Recently, a contractor asked me how to create a good contract. After further discussion, I understood that this contractor was not licensed, but wanted advice on obtaining a good contract. Well, what is a good contract after all?

Is a good contract one that considers and anticipates issues, which may develop on the construction site? Is a good contract one that establishes an agreeable compensation for the work?

Although parties are free to enter into any contract, the correct question to ask is not whether you can have a good contract, but rather whether a court will enforce the contract. After all, the value of a good New York construction contract will be similar to the value of an insurance policy. You will learn how valuable or effective it is only when you call upon it to perform.

In New York, the enforceability of an unlicensed contractor’s contract has long been established under the law. Under the New York City Administrative Code, § 20-385, an unlicensed contractor is barred from seeking payment from the owner, and in the absence of any balance owed to the contractor from the owner, any unpaid subs must look to the contractor for payment of work performed.

This provision of the New York City Administrative Code has been supported and affirmed in numerous court matters. An unlicensed contractor may neither enforce a home improvement contract against the owner or seek recovery for the benefit provided to the owner from its work. See B&F Bldg. Corp. v. Liebig 76 N.Y.2d 689, 563 N.Y.S.2d 40.

“The purpose of the licensing requirement … is to ‘safeguard and protect the homeowner against abuses and fraudulent practices. The requirement of obtaining such a license is clearly not a ministerial act or mere technicality.’ Furthermore, a contractor is barred from enforcing a contract if its license is not issued until after the work is completed.” Blake Electrical Contracting Co. v. Paschall222 A.D.2d 264, 635 N.Y.S.2d 205 citing B&F Bldg. Corp. v. Lieblig.

So, to answer your question, a good construction contract in New York starts with obtaining all licenses required for the work anticipated. Otherwise, even the best-drafted contract will be refused enforcement by the courts.

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The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.