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The $1,000 or 10 percent down payment limit

Bus. & Prof. Code s. 7159.5 caps a home improvement down payment at $1,000 or 10 percent, whichever is less. The rule, the notice, the bond exception.

Published 2026-10-05

A contractor signing a home improvement contract in California may take a down payment of $1,000 or 10 percent of the contract amount, whichever is less. On a $6,000 bathroom the cap is $600, and on a $40,000 kitchen or a $400,000 rebuild after a wildfire it is $1,000. The rule is Bus. & Prof. Code s. 7159.5(a)(3), and the Contractors State License Board (CSLB) restated it in its April 2026 newsletter, page 9, after a run of complaints about front-loaded payment schedules and large deposits taken for work never done.

The number is easy. The exam also tests everything around it: which contracts the cap applies to, what else the section says about payments, who is exempt, and what happens to a contractor who ignores it.

Which contracts

Section 7159.5 applies to every home improvement contract as defined in s. 7151.2, between an owner or tenant and a contractor, general or specialty, licensed or required to be. Home improvement itself is defined in s. 7151, and the definition is wider than a remodel: repairing, remodeling, altering, converting, modernizing or adding to residential property, and, as the section reads today (last amended effective January 1, 2022), the reconstruction or rebuilding of a residence damaged or destroyed in a natural disaster for which the Governor has proclaimed a state of emergency or the President has declared an emergency or major disaster. The list of examples runs from driveways and swimming pools to solar energy systems, landscaping and fences.

That is why CSLB’s April 2026 reminder names residential solar, accessory dwelling units, home improvement work and rebuilding homes in declared disaster areas in one sentence. All of them are home improvement under s. 7151, so all of them carry the cap.

The one carve-out inside the home improvement family is the service and repair contract under s. 7159.10: a job of $750 or less that the customer initiated, limited to what fixes the problem, with no payment due until the work is done. A contract that meets all of those conditions follows ss. 7159.10 to 7159.14 instead, and the down payment question does not arise because nothing may be collected up front.

What else s. 7159.5 says about money

The down payment cap is paragraph (3) of subdivision (a). The paragraphs around it are tested just as often:

  • (1) The contract must be in writing and state the agreed contract amount in dollars and cents, including the entire cost of the contract (profit, labor and materials) but excluding finance charges.
  • (2) A separate finance charge between the contractor and the customer is set out separately from the contract amount.
  • (4) If there are payments before completion beyond the down payment, the contract needs a schedule of payments in dollars and cents, each one tied to a described amount of work, materials or equipment.
  • (5) Except for the down payment, the contractor may neither request nor accept payment that exceeds the value of the work performed or material delivered. That prohibition extends to an advance from any lender or financier for home improvement goods or services.
  • (6) After any payment, and before the next one, the contractor must on request obtain and furnish an unconditional release of any potential mechanics lien claim for the work paid for, and the customer may withhold further payment until the releases arrive.
  • (7) A salesperson’s commission paid out of the contract price is paid pro rata, in step with the progress payments.

Paragraph (5) is the one that turns a down payment into a payment schedule problem. A contractor who takes the $1,000 and then bills $10,000 for materials not yet delivered has not breached the cap, but has breached (5).

The contract has to say so

Section 7159(d)(8) requires the contract itself to carry the rule. If a down payment will be charged, the contract shows the heading “Downpayment”, a space for the actual amount, and this statement in at least 12-point boldface type:

THE DOWNPAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS.

Paragraph (9) does the same for progress payments, with a schedule under the heading “Schedule of Progress Payments” and a second boldface statement that it is against the law for a contractor to collect payment for work not yet completed or materials not yet delivered, but that a contractor may require a down payment.

The bond exception

Paragraph (8) of s. 7159.5(a) exempts a contractor who furnishes a performance and payment bond, a lien and completion bond, a bond equivalent or a joint control approved by the registrar, covering full performance and payment, from paragraphs (3), (4) and (5). Such a contractor may accept payment before completion and may leave the down payment statement, the progress payment details and the Mechanics Lien Warning out of the contract. Two conditions travel with it: the contractor may hold no financial or other interest in a joint control, and a licensee must have been active for at least two years before applying for approval of a blanket performance and payment bond under 16 CCR s. 858.2.

The penalty

Under s. 7159.5(a), failing to comply with any of the paragraphs is cause for discipline. Under subdivision (b)(1), a violation of paragraph (1), (3) or (5), which is the writing requirement, the down payment cap and the value-of-work rule, is also a misdemeanor, punishable by a fine of $100 to $5,000, up to a year in county jail, or both. Where the violation happens in an area damaged by a natural disaster under a proclaimed state of emergency or a declared federal emergency, the court must impose the maximum fine. Subdivision (c) adds full restitution and a further fine of $500 to $25,000 for anyone who violates the section as part of a scheme to defraud a disaster victim.

For a licensed contractor, a criminal complaint has to be filed within two years of the contract date; for an unlicensed person required to be licensed, four years. Neither limit applies to a CSLB administrative action.

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