LBExam

Bulletin

Section 7031 changes on January 1, 2027

From January 1, 2027, SB 342 lets a contractor licensed at signing on public works, commercial and some residential jobs collect for work done while licensed.

Published
2026-11-04
Takes effect
2027-01-01

Senate Bill 342 (Umberg), Chapter 967 of the Statutes of 2026, rewrites Bus. & Prof. Code s. 7031, the section that keeps an unlicensed contractor from suing to be paid. The Governor approved it and it was filed with the Secretary of State on September 30, 2026. The bill text names no operative date of its own, and the status page lists it as a non-urgency measure. It passed in the 2025-2026 Regular Session, and under Article IV, section 8(c)(1) of the California Constitution, a statute enacted at a regular session goes into effect “on January 1 next following a 90-day period from the date of enactment of the statute”. For a bill enacted on September 30, 2026, the 90 days run to December 29, 2026, and the next January 1 is January 1, 2027. Until then, s. 7031 reads as it does today.

The rule through December 31, 2026

Subdivision (a) bars any person acting as a contractor from bringing or maintaining an action in a California court to collect compensation for work that needs a license “without alleging that they were a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action.” The one exception in that subdivision is for contractors who are each individually licensed but fail to comply with s. 7029, the joint venture license section.

Subdivision (b) works in the other direction. A person who used an unlicensed contractor may sue “to recover all compensation paid to the unlicensed contractor for performance of any act or contract.”

Both rules apply to every kind of job. Unless a court finds substantial compliance under subdivision (e), a license that lapses for a few weeks in the middle of a contract costs the contractor the right to collect for all of it, and exposes it to a claim for everything already paid.

What changes on January 1, 2027

SB 342 splits s. 7031(a) and s. 7031(b) into two paragraphs each. The existing rules stay as paragraph (1), and paragraph (2) of each takes contracts for five kinds of project out of them (in subdivision (a), beside the s. 7029 exception that was already there):

  • a public work of improvement
  • a commercial construction project
  • an institutional construction project
  • construction of a common interest development, as defined in Civil Code s. 4100, if a tenant or resident is not a party to the contract
  • construction of a multifamily residential project of four or more units, if a tenant or resident is not a party to the contract

On a contract of one of those five kinds, the contractor’s side becomes s. 7031(a)(2)(B)(ii): a person may maintain an action for compensation “if the person was a duly licensed contractor at the time the contract was executed and during the portion of the performance of the contract for which compensation is sought.” The customer’s side becomes s. 7031(b)(2)(B): the customer may sue “to recover the portion of compensation paid to the unlicensed contractor for work performed during the time in which the contractor was unlicensed.”

The contractor’s side carries two conditions, and both are easy to miss. The contractor must have been licensed when the contract was executed: the new paragraph lets a contractor maintain an action only on that condition, and the bill does not say what happens to a contractor who was not licensed on that day. And the claim reaches only the part of the work done while licensed, not the work done during the lapse.

What stays the same

Any contract outside the five categories stays under the all-times rule and the customer’s right to recover all compensation paid. The list does not name single-family homes or home improvement work, and both residential entries end with “if a tenant or resident is not a party to the contract.”

Subdivisions (c) to (f) carry over word for word. Subdivision (c) still makes a security interest taken to secure payment unenforceable unless the contractor was licensed “at all times during the performance of the act or contract.” Subdivision (d) still puts the burden of proving licensure on the licensee, by a verified certificate from the Contractors State License Board (CSLB). Subdivision (e) still refuses the substantial compliance doctrine to anyone who has never been licensed in California, and still lets a court find substantial compliance for a contractor who had been licensed before the work, acted reasonably and in good faith to keep the license, and acted promptly to fix the lapse once it learned of it.

The bill does not say whether the new paragraphs reach contracts signed, or work done, before January 1, 2027.

The law on each date

Through December 31, 2026, s. 7031 reads as it stands: no action to collect without a license at all times, and the customer can get back everything paid, on every kind of job. From January 1, 2027, the rule depends on the job. A remodel signed by the homeowner who lives there stays under the all-times rule. A public works, commercial or institutional job comes under the new paragraphs, and so does a multifamily building of four or more units or a common interest development where no tenant or resident is a party to the contract.

CSLB’s Law and Business study guide (form 13E-LAW, rev. 03-2026) lists licensing requirements and contracts among the exam’s topics without naming s. 7031. CSLB has not published whether or when its exam questions will follow the amended text.

Earlier posts here describe s. 7031 as it reads in 2026, including CSLB’s study of unlicensed practice. That is the law until the end of the year, and the Business Organization and Licensing practice set tests the section as it currently reads.

Sources