The Inside Outside Guys: Builder’s licenses – Who has to have one?

Ken Calverley and Chuck Breidenstein
Special to The Detroit News

A lot of confusion exists in Michigan with regard to who has to have a builder’s license and when. Even among industry practitioners the nuances of the licensing requirement are not always well understood.

Not all states require builder’s licensing and among those that do, there is little consistency with regard to how the laws apply. There is also no reciprocity between states that require a builder’s license so your Michigan license would not be good in Florida or any other state.

One of the potential issues with requiring licensure is the perception it creates with the public.

By nature of having to be licensed, the public may incorrectly assume builder competency.

Not all states require builder’s licensing

Many “builder licensing” requirements are historically more of a registration that requires some basic information about the company and a fee paid to a municipality. At the state level, the licensing may require a background check, a minimum level of relevant experience and a demonstration of knowledge specific to the Industry by passing a written or oral examination.

Many states also now require proof of minimum “continuing competency” requirements. This may include attending an approved class or product demonstration every year and not being subject to a bankruptcy filing.

Article 24 of Public Act 299 of 1980 contains most of the license law requirements for builder related issues in Michigan.

In Michigan, “Residential Builder” means a person engaged in the construction of a residential structure or a combination residential and commercial structure who, for some type of valuable consideration, undertakes with another for the erection, construction, replacement, repair, alteration, or an addition to, subtraction from, improvement of, wrecking of, or demolition of a residential structure or combination residential and commercial structure.

That’s a shortened definition but the takeaway is that it is primarily for work on residential projects. A contractor building a stand-alone commercial space does not need a builder’s license in Michigan.

If you even “purport to have the capacity to undertake with another” to perform the things that require a builder’s license, then you must be licensed.

There is also a Residential Builders Maintenance and Alteration (M&A) Contractors License in this State. It is for those companies that do not intend to build or modify an entire structure, but instead are specialists in specific trades, so their license is basically limited to those trades with some exceptions.  There are 13 categories under the M&A license including carpentry, masonry, concrete, excavation, roofing, siding and others.

 While licenses are initially issued to individuals, those business owners often work under assumed names on behalf of a corporate entity they operate for the business. So a license may represent both the individual who is actually licensed and the corporate or business entity operated by that individual.

A homeowner is usually, by rote of the signed contract, doing business with a legal entity like a corporation rather than the individual who carries the license.

All licensees are required to carry a “pocket card” to be used as proof of licensure when needed.

Another area of concern has to do with salespersons representing licensed companies. In Michigan “Salesperson” means an employee or agent (of a licensee) who for valuable consideration sells or attempts to sell, negotiates or attempts to negotiate, solicits for or attempts to solicit for, or attempts to obtain contracts for the goods and services of a licensee. Again this is a shortened definition but the gist of it, with minor exception, is that a builder or M&A Contractor’s salesperson must be licensed as a salesperson under the builder’s or M&A Contractor’s license and can only sell for that company.

Under the law, contracts for the goods and services of a licensee must be in writing and include specifications and, when needed, plans. Contracts must also include clear language regarding monies to be paid to the Licensee including any finance charges and extras or overages.

Contracts must be signed by all parties to the agreement and in the proper legal capacity. Because many businesses operate under “assumed names,” it is important for the company representative signing the contract to do so in their legal capacity as a representative of the business entity. For example, one might sign as “John Doe, President, of XYZ Contracting Inc.”

The contract must contain a “right to cancel” clause if the work was solicited and signed for in the client’s home. Changes to the agreement must be in writing and initialed by all parties to the agreement.  

These are just a few of the nuances of builder license law in Michigan. There are many facets to license laws throughout the state and country, which is one reason we always suggest use of good legal counsel prior to entering into written agreements.

While having a license may be required, it is only the tip of the iceberg when it comes to running a competent, ethical and trustworthy business like those the Guys refer.

For more home improvement advice, listen to the Inside Outside Guys every Saturday and Sunday on News/Talk 760, WJR-AM, from 10 a.m. to noon  or contact us at insideoutsideguys.com.