The “handyman exemption” in Arizona protects consumers from unqualified and dishonest people posing as knowledgeable contractors and requires that work totaling more than $1,000 be performed by a licensed contractor. Let’s dive into the details.
ARS 32-1121(A)(14) outlines the handyman exemption, which permits minor repairs that cost less than $1,000 in total to be performed by anyone—including unlicensed contractors. By “$1,000 in total,” we mean that the total contract price for the complete job, including labor, materials, and everything else, must be less than $1,000. This is helpful for minor repairs, because no one has to hire a more expensive contractor to handle minor jobs that a “handyman” could perform.
Further, the statute forbids breaking the job up into different phases, so to speak, with each phase costing less than $1,000. No can do. The entire job must be less than $1,000. The handyman exemption does NOT apply to:
- Work requiring a local building permit
- Casualty losses requiring an insurance company to make repairs
- Gardeners carrying out landscape maintenance
- Alarm agents who sell, rent, install, or service alarm systems
- Work involving connections to a natural gas, propane, or other petroleum or gaseous fuel supply
- Cable, television, and satellite TV/telecommunications providers
- Jobs involving hard-wired or interconnected smoke alarms and fire sprinklers (as opposed to individual devices attached by nails, screws, or the like) related to fire safety installation, maintenance, or repair
- Owners performing improvements to their own property, using their own employees or licensed contractors (we’ll cover an important exception to this rule next)
An unlicensed handyman is permitted to advertise their services to the public, but they must disclose that they are unlicensed in the advertisement, using the words “not a licensed contractor.”
The Handyman Exemption and Fix and Flips
The handyman exemption permits Arizona property owners to perform work on their own property, no matter the cost. However, this does not apply in situations in which the owner plans to sell or lease the property within a year. In this case, the owner must hire a contractor to do any work if the total amount of the work will be more than $1,000.
The mere fact that the property is sold or rented within a year of the work being performed serves as “prima facie” evidence that the work was completed for that purpose. This exception to the handyman exemption is especially important for fix and flip investors, including real estate licensees who invest in properties themselves, fix them up, and then resell them for a profit.
Primary Residences
Another reason that fix and flip investors can rarely use the handyman exemption is that the ownership exemption doesn’t apply if the property isn’t the person’s primary residence. Because most flippers don’t plan to live in the homes they’re renovating, they generally can’t use the handyman exemption to work on a house they intend to flip; they must use a licensed contractor.
If your client is purchasing a home that’s a flip now or was recently flipped, it’s a good idea to advise your client to ask the seller for copies of all receipts from licensed contractors and for all materials—just to make sure the work was performed by licensed contractors according to legal requirements. Even if there are receipts covering every piece of work that was done, you should still strongly encourage buyers to have a professional home inspection performed.
Licensees Who Fix and Flip Homes
Let’s review some of the legal requirements surrounding fix and flips. First, consider this reminder from the ADRE concerning licensees who flip houses:
Real estate agents have an increased liability in flipping homes if they are the seller. As a licensee, we are held to a higher standard by virtue of our status as a licensed agent. Thus, disclosures become even more important for a seller that holds a real estate license.
- Disclosure #1, Agency: A real estate licensee must disclose that they hold a real estate license, whether that license is active or inactive. If title to the property is held by a LLC and the agent is a member of said LLC, that also needs to be disclosed. Remember, you can never take off your REALTOR® hat. Disclosure of agent/owner status needs to be made in multiple areas including, but not limited to:
- In the contract/counter-offer (NOT in an addendum later, but in the initial negotiations prior to contract execution)
- In all advertisements (flyers, magazines, social media, internet, etc., signs/riders, public comments on an MLS listing
- Disclosure #2, Licensed (ROI) contractor information: A licensed real estate agent must use a licensed contractor on a home they are flipping. Thus, the agent needs to disclose to the buyer the name, contact information, and license number of the contractor who did the work on the property. This can be accomplished on the SPDS
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Seller Property Disclosures
In this same issue of the ADRE Real Estate Bulletin, the ADRE commented on fix and flips and the Seller’s Property Disclosure Statement:
While a seller of a home being flipped might not want to fill out a Seller’s Property Disclosure Statement, it is always best practice for the seller to provide the buyer with an SPDS. The seller might give such reasons as, “I’ve never lived in the house.” or “I was told by a real estate agent with XYZ company that I don’t need to.” Even more dangerous to the seller is “I believe that I have less risk if I don’t provide one.”
By not filling out a disclosure, the seller is actually increasing their liability for non-disclosure. Arizona law states that all sellers of real property have a legal obligation to disclose what they know. If a seller has purchased the property and prepared it for re-sale, they probably know more about what is/was wrong with the house than the last person who lived in the house! The seller has this knowledge either through discussions with contractors or reviewing and approving work invoices.
If there is a question that the seller is still not aware of, the SPDS allows for that answer. A better way for sellers to view a full disclosure statement is as an opportunity to brag about what was done to the house. “Yes, this and that was wrong with the home, but then I fixed it.” A fully complete disclosure should be used as a marketing tool.
Enforcement
The Arizona Registrar of Contractors (AZ ROC) enforces the law regarding the handyman exemption. The AZ ROC is known to routinely perform “sting” operations by investigating unlicensed contractors who advertise in print media, at tradeshows, and on online bulletin boards like Craigslist. It also looks for homeowners who post separate jobs that total less than $1,000, trying to break up the work into parts so that each part has a contract price of less than $1,000. And let’s not forget unscrupulous workers who pass themselves off as being licensed but aren’t.
When the AZ ROC finds offenders, it prosecutes them. And if you’re wondering what proof it’ll have of wrongdoings, just follow the paper trail. Courts consider evidence of securing a permit from a governmental agency or the employment of a person on a construction project to be prima facie evidence (correct until proved otherwise) that a contract existed.
Penalties for Violating the Handyman Exemption
Contracting without a license is a class 1 misdemeanor, which carries a maximum term of six months in the county jail and a maximum fine of $2,500, plus an 83% surcharge. That’s pretty brutal. The minimum penalty for contracting without a license as a first offense is a fine of $1,000, plus an 83% surcharge.
In most cases, an unlicensed contractor will simply face a fine, but jail time isn’t out of the question if the perpetrator is a repeat offender. An unlicensed contractor will also be required to pay restitution to anyone who suffered economic loss as a direct result of the offense.
In addition to criminal penalties and restitution, a conviction for contracting without a license also comes with collateral consequences. The AZ ROC won’t issue a license to someone who’s been convicted of contracting without a license within 12 months of the conviction.
Again, questions? Call me!
Linda
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