In Georgia, Rely on an Affiliate’s or Individual’s General Contractor’s License at Your Own Peril

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On May 5, 2020, the Georgia Court of Appeals affirmed a trial court summary judgment ruling dismissing a residential contractor’s claims against an owner because the contractor was not properly licensed. In LFR Investments, LLC v. Van Sant, after being terminated by the property owner, a homebuilder brought claims for breach of contract and unjust enrichment against the owner. The owner moved for summary judgment on those claims arguing that the builder lacked the ability to enforce the contract because it was not licensed to build homes.

Under Georgia law, an unlicensed general contractor cannot enforce the terms of a contract in law or equity. To be properly licensed, Georgia law permits a business organization to rely on the license of a “qualifying agent” holding a valid residential contractor or general contractor license. The qualifying agent must apply, and be approved, for a license expressly on behalf of the business in order for the business to rely upon that license.

In this case, the contractor was registered as an LLC with a sole member. That sole member was licensed and registered as a qualifying agent for a separate entity but not for the LLC that contracted with the property owner. The LLC attempted to impute its sole member’s license onto the LLC in rebutting the property owner’s summary judgment motion. The appellate court disagreed, holding that the contractor’s interpretation would nullify the express requirements of the licensing statute that a qualifying agent apply for and hold a license directly on behalf of a business.

Contractors often operate using multiple affiliated entities to prosecute different types of work. The Georgia court’s decision is a reminder for such contractors to check their compliance with applicable licensing regulations. If your company is improperly relying, for example, on an affiliate’s license or the license of an individual who is not registered as a qualifying agent in a state like Georgia, that may prove disastrous to recovery on otherwise meritorious claims.  Additionally, some licensing statutes may provide for criminal penalties for operating without a license, which is yet another reason to confirm compliance. Note also that there may be delays to processing new license applications during the ongoing pandemic, and you should account for this potential when planning your work. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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