Selling Construction Materials to Unlicensed Contractors

It is not required by law that a construction material supplier verify whether the individual/entity that materials are being sold to is licensed. However, there are a few risks to keep in mind when making the decision either to sale to unlicensed contractors or to not verify the licensure of customers.

COMMERCIAL CONSTRUCTION – There is a risk that the unlicensed contractor may not get paid because the contractor’s right to maintain an action for compensation is lost by failure to be able to allege and prove appropriate licensure.[1] Consequently, the contractor may have difficulty paying its suppliers. The lack of licensure does not affect the suppliers’ rights to pursue a contract claim, mechanic’s lien claim, or payment bond claim, as applicable.

RESIDENTIAL CONSTRUCTION (single family detached housing or multifamily dwelling up to and including duplexes[2]) – This carries the same risk as commercial construction. In addition, no claim for payment can be made to the Utah Residence Lien Restriction and Recovery Fund if it cannot be shown that the services or materials for which compensation is being sought, were provided to a licensed contractor.[3] The statute does not clearly provide a timing requirement for when the licensure should be effective. However, my understanding of the position taken by the Lien Recovery Fund is that the contractor should be licensed at the time materials are provided on behalf of the project at issue in the claim. The effect of the licensure expiring after some materials are provided, but before others, has not been addressed.

To discuss any questions or concerns with an experienced attorney, feel free to reach us directly at 801.365.1030.

[1] UCA 58-55-604 A contractor or alarm business or company may not act as agent or commence or maintain any action in any court of the state for collection of compensation for performing any act for which a license is required by this chapter without alleging and proving that the licensed contractor or alarm business or company was appropriately licensed when the contract sued upon was entered into, and when the alleged cause of action arose.

[2] UCA 38-11-102(22) (a) “Residence” means an improvement to real property used or occupied, to be used or occupied as, or in conjunction with:
(i) a primary or secondary detached single-family dwelling; or
(ii) a multifamily dwelling up to and including duplexes.

[3] One of the requirement to make a claim for payment to the Utah Residence Lien Restriction and Recovery Fund is the following: UCA 38-11-204(4)(f) the qualified beneficiary provided qualified services to a contractor, licensed or exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act.

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