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Maryland Contractor Licenses

Who needs a contractors license? When are you engaged in construction activity that requires a license?When are you just a supplier How much activity makes you a contractor? What are the penalties for operating without a required contractor license?

If you have a contract for a hundred thousand dollars, then that is how much this problem can cost you. If you are supposed to be licensed and are not, a debtor customer can simply refuse to pay. The courts will back the customer up and refuse to enforce an illegal contract. Proper licensure is also a requirement under most mechanic's lien statutes.

Operating without a required contractor's license can be a criminal violation. There are usually civil penalties. Operating without a required contractor license would also be a violation of the Consumer Protection Act. By complying with state licensing requirements you can avoid civil and criminal penalties and protect the ability to enforce your contract and/or lien rights.

The primary purpose of licensing requirements is to protect the general public. This is a very legitimate police power by the state. It is best to err on the side of caution. Even if the need for a license is arguable, it is a far better policy to have one.The downside risks are great. Although you may eventually prevail, even the need to argue about it will have great costs in time and legal fees.

 

Maryland Licensing Requirements

The Division of Occupational & Professional Licensing of the Maryland Department of Labor, Licensing & Regulation ("DLLR") oversees 22 boards, commissions, and programs that regulate 26 different professions, including construction contractors.[1]

Maryland law requires a construction license for any person or business organization that does construction business in the state.[2]Construction business is defined as paving or curbing a sidewalk, street, or other public or private property, excavating earth, rock, or other material, doing work on or in a building or other structure that requires the use of a building material, including paint, stone, brick, mortar, wood, cement, structural iron or steel, sheet iron, galvanized iron, metallic piping, tin, lead, electric wiring or other metal, or any other building material; or paving or curbing on sidewalks or streets; or excavating.[3]

These definitions seem to include any general contractor, construction manager or subcontractor, doing work on or in a building or other structure.This does not seem to include a material supplier who is not doing work on or in a building or other structure.A contractor or subcontractor who holds an MHIC (Home Improvement) license, discussed below, is not required to also hold a state construction license.[4]

Maryland law distinguishes between state construction contractor licenses requiring an exam and county licenses that may not require an exam. State construction contractor licenses are required for home improvement contractors,[5] home builders[6] and specialty trades or professionals, such as architects,[7] engineers,[8] land surveyors,[9]landscape architects,[10] electricians,[11] plumbers.[12] heating, ventilation, air conditioning and refrigeration[13] contractors. Some specialty trade licensing is also handled at the local level.

Whether operating as a general or subcontractor, any contractor performing electrical, plumbing and HVAC must have a state specialty trade license which involves taking an examination, unless the contractor qualifies for a waiver. Each of these disciplines has different qualification and examination requirements as regulated by the DLLR.[14] Contractors should also check with the county/city where the project is located to determine if any additional county or city license is required.[15]

Further, any person or business that builds new homes must register with the Home Builder Registration Unit of the Maryland Attorneys Generals Office in accordance with the Maryland Home Builder Registration Act.[16]

Other in state or resident contractors must obtain a county construction license, but no state license. A construction license is required for each contract with a gross amount exceeding $1,000,[17] in addition to a separate license that may be required in each county where work is done. A contractor can obtain a construction license from the Clerk of the county Circuit Court where the work will be performed.[18]

Maryland distinguishes between in state and out of state or nonresident contractors. Out of state contractors must qualify to do business as a foreign entity with the Maryland Department of Assessments and Taxation.[19] Then, just like an in state contractor, an out of state or nonresident contractor needs a regular construction license from the Clerk of the county Circuit Court where the work will be performed.[20]However, the out of state or nonresident contractor must also apply for a nonresident construction license.[21] An additional nonresident construction license is required for each contract with a gross amount exceeding $1,000,[22] in addition to a separate license that may be required in each county where work is done.

 

Home Improvement Contractor

The Division of Occupational & Professional Licensing of the Maryland Department of Labor, Licensing & Regulation (DLLR) oversees the Maryland Home Improvement Commission (MHIC). MHIC regulates home improvement contractors, subcontractors and salespersons. A contractor under MHIC is defined as a person, other than an employee of an owner, who performs or offers or agrees to perform a home improvement for an owner and a subcontractor is one who makes an agreement with a contractor or another subcontractor to perform all or a part of a home improvement contract.[23] Home improvement work is defined as any work that involves additions to or alterations, repair or replacement of a building or part of a building that is used as a residence. It also includes work done on individual townhouses and condominium units.[24] It does not include construction of a new home, common areas of condominium units, or apartment buildings that consist of four or more units.[25]

