California Contractor Payment Laws 2026: 5% Retention Cap and Subcontractor Disclosure Requirements
Four major California construction laws took effect January 1, 2026, reshaping how contractors handle payments and homeowner disclosures. SB 61 cuts retention holdbacks to 5%, SB 517 mandates subcontractor transparency, AB 1327 enables email cancellations, and SB 440 streamlines change order disputes. Here's what Pacific Beach homeowners and contractors need to know.
SB 61: 5% Retention Cap Improves Cash Flow
California's SB 61 limits retention payments to 5% of each progress payment on private construction contracts, down from the previous 10% industry standard. This change aligns private projects with existing public works rules and significantly improves cash flow for subcontractors.
The retention cap flows through all tiers of subcontractors, meaning prime contractors must pass along any negotiated reductions below 5%. The law includes attorney's fee provisions for enforcement and cannot be waived in contracts.
For a $100,000 Pacific Beach kitchen remodel, contractors previously withheld $10,000 until completion. Under SB 61, that holdback drops to $5,000, improving working capital for plumbers, electricians, and other trades serving La Jolla and Mission Beach projects.
SB 517: Subcontractor Disclosure Requirements
SB 517 requires home improvement contractors to disclose whether subcontractors will be used on projects. When subcontractors perform more than 50% of the estimated costs, contracts must include subcontractor names, contact information, and license numbers.
This transparency helps Pacific Beach homeowners understand who's actually doing the work and verify proper licensing. Contractors must provide this information upfront in home improvement contracts, ensuring accountability on remodels, additions, and renovations.
AB 1327: Email Cancellation Rights
AB 1327 allows homeowners to cancel contracts via email within three days of signing. All home improvement contracts must now include the contractor's email address and phone number, making cancellation faster and more accessible than mail-only options.
The mandatory "Right to Cancel" form must display the contractor's email prominently on the first page. This protects homeowners while requiring contractors to maintain responsive communication channels.
SB 440: Change Order Dispute Resolution
SB 440 establishes standardized procedures for resolving change order payment disputes on large private projects. Owners must respond within 30 days to change order claims and pay undisputed amounts within 60 days or face 2% monthly interest (24% annually).
The law applies to most private construction but excludes small residential projects of four stories or fewer. It sunsets January 1, 2030, unless extended.
Pacific Beach Builder Compliance Commitment
Pacific Beach Builder implements all four laws across our La Jolla, Mission Beach, and Bird Rock projects. We provide transparent subcontractor disclosures, maintain 5% retention caps, and offer email contact for all homeowner communications. Our compliance ensures fair payment practices for subcontractors while protecting homeowner rights throughout your construction project.
FAQ: California Contractor Payment Laws 2026
Does the 5% retention cap apply to my home remodel?
Yes, SB 61 applies to all private construction contracts signed after January 1, 2026, including home remodels, additions, and renovations in Pacific Beach, La Jolla, and Mission Beach. The only exceptions are non-mixed-use residential projects of four stories or less, and bonded subcontracts where bonds were required but not provided.
What happens if my contractor doesn't disclose subcontractors?
Under SB 517, contractors must disclose subcontractor usage in home improvement contracts. If subcontractors perform more than 50% of costs, contractors must provide names, contact info, and license numbers. Failure to comply can result in administrative discipline from the California Contractors State License Board (CSLB).
Can I cancel my home improvement contract via email now?
Yes, AB 1327 allows homeowners to cancel home improvement contracts within three days of signing via email. Your contractor must provide their email address on the contract and Right to Cancel form. Simply email your cancellation notice to the address listed within the three-day window.
This article provides general information about California contractor payment laws, SB 61 retention requirements, SB 517 subcontractor disclosure, AB 1327 email cancellation rights, and SB 440 change order procedures for educational purposes. Construction laws, contract requirements, payment practices, and homeowner rights can vary significantly by jurisdiction, project type, and specific circumstances. Always consult with qualified professionals—licensed contractors, construction attorneys, and the California Contractors State License Board—and verify current legal requirements before signing construction contracts. Pacific Beach Builder provides professional construction services and full compliance with all California contractor payment laws throughout Pacific Beach, La Jolla, Mission Beach, Bird Rock, and San Diego County.