Running the Business · Part 3
The deposit cap: $1,000 or 10 percent, whichever is less, and progress payments that cannot exceed the work. CSLB's most common citation
On a residential job, the most money you may take before doing any work is $1,000 or 10 percent of the contract price, whichever is less, and after that you may never hold more of the customer's money than the value of the work done and the materials delivered. Both rules are printed in 12-point boldface on the contract the state makes you use, both are misdemeanors, and the first is the violation CSLB cites most often because it is the easiest to prove: the check is the evidence. This lesson explains the two rules, the schedule of progress payments that makes a large job cash-flow lawfully, the lien release you owe with each payment, the bonded-contractor exemption, and the special rule for service calls, where no deposit at all is allowed.
What the full lesson covers
- Downpayment: not more than $1,000 or 10 percent of the contract price, whichever is less (B&P 7159.5(a)(3)). On a $2,575 water heater, $257.50. On a $40,000 repipe, $1,000. Never more.
- After the downpayment, you may not request or accept any payment that exceeds the value of work performed or materials delivered (7159.5(a)(5)). Materials delivered to the site count; materials ordered do not.
- A large job is financed by a Schedule of Progress Payments: each payment in dollars and cents tied to a described phase, collected when that phase is done. That is the lawful way to get paid as you go.
- When the customer pays for a portion of the work, you owe a full and unconditional release for that portion before any further payment (7159.5(a)(6), 7159(c)(4)); the Civil Code forms are in lesson 3.7.
- Service and repair contracts: no payment is due or may be accepted until the work is complete. A deposit on a service call is a violation of that form.
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More lessons in Contracts and Getting Paid
- 1The home improvement contract (B&P 7159): every required element, the exact notices, and the three-day right to cancel
- 2The deposit cap: $1,000 or 10 percent, whichever is less, and progress payments that cannot exceed the work. CSLB's most common citationYou are here
- 3Service and repair contracts (B&P 7159.10): when the short form applies, what it must say, and how a service call falls out of it
- 4Subcontracts with GCs: the twelve clauses to read, what to strike, and what to negotiate
- 5Change orders: written, signed, before the work. Every time. Why verbal ones end in CSLB complaints
- 6Mechanics liens I: the 20-day preliminary notice. Miss it, lose your rights
- 7Mechanics liens II: recording deadlines, the 90-day foreclosure clock, the four statutory release forms, stop payment notices, and payment bonds on public work
- 8Collections: demand letter, lien, small claims, attorney. When each is worth it, and the one thing that makes all of them impossible
- 9Taking payment: cards, ACH, checks, cash, financing partners, and getting every dollar into the right account
- 10Case: the job that went unpaid. Where the contractor lost lien rights and how to have kept them
- 11Case: the deposit that became a citation
- 12Case: the change order that was never written
- 13Template: the home improvement contract, with every B&P 7159 notice verbatim
- 14Template: the service and repair contract (B&P 7159.10), one page, with the notices verbatim
- 15Template: the change order, one page, signed before the work
- 16Template: the 20-day preliminary notice, with the proof-of-notice declaration
- 17Template: the four statutory lien waiver and release forms (Civil Code 8132 to 8138), verbatim
- 18Template: the demand letter, homeowner version and general contractor version
- 19Template: the subcontract review checklist. Twelve clauses, three boxes each