Thousand Oaks, CA asked in Construction Law for California

Q: For a $50k job can a contractor have an escrow co. ask for/hold the entire $50k vs asking for a $1k deposit to go around

For a $50k job can a contractor have an escrow co. ask for/hold the entire $50k vs asking for a $1k deposit to go around Business & Professions Code 7159. Therefor the contractor is not asking for the whole payment upfront but an escrow company with specific instruction on when to release monies does to insure the customer is able to pay the full cost?

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1 Lawyer Answer
James A. Greer
James A. Greer
  • Construction Law Lawyer
  • Boulder, CO
  • Licensed in California

A: Dear "Unlawful Deposit" Inquirer: This is an interesting question, and in honesty the only real "authority" on the correct/authorized answer would be an investigative personnel at the CSLB (Contractors State License Board). Nevertheless, I'll use 30+ years experience in construction law including hundreds of CSLB cases, to try and offer best sound advice. First, your citation to B+P Code 7159 is on point (contractor must not get an up front "deposit" for more than 10% or $1,000.00 whichever is less). Second, it seems to me that if you willingly agree to use an escrow account then unless the contractor has "carte blanche" over draws from the escrow account (which would be contrary tom the escrow service's obligation as a fiduciary to YOU), the contractor isn't really in control of the $49,000.00 - instead if you insist on maintaining control, and your right to have to "sign off" or approve the draw requests, then the monies setting in escrow cannot be characterized as an "unlawful deposit". Instead, the monies in the escrow account (so long as you maintain control over payouts) are directly analogous to a Construction "Fund Control" account, and those are established and commonly used. Third, of course you have the right to reject the Contractor's request, but it is a lawful request (and in large contracts routine) for a contractor to demand a level of assurance that the owner has the funds in which to proceed under the construction contract. In other words, it is not untoward for the contractor to want to have a level of "proof of funds". But, to repeat: if you do agree to the escrowing of construction funds just be certain the escrow service provider issues a set of instructions for manner of disbursement to both you and the contractor.

JIM GREER is an attorney licensed to practice in CA and CO and has specialized in real estate matters for the past 30 years; nothing herein shall be construed as the offering of legal advice insofar as Mr. Greer is not in an attorney-client capacity with the inquiring party. 858.481.9006

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