Knowledgebase-Contractors Licensing Law and Its Application


Information Product

Title:Contractors Licensing Law and Its Application
Summary:MTAS was asked to clarify the contractors licensing law.
Original Author:Hemsley, Sid
Co-Author:
Product Create Date:11/18/92
Last Reviewed on::03/06/2017
Subject:Contractors--Licenses and permits
Type:Legal Opinion
Legal Opinion:

Reference Documents:

Text of Document: November 18, 1992

In response to the opinion I issued that the builder of a restaurant in the City does not need a contractors license you sent to me an opposite opinion by Steve Roller, staff attorney for the Board of Licensing contractors. Your question boils down to, who is right?

I stand by my initial answer that the Contractors Licensing Law does not apply to the builder of the restaurant under the facts related to me. Mr. Roller's letter indicates that Tennessee Attorney General's opinions support the Board for Licensing Contractors position that the builder is required to have a contractor's license. I discussed this yesterday morning with Mr. Roller, and he was kind enough to send me a copy of two OAG opinions [dated September 21, 1976, and July 19, 1977] upon which the board relies.

I disagree with both opinions and with the Contractors Licensing Board. In my opinion, neither a plain reading of the Contractors Licensing Law nor the Tennessee Supreme Court case of Santi v. Crabb, 574 S.W.2d 732 (1978) support them. However, under the circumstances, my advice to the city council is to rely upon those opinions and the Contractors Licensing Board's position to deny the person in question a building permit. As I understand it, the building inspector has already denied the permit (a position he wisely took), and the city council is contemplating overriding the building inspector. In theory, there is a possibility the building inspector or the members of the city council could be criminally prosecuted for issuing the permit. That would be a difficult way to determine whether the Contractors Licensing Law applies to the person in question.

The city is immune from liability under the Tennessee Tort Liability Act for the refusal on the part of the building inspector to issue the permit [Tennessee Code Annotated, 29-20-205], and the city and the city council are immune from liability under the same Act for the latter's refusal to override the building inspector [Tennessee Code Annotated, 29-20-205 and 29-20-201(b)(2)].

Although it is highly unlikely that the building inspector would be held liable for his refusal to issue a building permit under the circumstances, the Tennessee Tort Liability Act does not immunize him from liability for refusal to issue permits, but the Act permits cities to insure or indemnify their employees for claims for which they are liable but for which cities are immune. Believing that caution is still the best policy even where the risk of city and city employee liability is low, I advise the city to check with its liability carrier to determine if the building official is insured against claims for which he may be held liable. If he isn't insured, the city council can formally assure him on the front end that he will be indemnified against liability for refusing to issue the building permit in this case.

Because both the Contractors Licensing Board and the Tennessee Attorney General have taken the respective positions that the Contractors Licensing Law applies to the person in question, and that it applies to a broad class of persons who don't fit within the "individual use" exception of that Law, the burden of litigating the question of who is right in this case should be thrust on the applicant for the building permit. That is not an unreasonable position for the city to take.

Now, let me turn to an analysis of the Tennessee Attorney General's opinions at issue.

Both opinions rely upon a reading of what is now Tennessee Code Annotated, 62-6-103(a)(2)(A):

Notwithstanding the provisions of subsection (a)(1), any person, firm or church that owns property and constructs thereon single residences, farm buildings or other buildings for individual use, and not for lease, rent or other similar purpose, is exempt from the requirements of this chapter. [Emphasis is mine].

OAG opinion dated September 21, 1976, arose in response to request from the executive secretary of the Board For Licensing Contractors, asking for an interpretation of the term "individual use" within the meaning of the above statute. The author of that opinion notes that he himself had a hand in drafting that sentence, and that it was intended "to insure that there would be no abuse of what is called the owner exemption to this Act by providing that any building constructed on property owned by the builder must be built for the individual use of the owner and not for use by the general public." The opinion went on to list a number of examples of "individual use" and "non-individual use." The individual uses listed are (but not limited to) homeowner building a garage on his property or a corporation building office space for use solely by its employees. The non-individual uses listed are (but not limited to) a property owner building a grocery store upon his property or a church organization building a church-related structure on its property.

While I certainly can't argue with the stated intention of the author of that sentence, the question is not his intent in drafting the legislation, but of the legislature's intent in passing it. I don't believe that his intention can be seen in a plain reading of the Contractors Licensing Law. Apparently the Contractors Licensing Board also had misgivings about that interpretation, because the request by the board's executive secretary for a "reconsideration" of OAG opinion dated September 21, 1976 led to OAG opinion dated July 19, 1977.

The latter OAG opinion, authored by the same assistant attorney general who wrote the first one, expanded on the interpretation of the "individual use." It sets up the problem that generated a request for a reconsideration this way:

...the opinion of the Board for Licensing Contractors, as well as certain industry associations, that 'individual use' should not be applied to the construction of buildings for business or proprietary purposes. The point is made that there would seem to be no difference between a business constructing an industrial plant for use by itself and its employees and an apartment owner who builds an apartment complex to house tenants.

It is understood from this example that reference must be made to previous opinions of this office wherein a corporation as described above would need not have a license, while an apartment owner in the situation described above would need to have a license. [Emphasis is mine]

There you have it: the Tennessee Attorney General in OAG opinion dated September 21, 1976 (and possibly other times) that the Contractors Licensing Law didn't apply to the construction by the owner, on his property, of buildings for business or proprietary purposes, and the Contractors Licensing Board wanted to know why it applied to a property owner constructing, on his own property, an apartment complex to house tenants.