It is important to note that an MHIC license is also required for out of state contractors even if they have a license in another state. Out of state contractors must also be registered as a foreign entity with the Maryland Department of Assessments and Taxation.[26]

Even if you have an MHIC license, you would need a home builder license to build new homes.[27]You may also need a county license to build new homes in any particular county, so check with the county in which you intend to build.[28]

Under the Maryland Code, all persons or entities who work on home improvement projects must have a valid contractor's license to work as a contractor or subcontractor.[29]A licensee can use a contractor license as a contractor or subcontractor, but a licensee with only a subcontractor license can only work as a subcontractor.[30]

In order to apply for an MHIC license, the contractor must qualify for and pass an examination. Qualifications include two years of work experience, proof of liability insurance in the amount of $50,000, financial solvency and creditworthiness.[31] Upon review of the application MHIC can either approve or deny the application. If the application is denied, the contactor can request a hearing within 10 days of receipt of the denial notice. A hearing is then held by MHIC within 30 days after receipt of the request and a decision is made within 60 days.[32]Once MHIC approves and issues the license, it is valid for two years and can be renewed. MHIC sends a renewal notice at least a month in advance of the expiration date. The licensee must send in the renewal request with the fee, proof of liability insurance and credit report.[33] If there has been a change of control in ownership, management, trade name or address, the licensee must notify MHIC within 10 days.[34]

MHIC has the authority to deny a license to an applicant, reprimand a licensee, or suspend or revoke a license if the applicant or licensee or the management personnel of the applicant or licensee engages in various conduct, including but not limited to, fraudulent or deceptive acts, conviction of a felony or misdemeanor directly related to home improvement work, failure to provide information as requested by MHIC, frequent failure to perform home improvement contracts, falsification of accounts, lack of credit worthiness, lack of competence as shown by the performance of inadequate, unworkmanlike or incomplete home improvement work, or violation of any of the MHIC regulations.[35]

Consequences & Penalties

Unlicensed contractors risk working for free, if the licensing statute is for the protection of the public.[36] An unlicensed contractor may also be unable to establish a mechanic's lien.[37]

A home improvement contract between an unlicensed contractor and homeowner is unenforceable. However, this is not true of a contract between a contractor and subcontractor.

The Maryland Home Improvement Commission has especially strong authority to investigate complaints by homeowners, award monetary damages against licensed contractors, and prosecute violators of the home improvement law and regulations.[38] To the extent a contractor acts as a contractor or subcontractor without a license, the contractor can be found guilty of a misdemeanor and subject to a fine of $1,000 or imprisonment up to 6 months or both. A second or subsequent conviction, subjects the contractor to a fine of $5,000 or imprisonment up to 2 years or both.[39]

The Maryland Code also prohibits practices that constitute an abandonment of or failure to perform a home improvement contract, failure to account for or remit payment, fraud, misrepresentation, false, deceptive, or misleading advertising, violation of laws, doing business with an unlicensed person, failure to notify MHIC of certain changes, conducting business under another name, advertising without the license number, failure to comply with an order or requirement issued by MHIC and obtaining payment before signing a contract or obtaining a deposit more than one-third of the home improvement contract price before or at the time of execution of the home improvement contract.[40]Any violation of these prohibited practices can subject a contractor to a civil penalty of $5,000 for each violation whether or not the contractor is licensed.[41]

 

   

[1] https://www.dllr.state.md.us/.

[2] Md. Code Ann. Bus. Reg. §17-602.

[3] Md. Code Ann. Bus. Reg. § 17-601.

[4] Md. Code Ann. Bus. Reg. § 8-317.

[5] Md. Code Ann. Business Regulation § 8-101 et seq.

[6] Md. Code Ann. Business Regulation § 4.5-301.

[7] Md. Code Ann. Business Occupations & Professions § 3-101 et seq.

[8] Md. Code Ann. Business Occupations & Professions § 14-101 et seq.

[9] Md. Code Ann. Business Occupations & Professions § 15-101 et seq.

[10] Md. Code Ann. Business Occupations & Professions § 9-101 et seq.

[11] Md. Code Ann. Business Occupations & Professions § 6-101 et seq.

[12] Md. Code Ann. Business Occupations & Professions § 12-101 et seq.

[13] Md. Code Ann. Business Regulation 9A-101 et seq.

[15] Md. Code Ann. Bus. Reg. § 17-603; See e.g. DeReggi Constr. Co. v. Mate, 130 Md. App. 648, 654-655, 747 A.2d 743, 746 (2000).

[16] Md. Code Ann. Bus. Reg. § 4.5-101 et seq.

[17] Md. Code Ann. Bus. Reg. § 17-602.

