What is an owner-builder?
An owner-builder is the person who owns the property and acts as their own general contractor on the job. They either do the work themselves or have employees (or licensed subcontractors) working on the project. An owner-builder is also a property owner who does not hire a licensed contractor.
What are the responsibilities of being an owner-builder?
When you sign a building permit application as an owner-builder, you assume full responsibility for all phases of your project and its integrity. You may be considered an employer if you hire unlicensed contractors to do the work. This may make you responsible for:
- Registering with the state and federal government as an employer withholding state and federal income taxes, federal social security taxes, paying disability insurance, and making employment compensation contributions
- Providing workers' compensation insurance
- Supervising the job, including scheduling workers and obtaining building permits and requesting applications yourself
- Scheduling inspections, correcting the work, and getting it re-inspected if any of the construction does not pass building inspections
- Making sure all workers and material suppliers are paid, or face the possibility of mechanic's liens against the project property
What are the risks of being an owner-builder?
Because you may be considered an employer by hiring unlicensed subcontractors or laborers to do the work, there are a number of risks involved. These can range from financial risks to liability risks, both of which may outweigh the financial advantage of being an owner-builder versus hiring a licensed general contractor who is experienced in dealing with these issues.
Some risks you should consider:
Unless you are knowledgeable about construction, mistakes can be costly and take additional time and money to repair. If your workers are injured or you employ unlicensed subcontractors who do not carry liability insurance or worker's compensation, you can be asked to pay for injuries and rehabilitation through your homeowner's insurance policy or face lawsuits against you. If you do not pay subcontractors and suppliers on schedule, they may file a mechanic's lien against your property. To learn more about mechanic's liens click on the following link:
Are there any restrictions to being an owner-builder?
Yes. There are different restrictions for different types of projects.
For industrial and commercial buildings:
None of the improvements are intended or offered for sale
For home improvements:
The work site must be your principle place of residence that you have occupied for 12 months prior to completion of the work. The work must be performed prior to the sale of the home. You cannot take advantage of this exemption on more than two structures during any three-year period (Business and Professions Code Sec. 7044)
For construction of new single family residences:
You are limited to selling four or fewer residential structures in one calendar year. The work necessary to complete the project(s) must be performed by licensed subcontractors.
What do I do once I have decided to be an owner-builder?
Once you have decided you want to take on the responsibilities of being an owner-builder the Building division requires the following documents to be completed before any permit can be issued as owner-builder.
- A complete Building Permit Application signed by the owner or authorized representative
- Owner Builder Acknowledgement Verification (form MUST be notarized).
- A copy of your Certificate of Liability Insurance faxed directly from your insurance company to the City of Vernon, naming the City of Vernon as the Certificate Holder. Have your insurance company fax proper documents to (323)826-1435.
Need more research? Here are a few good places to start:
Contact the City's Finance office at (323) 583-8811 extension 270 to find out if you need to obtain a business license. Contact the State Employment Development Department and Franchise Tax Board for instructions on registering as an employer. Contact the Internal Revenue Service (IRS) for information on registering as an employer. Obtain workers' compensation coverage, and inquire with your insurance company about any need to increase your liability coverage.