The Perils of Acting as an "Owner-Builder"

With the economy starting to show signs of life, many homeowners are beginning to perform previously delayed construction projects. However, finances can still be a major issue, which is one reason why some homeowners elect to forego hiring a general contractor and instead act as an “owner-builder.”

When a property owner chooses to act as an owner-builder, he or she is assuming all of the responsibilities that would usually be handled by a general contractor. This may prove challenging if the owner-builder has limited experience in construction. It is up to the owner-builder to hire subcontractors, schedule and supervise their work, as well as to pay for all necessary materials and supplies. The owner-builder must obtain all building permits and arrange for building inspections. The owner-builder is also responsible for ensuring that the project passes all relevant building codes.

It is possible for a homeowner to become an owner-builder without ever intending to do so. Some unlicensed contractors may attempt to have property owners obtain owner-building permits without alerting the property owner of the permit’s significance. If a property owner obtains a building permit as an owner-builder, they assume responsibility for all aspects of the project. Obtaining such a permit in the property owner’s name will place the property owner at risk if any unlicensed workers are injured while on the property. A property owner should carefully review its own insurance coverage before agreeing to act as an owner-builder.

Furthermore, if an owner-builder hires anyone other than a California licensed contractor or a family member to perform the work, then the owner-builder may be considered an employer. As an employer, the owner-builder must register with both state and federal governments. Additionally, the owner-builder would be responsible for providing state and federal taxes, social security taxes, workers compensation insurance, and unemployment compensation contributions.

Property owners can avoid this responsibility by hiring licensed California contractors and having them obtain all building permits in their names. However, property owners still risk the filing of a mechanic’s lien if they fail to pay their contractors promptly. A mechanic’s lien can complicate the future sale of any property.

There can be benefits to acting as an owner-builder. However, there are many issues and perils which the property owner must take into account. Reid & Hellyer has many years of experience representing both homeowners and contractors and can provide guidance for any type of construction project.