[18] Md. Code Ann. Bus. Reg. § 17-603.

[19] Maryland Corporation & Associations Code Section 7-301.

[20] Md. Code Ann. Bus. Reg. § 17-603.

[21] Md. Code Ann. Bus. Reg. § 17-601 and § 17-602.

[22] Md. Code Ann. Bus. Reg. § 17-602.

[23] Md. Code Ann. Bus. Reg. § 8-101.

[24] Md. Code Ann. Bus. Reg. § 8-101.

[25] Md. Code Ann. Bus. Reg. § 8-101.

[26] Maryland Corporation & Associations Code Section 7-301.

[27] Md. Code Ann. Bus. Reg. § 4.5-101 et seq.

[28] See e.g. https://www.montgomerycountymd.gov/OCP/licensing/builder_main.html#15.

[29] Md. Code Ann. Bus. Reg. § 8-301.

[30] Md. Code Ann. Bus. Reg. § 8-307.

[31] Md. Code Ann. Bus. Reg. § 8-302, § 8-303.

[32] Md. Code Ann. Bus. Reg. § 8-305.

[33] Md. Code Ann. Bus. Reg. § 8-308.

[34] Md. Code Ann. Bus. Reg. § 8-309.

[35] Md. Code Ann. Bus. Reg. § 8-311.

[36] If a licensing statute is regulatory in nature, for the protection of the public, rather than merely to raise revenue, an unlicensed person will not be given the assistance of the courts in enforcing a contract. Harry Berenter, Inc. v. Berman, 258 Md. 290, 293, 265 A.2d 759 (1970)[Home Improvement]. If the contract is expressly or by implication forbidden by the statute, no court will lend its assistance to give it effect. A contract entered into by an unlicensed person engaged in a trade, business or profession, required to be licensed, and made in the course of such trade, business or profession, cannot be enforced by such person, if it appears that the license required by the statute is, in whole or in part, for the protection of the public, and to prevent improper persons from engaging in such trade, business or profession. Goldsmith v. Manufacturers' Liab. Ins. Co. of N.J., 132 Md. 283, 286, 103 A. 627 (1918)[Insurance company had no obligation to pay a commission to the unlicensed insurance brokers].
Baltimore St. Builders v. Stewart, 186 Md. App. 684, 975 A.2d 271 (2009)[Home improvement contractor was not licensed and therefore could not enforce its contract or establish a lien contract. The contractor entered into the contract and began work without an MHIC license and then made no attempt to get a license before construction began.The Court found that because the contractor was not licensed, the owner was unable to recover from the Guaranty Fund and therefore it would be unfair for the contractor to maintain its own action against the owner.The Court implied the result may be different if a contractor made a good faith attempt to obtain a license before construction began]. DeReggi Constr. Co. v. Mate, 130 Md. App. 648, 654-655, 747 A.2d 743, 746 (2000)[A builder brought a lawsuit to enforce a contract to build a new home and establish mechanic's lien.The owner defended on the ground that the contractor was unlicensed, as required by the Montgomery County Code ("MCC") Substantial compliance with the licensing requirements is sufficient and the homeowner must show they were actually injured by the violation. In Dereggi, the contractor obtained a license after the contract was executed, but before any actual work began on the project].

[38] MHIC also operates a Guaranty Fund that is funded by licensed contractors through license application and renewal fees. The Guaranty Fund applies only to work by licensed contractors who perform work poorly which results in monetary losses to the homeowner. The maximum amount that is awarded to any homeowner is $20,000. Md. Code Ann. Bus.Reg. § 8-405.

[39] Md. Code Ann. Bus.Reg. § 8-601.

[40] Md. Code Ann. Bus.Reg. § 8-605 through § 8-617.

[41] Md. Code Ann. Bus.Reg. § 8-620; Huffman v. State, 356 Md. 622, 741 A.2d 1088 (1999)[contractor was convicted of seven violations of working without a license and of abandoning or failing to perform a contract. When the contractor entered into seven distinct contracts, each was a separate violation and could be prosecuted separately. The contractor was sentenced to prison for over 11 years (2 years for each of 6 of the 7 violations minus a suspended period), ordered to 5 years probation and to pay restitution in all 7 cases; See also State v. Manion, 442 Md. 419, 112 A.3d 506 (2015), where a contractor had, over two years, contracted with several homeowners and had falsely claimed to be licensed and bonded, used unregistered companies, failed to complete, or in some cases to even begin home improvement projects he was paid for, gave false excuses for his nonperformance, and ignored the owner's request for refunds.He was ultimately convicted for theft by deception and conspiracy and sentenced to a term of sixty-five years, thirty years suspended.