The Dangers of Acting as an Owner-Builder

If you own real property upon which you intend to erect a structure, you can either hire a builder to erect the structure or act as an owner-builder and work directly with subcontractors. Although “cutting out the middleman” might seem attractive, selecting the owner-builder option will require you to accept certain legal risks and potential liabilities.

The Risks

The major responsibilities of an owner-builder are:

●       Hiring dependable and economical subcontractors, supervising their work, and paying for materials and supplies;

●       Arranging for and cooperating with all building inspections that are required by law;

●       Obtaining all building permits in your name (or the name of your business entity); and

●       Ensuring that your construction project complies with all applicable building codes.

Obviously, you should think twice about acting as an owner-builder if you lack experience in the construction industry.

What You Don’t Know Can Hurt You

Be careful, because you could end up with all of the responsibilities of an owner-builder without even realizing it until it is too late. An unlicensed general contractor, for example, might ask you to obtain the building permits in your name – which would make you an owner-builder under California law whether you realize it or not.

The Potential Liability

As an owner-builder, your potential liabilities are far greater than that of a mere owner:

●       You could be held liable if any unlicensed workers are injured on your property. Obviously, proper insurance coverage is a must before you assume the responsibility of an owner-builder.

●       You can be classified as an employer if you hire anyone other than a licensed California contractor or a member of your own family to perform work on the project. This will require you to register with the state and federal governments, withhold state and federal taxes and social security taxes, pay unemployment contributions, and purchase workers’ compensation insurance.

How to Avoid the Responsibilities of an Owner-Builder

If you wish to avoid all of the responsibility and potential liability that goes along with acting as an owner-builder, make sure to hire only licensed California contractors and make sure that these contractors procure all building permits in their own names, not yours.

Mechanic’s Liens – The Unavoidable Risk

As a mere property owner, you place your property at risk by embarking on a construction project, regardless of whether you are also classified as a builder. A mechanic’s lien can be placed on your property if your contractors are not paid on time. Unfortunately, the presence of a mechanic’s lien on your property will cloud its title and could render it impossible to sell until the lien is extinguished.

Consult the Professionals at CKB Vienna

Before you make the decision to act as owner-builder, consult the professionals at CKB Vienna for a thorough assessment of your risks. If you have already made the decision, you are even more likely to need the help of an experienced real estate law firm to guide you through California’s legal minefield. Call or stop by one of our offices in Rancho Cucamonga, Riverside, and Los Angeles, or use our online contract form to schedule a consultation with us.