Recent Court Decision Addresses Whether Failure to Obtain Local Licenses Renders Contracts Unenforceable
A recent decision from Florida’s Fourth District Court of Appeal addressed the issue of whether a subcontractor that failed to obtain local licenses required by a county ordinance was allowed to litigate claims for work that required those licenses. The case serves as another cautionary tale about the importance of complying with state licensing, local licensing, and contract requirements, and how all three can combine to make construction projects a complex compliance environment for contractors.
ABA Interior Inc v. The Owen Group arose from subcontractor claims relating to interior improvements made at a commercial project. As part of the contract between the subcontractor and the general contractor, the subcontractor was required to comply with all federal, state, and local laws and ordinances relating to the construction.
The subcontractor completed the work and received payments from the general contractor until the general contractor learned that the subcontractor failed to obtain the necessary local, county licenses. The subcontractor sued the general contractor for breach of contract over the unpaid balance of the contract. The general contractor asserted that it was not required to make further payments because the subcontractor had breached the contract by engaging in unlicensed contracting. In response, the subcontractor argued that a license was not required for the work it had performed.
The trial court ultimately granted partial summary judgment in favor of the general contractor on this issue, finding:
that [the subcontractor] did not have the required certificates of competency for specialty contracting and was therefore unable to act as a litigant under (1) Special Act of Palm Beach County, amending Chapter 67-1876, Laws of Florida, as amended, and (2) the Codes of Laws and Ordinances Relating to Palm Beach County Government, Section 7, Article II. The trial court deferred ruling on whether the failure to obtain local licensure was a breach of contract.
Following this ruling, the general contractor moved for partial summary judgment again, arguing that the subcontractor’s failure to have proper licensing was a material breach of the contract. The trial court also granted this motion, and the subcontractor appealed.
On appeal, Florida’s Fourth District Court of Appeal initially noted that the relevant Palm Beach County ordinance at issue in the case:
makes it unlawful for a person who is required but failed to possess a certificate of competency “to hold himself/herself out as a contractor, whether as a plaintiff, defendant or witness in any court in this county.”
First, the court held that this language was applicable even if the litigation was occurring outside of Palm Beach County, and that it was the location of the performance of the work, not the litigation, that was determinative. As a result, the court concluded that because the subcontractor did not have the relevant certificate of competency in Palm Beach County, it could not litigate claims requiring that certificate; it could however, litigate claims that did not require the certificate.
In reviewing the subcontractor’s agreement with the general contractor, the court found that it encompassed a variety of work, including acoustical ceiling work, flooring work, and millwork. The subcontractor claimed that some of this work, particularly the flooring work, did not require a certificate from Palm Beach County to perform. Further, the subcontractor argued that it had employed properly licensed sub-subcontractors to perform some of the work.
Based on these findings, the appellate court reversed the judgments in favor of the general contractor. In so doing, the court implied that the trial court needed to review (1) what portions of the subcontractor’s work required a local license to perform; (2) whether that requirement was met by using properly licensed sub-subcontractors; and (3) whether the subcontractor’s failure to get a license negated any responsibility for payment by the general contractor.
There are a few key takeaways from this case. First, even though many local licensing requirements will be going away in Florida in 2023, for the time being, local licensing is critical and contractors need to make sure they have all appropriate licenses—state and local.
Second, pay attention to contractual requirements relating to licensing. Even though in most counties there are not ordinances that require licenses or that impact the ability to litigate unlicensed claims, this can still become an issue if the contract requires local licensing.
Finally, while the court here left open the question of whether the subcontractor could cure its licensing issues by hiring licensed sub-subcontractors, this question is generally resolved by state statute when it comes to state licenses, rather than local licenses. And for the most part, an unlicensed person or company is not allowed to contract for work requiring a license and then use licensed subcontractors to perform the work. The person or company actually entering into the contract must be licensed for the work contemplated by the contract.
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