November 09, 2020 | by Freejo Francis , Owners Association Management Specialist, Dubai.
When you hire an unlicensed contractor to do work on your property, or you fail to secure the necessary permits for that work, you are risking what you have for what you don’t have and don’t need.
When a contractor takes on a job, they’ll hand off parts of it to one or more subcontractors. But the main contractor has overall responsibility for legal compliance, safety, quality of workmanship, and just about everything else that happens on the job site. Generally, the main contractors therefore take on a ton of responsibility. With that comes an equal measure of potential liability. That’s why licensed and responsible general contractors carry a lot of insurance, from contractors’ liability insurance to workers compensation insurance.
All these different forms of insurance coverage ultimately protect the customer if things don’t go according to plan. In fact, states generally won’t even issue a contractor’s license if the minimum level of insurance isn’t in place.
All subcontractors will either have their own insurance or they’ll be operating under the general contractor’s license and insurance coverage. Either way, you as the customer will enjoy a substantial level of protection simply by virtue of using a licensed and bonded contractor. Their insurance protects you from having to bear the financial consequences of a job gone wrong, or a workplace injury, but only as long as you use their services.
What Can Go Wrong with Unlicensed Contractors?
Many things can go wrong on a property, from injuries to substandard workmanship to destruction of power, sewer or water lines. Ultimately, all issues are the responsibility of the general contractor. The general contractor and their insurance carriers are the primary payers in the event something goes awry on the job.
Now here’s the dirty little secret: If you don’t hire a licensed and insured contractor to handle your project, you’re the general contractor!
If your unlicensed contractor breaks a sewer line, you’re responsible. If a worker gets hurt and can’t work for two years, and there’s no workers compensation coverage in place, you are on the hook for that workers’ medical bills and lost wages.
What’s more, your standard OA insurance or landlord liability insurance isn’t going to cover you for these events. Most of these policies exempt damage caused by the knowing use of illegal or unlicensed contractors.
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Consequences for Landlords
Landlords should be very wary of property management companies that make use of unlicensed or uninsured contractors. When they do, they are potentially putting you at risk, too.If your property manager brings in an unlicensed or uninsured contractor, and something goes wrong, courts have generally held the property owner liable along with the property manager.
Failing to hire an insured, licensed, and legal contractor could potentially cost you everything you own. If the worst happens, you could be sued into bankruptcy. Most OA insurance policies specifically exclude damages arising from the work of unlicensed contractors, so they will not protect you. You may be able to isolate investment properties from your own personal holdings via the skillful use of entities. But you could still lose the property in a bankruptcy proceeding if you don’t have the liquidity to pay a judgment.
Using an unlicensed contractor to save a few dollars may be tempting in the short run, but the potential risks far outweigh the benefits.