract Price Must Be Clearly Stated
The contract price must be clearly listed in the agreement, with the total amount written in dollars and cents.
If financing charges are involved, they must also be listed separately in the contract.
Scope of Work Must Be Clearly Defined
The scope of work must be clearly described in the contract.
The description should be detailed enough for the homeowner to understand exactly what is being built, repaired, or installed.
Down Payment Limits
The down payment may not exceed $1,000 or 10% of the contract price, whichever is less.
Many contractors unknowingly violate this rule. California law strictly limits down payments, so contractors should always make sure the amount collected complies with the regulation.
Progress Payments Must Match Work Completed
Progress payments must correspond to the work completed.
Contracts should include:
- a payment schedule
- the specific stage of work tied to each payment
Contractors cannot collect payment for work not yet completed or materials not yet delivered.
https://aparbooks.com/account-payable-job-cost
Start Date and Completion Date
The contract must include both:
- Approximate Start Date
- Approximate Completion Date
This provides transparency for homeowners and helps prevent disputes.
Change Orders Must Be Written and Signed
Change orders are one of the most common issues contractors face during construction projects.
Many contractors rely on verbal agreements for additional work, especially when dealing with change orders. This often results in payment disputes or lost profits due to poor documentation.
Change orders should always be treated as part of the contract. They must:
- be in writing
- be signed by both parties
- be approved before work begins
Verbal change orders are not legally enforceable.
Poor change order tracking is one of the most common reasons contractors lose profit on a project.
https://aparbooks.com/account-receivable-change-order
Subcontractor Disclosure Requirements
Recent updates to BPC §7159 require contractors to disclose whether subcontractors will be used on the project.
If subcontractors are involved, the homeowner may request information such as:
- subcontractor name
- license number
- contact information
- license classification
This requirement helps prevent contractors from hiring unlicensed subcontractors and reduces the risk of mechanics liens on the property.
Mechanics Lien Warning
California law requires every home improvement contract to include a Mechanics Lien Warning.
This notice informs homeowners that subcontractors or suppliers who are not paid may place a lien on the property, even if the homeowner has already paid the contractor.
Insurance Disclosure Requirements
The contract must include disclosures regarding:
- General Liability Insurance
- Workers’ Compensation Insurance
The contractor must state whether they:
- carry insurance
- are exempt
- are self-insured
Homeowner’s Right to Cancel
Homeowners have the right to cancel the contract.
Typically, there is a 3-day right to cancel.
Special situations include:
- 5-day cancellation period for senior citizens
- 7-day cancellation period for disaster-related repairs
A Notice of Cancellation form must be attached to the contract.
CSLB Information Must Be Included
Many contracts fail to include information about the California Contractors State License Board.
However, California law requires contractors to include CSLB information, so homeowners know where to verify contractor licenses or file complaints.
Common Contractor Mistakes
Many CSLB complaints happen because contractors use improper contracts.
Common mistakes include:
- missing cancellation notices
- illegal down payments
- vague project descriptions
- collecting payments too early
Even experienced contractors can face disciplinary action if their contracts do not comply with California Business and Professions Code §7159.
For contractors working on residential projects in California, a compliant contract is not just paperwork. It is legal protection for both the contractor and the homeowner.
