On February 1, 2018, a cautionary positive tale for unlicensed solar developers and Power Purchase Agreement (“PPA”) providers in California unfolded with a court ruling that a company can sell solar energy to homeowners without a contractor’s license if it only “arranges for” a licensed contractor to install the solar energy system. In Reed v. SunRun, Inc. (Los Angeles County Super. Ct. No BC498002, Feb. 1, 2018), the court held that, SunRun, as a solar PPA provider could operate without a contractor’s license because it merely made arrangements with licensed contractors to install solar systems on its customers’ residential properties.

Unfortunately, the court ordered the case to not be published or citable, which in legal terms means that it cannot be relied on as precedence for legal authority in the future. Without the case being published, a defendant similarly situated might not fare as well arguing against the precedence of other published California decisions that seem to restrict “arrangers” unless they carefully craft their contracts and actual activities within a much narrower range of non-construction services than in SunRun’s contracts with homeowners. It’s also unclear whether the court would have reached the same conclusion for an unlicensed solar developer who was doing more than acting as a solar PPA provider selling solar energy to homeowners.

Still, the Court of Appeals’ interpretation of the applicable contractor rules was broad and strongly in favor of third-party solar companies being able to “arrange” solar projects without a contractor license. The case interpreted the statutes in a manner that strongly supports the innovative nature of companies operating in the solar space.

In reaching its conclusion, the court first noted that strong public policy favors that unlicensed contractors should be barred from getting paid for their work. In order to suffer that penalty, however, the entity must be acting as a “contractor” within the definition of established law. Section 7026 states a contractor is “any person who [(1a)] undertakes to or [(1b)] offers to undertake to, or [(1c)] purports to have the capacity to undertake to, or [(1d)] submits a bid to, or [1(e)] does himself or herself or by or through others [(2)] construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building . . . .” The court used the interpretation of a “builder” in applicable case law to conclude that the term “contractor” should be construed to apply to any person or entities that actually perform construction services, supervise the performance of construction services or agree by contract to be solely responsible for construction services. The court held that a contractor license is not required if an entity merely coordinates construction services performed by others or supplies labor for those services without also doing one of the acts of a builder.

The court found that SunRun’s promise to “arrange for” the installation of the solar energy systems did not qualify as a promise to be “solely responsible” for construction and thus did not require it to have a license and SunRun did not sufficiently supervise the construction to be deemed to be engaged in construction “by or through others.” It noted that SunRun’s “supervision” activities consisted solely of a 2 minute or less review to confirm the as-built plans matched the project scope. This opinion provides comfort for unlicensed entities and persons operating in California as solar PPAs or developers, but caution is still warranted given that this case is unpublished and many other published California cases have taken a much narrower view of the contractor licensing rules that apply to those “arranging” construction activities.