Are you a contractor who requires your clients to pay you a deposit before you provide work in Alberta? You May Need a Prepaid Contractor License

For many contractors, subcontractors, and trades, collecting a deposit before starting work is a prudent practice. Material costs, scheduling pressures, non-payment concerns, and cash flow realities often make upfront payments a necessity for a successful business.

The catch is accepting advance payment from certain customers may trigger licensing obligations under the Consumer Protection Act, RSA 2000, c C-26.3 (the “Act”) and under the Prepaid Contracting Business Licensing Regulation, AR 185/1999 (the “Regulation”).

Section 104(1) of the Act states that no person may engage in a “designated business” unless that person holds a license under this Act that Authorizes the person to engage in that business.

Section 102 (b) of the Act defines a “designated business” as “a trade, business, industry, employment or occupation to which this Part is made applicable by regulation under section 103.”

Section 103 of the Act, then enables the creation of regulations pursuant to the Act, including the Designation of Trades and Businesses Regulation, AR 178/1999 (the “Designation Regulation”) which, at section 5 (2) (c), defines “Prepaid Contracting” as “the activities of soliciting, negotiating or concluding in person, at any place other than the seller’s place of business, a prepaid contract.”

Fortunately, section 5(3) of the Designation Regulation, clarifies that the definition of “Prepaid Contracting” does not include contracts for the provision of services to Commercial Buildings, contracts between any two General Contractors, Subcontractors or Subtrades, contracts for the construction of a home where the contract is covered by the Alberta New Home Warranty Program or National Home Warranty Program, or contracts for the construction of a water well.

The result of the Act, the Regulation, and the Designation Regulation is that any contract for the provision of services to residential consumers which requires prepayment requires a Prepaid Contracting License from the Government of Alberta.

Applying for a Prepaid Contracting Business License

A Prepaid Contracting Business License can be obtained from the office of Service Alberta and Red Tape Reduction by completing the application form located on the Government of Alberta’s Prepaid Contracting License webpage currently located here.[1]

The Application is simple and only costs $78.00 per year, though it does require a $10,000.00 bond, which can be satisfied using a general surety bond, a cash security agreement, or an irrevocable letter of credit.

Risks of Non-Compliance

Failing to obtain a Prepaid construction license and continuing to offer Prepaid construction services to residential customers can result in contractors being subject to investigations, increased scrutiny from regulators, administrative penalties, regulatory charges, reputational damage, and potential civil liability.[2] [3]

Penalties can reach several thousands of dollars with courts having the option to suspend business licenses or even impose imprisonment for serious repeat offenders.[4]

While the above consequences will generally arise where a contract between a contractor and residential home owner have gone wrong and a deposit has been paid, the Alberta Government has demonstrated a willingness to investigate and prosecute non-compliant contractors.[5]

In a widely publicized undercover sting operation[6] conducted in Calgary and Edmonton, Alberta government investigators posed as homeowners seeking renovation work. Contractors who accepted prepaid work without proper licensing were charged under provincial consumer protection legislation.

The Purpose of the Prepaid Licensing Framework

The Prepaid licensing framework exists primarily to protect homeowners from fraud, abandoned projects, and contractors taking deposits without completing work.[7]

While obtaining a Prepaid Contracting License may appear to be yet another administrative and financial burden imposed by the Alberta Government, the framework works to build trust in the construction industry by holding non-compliant operators accountable for their actions, while providing reputable contractors with another avenue to verify their reliability in the eyes of customers.

How Legal Counsel Can Help

Construction and renovation businesses often focus on completing projects and managing operations — not navigating complicated and often evolving regulatory requirements. Early legal guidance can help businesses avoid costly disputes and enforcement proceedings later.

At Walsh LLP we regularly assist contractors, subcontractors, and trades professionals with:

• regulatory compliance reviews;
• construction contract drafting and negotiation;
• Consumer Protection Act matters;
• contractor disputes;
• debt recovery and collections;
• litigation and regulatory defence; and
• risk management strategies for residential and commercial construction businesses.

If your business accepts deposits or advance payments or wants to accept deposits or advance payments from residential customers, obtaining legal advice, before problems arise, may significantly reduce your exposure to regulatory and financial risk. To learn more about Alberta’s prepaid contracting license requirements, or to coordinate a contract review with a member of our legal team, please reach out to Chad Erisman or Locklyn Price at Walsh LLP.

[1] Government of Alberta, Prepaid contracting license, Online: https://www.alberta.ca/prepaid-contracting-licence#jumplinks-2.

[2] R. v. 1587915 Alberta Inc., 2017 ABPC 160 (CanLII), at para 6, R. v. Kreft, 2006 ABPC 258 (CanLII), at para 61.

[3] Consumer Protection Act, RSA 2000, c C-26.3, s 164.

[4] Ibid.

[5] Lisa Geddes, “Province charges 7 contractors after undercover sting”, Global News, December 13, 2013, Online: https://globalnews.ca/news/1003305/province-charges-7-contractors-after-undercover-sting/.

[6] Ibid.

[7] Supra note 2, at para 4.