In 2005, the Idaho Legislature passed the Idaho Contractor Registration Act, which makes it unlawful to engage in the business of a construction contractor without first registering with the Idaho Contractors Board.
A recent Idaho Supreme Court decision highlights the importance of correct registration. In Stonebrook Construction LLC v. Chase Home Finances LLC, two men partnered to construct custom homes in Southeast Idaho. One of the partners also individually registered with the Contractors Board. The following year, they decided to form an LLC and registered with the Idaho Secretary of State.
The newly formed LLC continued the partnerships business of constructing custom homes. However, the LLC did not obtain a contractors license because they erroneously believed that the original license obtained by one of the partners was sufficient.
The LLC continued for nearly two years before its improper registration became an issue. An owner for whom the LLC was constructing a residence failed to pay for work performed at the property. The LLC recorded a mechanics lien against the property to securitize the amounts it was owed.
The bank that had financed the construction asserted that the lien was invalid due to the LLCs improper registration. The Idaho Supreme Court ultimately ruled that the lien was invalid because the LLC, rather than the partner who obtained the original registration, entered into the contract with the property owner for the construction of the home. The practical effect of this decision is that the LLC was left without any means to recover the amounts it was owed to construct the home.
While this case obviously stands for the proposition that the specific entity that is performing construction work must be registered, it has even farther-reaching implications. Corporations and LLCs are distinct legal entities identified by the name under which they filed with the Secretary of State. Similarly, if any construction contracts your company has entered into do not properly identify your company as the entity registered with the Contractors Board, you may be jeopardizing your lien rights and your ability to collect the amounts you are owed pursuant to said contracts.
If you have recently started a new construction company or if you are planning on partnering or entering into a joint venture with another person or company to perform construction work, it is important that you correctly register this entity with the Contractors Board. You should also verify and ensure that all current and future contracts your business executes identify the exact same company name that is on file with the Secretary of State and registered with the Contractors Board.
Even if you are in the middle of a job but not registered or properly registered, it is not too late. If you register now, you will at least be entitled to record a lien and sue to recover any amounts you are owed for labor and materials supplied after registration. It may benefit your business to have your attorney review your business filings, contractor licenses/registrations, and construction contracts to make sure the business name identified on each is consistent.
RICK STACEY AND BRIAN HOLLERAN Attorneys at Meuleman Mollerup LLP in Boise. Stacey specializes in complex business litigation and construction law. Holleran specializes in business law and litigation and estate planning.