There are a number of reasons a property owner could be tempted to hire a contractor who is uninsured or unlicensed. Maybe it seems worth it for the price, or they are someone you know and assume you can trust. However, it’s generally a very bad idea and includes a lot of risk on the part of the property owner for several reasons.
#1: Lack of Insurance
When a general contractor takes on a job, they are also taking on a ton of responsible—and liability. Contractors who are licensed usually carry a lot of insurance for this exact reason, and that includes workers compensation insurance as well as contractors’ liability insurance.
The reason for this coverage is ultimately for protecting the contractor’s customer if something goes wrong. If a contractor doesn’t have the minimum of insurance, they generally won’t be issued a license from the state.
#2: You’re the General Contractor
When anything at all goes wrong during a construction job, the general contractor (and their insurance) is ultimately responsible for all problems. But when you don’t hire a contractor who is licensed or insured, you become the general contractor.
If something breaks during the project, you’re responsible. If one of the workers gets injured and isn’t able to work for a year without any coverage present for workers’ compensation, you’re responsible for any lost wages or medical bills of the worker.
And if that isn’t bad enough, your landlord liability or standard homeowners insurance won’t cover events like that.
#3: You Could Lose Your Property… and More
Hiring someone who isn’t a license, insured, or legal contractor, even if that someone is your friend, is like gambling with everything you own. In the worst case scenario (but which could be entirely possible), you could potentially end up being sued into bankruptcy and losing your property. Once you declare bankruptcy, the majority of state laws will only allow a limited amount of property or wealth to be kept.
So, although it can be tempting short-term to hire a contractor who isn’t licensed, the benefits are greatly overshadowed by the risks you are taking. If you work with a property management company, they will likely have a list of reviewed and trusted contractors. It’s important for property owners to understand those risks and always make sure they are working with licensed and insured workers.