August marks the return to school and bill signing season for California Governor Jerry Brown. In the past month – and like he does every August and September – Governor Brown signed well over one hundred pieces of legislation. As for how all that legislation affects builders and contractors, three bills jumped out at us.
SB 465 – Studying Construction Defect Settlements – The Berkeley Balcony Bill
With a vote of 37-0 in the state Senate and a 74-0 vote in the state Assembly, state lawmakers approved legislation and sent a bill to Governor Brown on September 7th that increases oversight of contractors and studies whether settlements (among other things) of construction defect suits should be reported to the Contractors State License Board (CSLB). The bill is a direct response to the June 2015 balcony collapse in Berkeley that killed six people. The bill was sponsored by Senators Jerry Hill, D-San Mateo, and Loni Hancock, D-Oakland. Governor Brown signed the legislation on September 15th and issued a press release. “This bill is an important step toward preventing another tragedy,” said Governor Brown. “SB 465 helps ensure regulators have access to critical information about contractors, including any work-related criminal convictions, and requires a working group to recommend potential statutory changes to the California Building Standards Code.”
This bill would require the CSLB to work with interested stakeholders in studying construction defects involving rental residential units and, by January 1, 2018, report to the Legislature the results of the study to determine if public safety would be enhanced by requiring licensees to report judgments, arbitration awards, or settlement payments of those claims.
According to the bill: “[t]he study shall include, but not be limited to, criteria used by insurers or others to differentiate between settlements that are for nuisance value and those that are not…” While the bill only applies to rental residential units, if settlement reporting becomes mandatory, efforts will certainly be made to apply it to all construction.
SB 465 requires the California Building Standards Commission to perform a study on recent exterior elevated structure failures and submit a report with suggestions for improvements to existing building codes. The bill would require a licensee to disclose any felony or any other crime substantially related to the qualifications, functions, and duties of a licensed contractor.
AB 1793 – Contractor Compliance with Licensing Laws
AB 1793 started out with high hopes but fizzled in the Senate Judiciary Committee. What emerged was a much watered-down bill. The author of the bill, Assemblyman Chris Holden, sought to change the Contractors’ State License Law (CSLL) so a contractor could still get paid – even if the contractor was not licensed “at all times” – to address circumstances where technical reasons are to blame for a lapse in licensure and the contractor is unable to successfully invoke the “substantial compliance doctrine.”
In fact, AB 1793 was in response to the harsh outcome of Judicial Council of California v. Jacobs Facilities, Inc. (2015) 239 Cal.App.4th 882, where the First Appellate District in San Francisco practically invited the legislative action to address the “substantial compliance” doctrine. See our prior alert here Performing Work with a Suspended CSLB License Costs Big: Subcontractor Faces $18,000,000 Disgorgement
Existing law requires contractors to be duly licensed “at all times” during the performance of any work requiring a license. If a contractor is not licensed – even for one day during the work – the contractor is not entitled to any compensation. Moreover, existing law requires disgorgement of all compensation paid to unlicensed contractors. However, the law authorizes a court to determine whether a contractor “substantially complied” with licensure requirements if specified conditions are met, including that the “contractor did not know or should not reasonably have known, that he or she was not duly licensed when the performance under the contract occurred.” The contractor is also required to demonstrate that he or she acted promptly and in good faith to reinstate his or her license upon learning it was invalid in order to meet substantial compliance of these licensure requirements.
This bill revised certain of the criteria for a court to find that a contractor is in substantial compliance with the licensure requirements by removing the condition that the contractor “did not know or should not have reasonably have known, that he or she was unlicensed during performance of the contract.”
While the author of AB 1793 sought to achieve a more substantial revision to the CSLL, this reform is still welcome and should assist in situations where good contractors with a long track record of licensure (e.g. Jacobs Facilities) are not in compliance for technical reasons.
SB 32 / AB 197– Greenhouse Gases
Ten years after California adopted the toughest greenhouse gas emission reduction goals in the nation, Governor Brown signed SB 32 which requires the state to cut emissions at least 40 percent below 1990 levels by 2030 and invest in the communities hardest hit by climate change. SB 32 was sponsored by Senator Fran Pavley (D-Agoura Hills) and AB 197 by Assembly member Eduardo Garcia (D-Coachella).
Undoubtedly, SB 32 and AB 197 will affect the construction industry by influencing where and how projects are built. These policies will likely create additional interest in high-density infill projects that rely heavily on public transit. This new law will also encourage the development of solar and wind power. Efforts to encourage renewable development were further solidified on September 14, 2016 when Interior Secretary Sally Jewel gave final approval to the Desert Renewable Energy Conservation Plan. The plan is a joint effort between California and the federal government that will set aside more than 600 square miles of land for renewable energy development.
“Climate change is real, and knowing that, California is taking action,” said Governor Brown. “SB 32 and AB 197 are far-reaching moves that continue California on its path of vast innovation and environmental resilience.”
According to the Governor’s press release, “California is on track to meet or exceed the current target of reducing greenhouse gas emissions to 1990 levels by 2020, as established in the California Global Warming Solutions Act of 2006 (AB 32). The new 2030 requirement in SB 32 will help make it possible to reach the ultimate goal of reducing emissions 80 percent under 1990 levels by 2050.”
“With its Clean Car Law in 2002 and the Global Warming Solutions Act in 2006, California took a global lead in adopting policies to clear the air, transition to clean energy and reduce climate pollution,” said Senator Pavley. “Those policies have fueled billions of dollars in private investment and spawned a thriving clean-energy sector. SB 32 sends an unmistakable message that California is resolute in its commitment to remain on that healthy and prosperous course.”
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