Like most other states, Maryland’s licensing scheme is designed primarily to protect the general public, and an unlicensed contractor risks being subjected to civil and criminal penalties and prevented from enforcing its contract or mechanic’s lien rights. Therefore compliance with licensing requirements is essential for conducting business.
KNOW THE LICENSING REQUIREMENTS
General Contractors don’t need a license to work in Maryland unless they are physically performing work on a project. However a license is required for electrical, plumbing, HVACR contracting or home improvement work. 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 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.[1] 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.[2] It does not include construction of a new home, common areas of condominium units, or apartment buildings that consist of four or more units.[3]
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[4]. In order to apply for an MHIC license, the contractor must qualify for and pass an examination. Qualifications include having to show two years of work experience, proof of liability insurance in the amount of $50,000, financial solvency and creditworthiness.[5] 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 the receiving 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.[6] 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.[7] 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.[8] If there has been a change of control in ownership, management, trade name or address, the licensee is to notify MHIC within 10 days.[9] 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 because there is no reciprocity with other states. Out of state contractors must also be registered as a foreign entity with the Maryland Department of Assessments and Taxation.
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 the 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.[10]
Maryland law also requires a construction license for any person or business organization that does construction business in the state.[11] Construction business is defined as any work on or in a structure which requires use of 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.[12] A contractor or subcontractor who holds an MHIC license is not required to also hold a Maryland state construction license.[13] The construction licenses must be obtained from the Clerk of the Circuit Court where the work is being performed. [14] Further, any person or business that builds new homes must register with the Home Builder Registration Unit of the Maryland Attorney’s General’s Office per the Maryland Home Builder Registration Act.[15]
Electrical, plumbing and HVACR contractors also require a state 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.[16] Contractors should also check with the county/city where the project is located to determine if any additional county or city license is required.
CONSEQUENCES OF VIOLATIING THE LICENSING LAWS
MHIC has the authority to investigate complaints by homeowners, award monetary damages against licensed contractors, and prosecute violators of the home improvement law and regulations. 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. [17]
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.[18]
The Maryland Code also prohibits practices that constitute an abandonment of or failure to perform a 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.[19] 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.[20]
In Huffman v. State, 356 Md. 622 (1999), the court tackled the issue of whether multiple violations constitute a single continuous offense or if each is a separate offense. Huffman was convicted of seven violations of working without a license and of abandoning or failing to perform a contract. The Court found that 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.
A more recent case found that a contractor had, over the course of 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. See State v. Manion, 442 Md. 419, 112 A.3d 506 (2015).
It must be noted that the licensing statute is for the protection of the public where a contract between an unlicensed contractor and homeowner can be found unenforceable, however the same is not true of a contract between a contractor and subcontractor. In Stalker Bros., Inc. v. Alcoa Concrete Masonry, Inc., 422 Md. 410, (2011), the court held that a subcontractor could enforce its contract with the contractor. The court found that even though the subcontractor was not licensed either at the time of entering the contract or during performance of the contract, it was licensed at the time payment was due and the lawsuit was filed. Unlicensed home improvement contractors also risk working for free as found in Baltimore St. Builders v. Stewart, 186 Md. App. 684 (2009) where the court held that because Baltimore Street Builders was not licensed it could not enforce its contract with Stewart or establish a lien based on the contract. Baltimore Street Builders had sued Stewart for nonpayment when the homeowner withheld payment for faulty workmanship. The Court found that 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 added that because the contractor was not licensed, Stewart was unable to recover from the Guaranty Fund and therefore it would be unfair for the contractor to maintain its own action against Stewart. Citing Dereggi Constr. Co. v. Mate, 130 Md. App. 648 (2000), the Court implied there may be an exception if a contractor made a good faith attempt to obtain a license before construction began. In Dereggi, the contractor obtained a license after the contract was executed but before any actual work began on the project.
These cases demonstrate the importance of complying with state licensing requirements in order to avoid civil and criminal penalties and be able to enforce your contract and/or lien rights.
[1] Md. Code Ann. Bus. Reg. §8–101
[2] Md. Code Ann. Bus. Reg. §8–101
[3] Md. Code Ann. Bus. Reg. §8–101
[4] Md. Code Ann. Bus. Reg. §8–301
[5] Md. Code Ann. Bus. Reg. §8–302, §8-303
[6] Md. Code Ann. Bus. Reg. §8–305
[7] Md. Code Ann. Bus. Reg. §8–307
[8] Md. Code Ann. Bus. Reg. §8–308
[9] Md. Code Ann. Bus. Reg. §8–309
[10] Md. Code Ann. Bus. Reg. §8–311
[11] Md. Code Ann. Bus. Reg. §17–602
[12] Md. Code Ann. Bus. Reg. §17–601
[13] Md. Code Ann. Bus. Reg. §8–317
[14] Md. Code Ann. Bus. Reg. §17–603
[15] Md. Code Ann. Bus. Reg. §4.5–101 et seq.
[16] See electrical at http://www.dllr.state.md.us/license/elec/eleclic.shtml;
HVACR at http://www.dllr.state.md.us/license/hvacr/hvacrlic.shtml;
and plumbing at http://www.dllr.state.md.us/license/pl/pllic.shtml
[17] Md. Code Ann. Bus.Reg. §8–405
[18] Md. Code Ann. Bus.Reg. §8–601
[19] Md. Code Ann. Bus.Reg. §8–605 through §8-617
[20] Md. Code Ann. Bus.Reg. §8–620