The reason for the distinction, declares the opinion, is that

an employee as such is not a member of the general public operating within the scope of his employment. Rather, he is a part of the very business organization for which he works....On the other hand, an apartment dweller is a tenant pursuant to a contractual arrangement with the owner or owners the apartment complex in which he dwells. As such, he does not lose his identity as a member of the general public....Hence, while both the business and the apartment owner would be constructing the particular buildings for their individual, business-type, purposes, only the latter caters to and depends upon usage by members of the general public. As such, he thereby fails to qualify for the 'individual use' exemption outlined above. [Emphasis is mine]

The corollary of those opinions, of course, is that the restaurant in your case serves the general public; therefore, it doesn't qualify for the "individual use" exception in the Contractors Licensing Law.

In my view, that is an extremely strained view of the "individual use" provision of Tennessee Code Annotated, 62-6-103(a)(2)(A). Santi doesn't support it either.

Tennessee Code Annotated, 62-6-103(a)(2)(A) simply completely exempts from the Contractors Licensing Law one class of builders: persons, firms churches that owns property upon which they construct single residences, farm or other buildings for individual use,and not for resale, lease, rent or other similar purposes. Nothing in that sentence, so heavily relied upon both opinions, remotely suggests that it contains the exclusive exemption or exclusion in the Contractors Licensing Law.

In fact, exclusions (or exemptions, depending upon which way you look at them) of other classes of builders are found in the definitions of the Contractors Licensing Law. Tennessee Code Annotated, 62-6-201, defines what "contracting" is and is not. One of the things that "contracting" is not, is "Undertakings in one's own county of residence solely to construct residences or dwellings on private property for the purpose of resale" in a large number of certain counties based on population. [Emphasis is mine]

Setting aside the question of whether those population brackets are constitutional, it is clear that a person can build residences, including apartments in those counties within the parameters of those brackets, without obtaining a contractor's license. In other words, in a large number of counties the Contractors Licensing Law itself knocks a hole in the distinction drawn between factories and apartments in OAG Opinion dated July 19, 1977, relative to the question of whether the owner-builder is required to obtain a contractors license.

The Contractors Licensing Law also defines what a "contractor" is and is not. As I pointed out in my earlier opinion to you, a contractor is "any person, firm or corporation who engages or offers to engage in contracting." Contracting itself has a narrow definition:

undertaking for a fixed price, fee, commission or gain of whatever nature, to construct, erect, alter repair, supervise, superintend, oversee, direct, or in any manner assume charge of the construction, erection, alteration, or repair of part or all of any private work or utility of any nature or character whatsoever... [Emphasis is mine]

That definition appears to clearly exempt or exclude another class of builders from the Contractors Licensing Law: those who construction undertakings are not for a fixed price, fee, commission or gain of whatever nature. In the case of a businessman constructing his own building, one can stretch the term "gain of whatever nature" to include business gain. However, such a reading is strained to the point of being far-fetched. OAG Opinion dated July 19, 1977 doesn't even go that far, conceding that a businessman constructing a building for his own use (and the use of his employees) doesn't need a contractors license under the Contractors Licensing Law. A plain reading of the phrase "undertaking for a fixed price, fee, commission or gain of whatever nature" means the builder has to get paid in one manner or another for his work. Surely, if we are to look for legislative intent in the Contractors Licensing Law, what is that phrase to mean, if not that?

Santi itself answers that question. It is important that the building being constructed by the owner of the property in that case was "a three-family dwelling...at a total cost of $150,000" [Emphasis is mine]. We are not told whether the dwelling was for the owner's extended family or for rental property, but it is a safe bet that it was the latter. But that distinction didn't matter; the builder was an "owner," and, "An owner, building on his own premises, and utilizing the services of various persons or entities normally designated as sub-contractors, is not a general contractor and is not required to have a license," said the Tennessee Supreme Court.

It is likewise important that not once did the Santi Court mention the "individual use" theory relied in OAG opinions dated September 21, 1976, and July 19, 1977. It had plenty of opportunity to do so; the same "individual use" language presently codified in Tennessee Code Annotated, 62-6-103 (a)(2)(A) was contained in the original Contractors Licensing Law. [See Public Acts 1976, Chapter 822, 3]. Had the Court adopted the strained distinction between buildings constructed by a businessman, on his own property, for his own use and buildings constructed by a businessman, on his own property, for general public use found in those OAG opinions, the property owner/builder in Santi would have been found to be a general contractor.

Santi post-dates both OAG Opinions dated September 21, 1976, and July 19, 1977. In relying upon those opinions in the case of the restaurant builder/owner, the Contractors Licensing Board is relying upon a theory of law passed by in Santi. If it was the intention of the assistant attorney general who drafted both the "individual use" sentence and those two opinions, that intent isn't reflected in the Contractors Licensing Law. I'm not the only one who doesn't see it. The Tennessee Supreme Court didn't see it either.

The two Tennessee Attorney General's opinions at issue are enclosed.

Sincerely,

Sidney D. Hemsley
Senior Law Consultant
SDH/

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