California Contractor Deposit and Payment Rules
California has strict rules about how much a contractor can collect upfront on a home improvement project. The rules are set by Business and Professions Code Section 7159, and the CSLB enforces them. Violating these rules can result in license discipline, criminal misdemeanor charges, and contracts that are legally unenforceable.
The Deposit Limit
For home improvement contracts, the maximum down payment is $1,000 or 10% of the total contract price, whichever is less. Not whichever is more. Whichever is less.
On a $25,000 kitchen remodel, the legal maximum deposit is $1,000 (not $2,500). On a $6,000 painting job, the maximum is $600 (10% of $6,000). On a $500 repair, the maximum is $50.
This limit exists to protect homeowners from paying large sums before any work is performed. It also means that as a contractor, you need working capital or supplier credit to cover early-stage material costs on larger projects.
What Counts as a Home Improvement Contract
The deposit rule applies specifically to home improvement contracts. This covers remodeling, repairs, renovations, additions, and modifications to existing residential property. It includes ADU construction. It applies to work on the homeowner's primary residence, rental properties, and second homes.
The rule does not apply to new home construction on vacant land, commercial projects, or subcontractor-to-contractor agreements. Those contract types have separate payment structures.
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Progress Payments
After the initial deposit, you can collect progress payments as work is completed. But there are rules here too. Each progress payment must be listed in the contract in dollars and cents, tied to a specific phase of work. The contract must describe the type and amount of work included in each phase.
It is illegal for a contractor to collect payment for work not yet completed or materials not yet delivered. This is the rule that catches contractors who ask for large "material deposits" or "mobilization fees" before starting. Even if you need to order $5,000 in custom cabinets, you cannot collect that amount upfront.
Common Mistakes
Several deposit practices that are common in the field are actually illegal under California law:
- Collecting 10% on a contract over $10,000. On a $30,000 job, 10% is $3,000, but the cap is $1,000.
- Charging a "move-in fee" or "setup fee" on day one that exceeds the deposit limit.
- Taking a separate check for materials before delivering them to the jobsite.
- Using a time-and-materials contract for home improvement work. T&M contracts are effectively illegal for home improvement in California because they cannot meet the statutory requirements for stating total price and payment schedule in dollars and cents.
CSLB Enforcement
The CSLB runs SWIFT (Statewide Investigative Fraud Team) operations targeting deposit and payment violations. These are active enforcement operations, not just complaint-driven. A violation of the deposit and progress payment rules under Section 7159.5 is a misdemeanor and grounds for license discipline.
For contractors, the safest approach is to use a properly formatted home improvement contract that spells out the deposit, each progress payment, and the work tied to each payment. The CSLB publishes a Contracting for Success brochure that walks through the requirements.
For homeowners, if a contractor asks for more than $1,000 upfront on a home improvement project, that is a red flag. Verify their license and check for disciplinary history before proceeding. See our license verification guide for step-by-step instructions.
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