California Contractors License Law Practice Exam

Is a contractor entitled to keep a down payment if the homeowner cancels a home improvement contract after work has started?

1. Yes, if the cancellation is made within allowed time

2. No, the contractor must return all payments

3. Yes, if the work is significant

4. No, unless specified in the contract

The correct answer is: Yes, if the cancellation is made within allowed time

The contractor is entitled to keep a down payment if the homeowner cancels a home improvement contract after work has started, particularly if the cancellation occurs within an allowable timeframe set by regulations or statutes. In California, specific laws govern the rights of contractors and homeowners regarding cancellations and down payments in home improvement contracts. When work has begun, the contractor has incurred costs and may have allocated resources based on the agreement. As such, if the cancellation is within the established parameters provided under California law, the contractor maintains a right to retain the down payment, as it's considered compensation for the services already initiated or for any materials procured. This principle is not about the arbitrary retention of funds but recognizes the contractor’s legitimate business expenses and efforts that have commenced in good faith. Understanding this helps uphold fairness in the contractual agreement, balancing the interests of both parties involved in the construction process.