ADU contract checklist for California homeowners

What an ADU contract is

The state licensing board says plainly that building an ADU is a home improvement project under the Contractors State License Law, and a written Home Improvement Contract is required. That's true for a detached backyard unit, an attached ADU or a garage conversion. (If you're still deciding which, see what an ADU is.)

The home improvement label matters because Business and Professions Code section 7159 applies to any home improvement contract over $500, and it sets the headings, notices and type sizes the contract must use. A contractor who leaves them out can be disciplined by the state. Our guide on how to hire an ADU contractor covers which license to look for before you get this far.

What California requires in a home improvement contract

Section 7159 is long. Here are the parts that must appear in a California ADU construction contract, in the statute's own headings where it prescribes them.

Source: BPC 7159. The contractor must also give you a copy signed and dated by both of you before any work starts, and the contract must tell you that you're entitled to a completely filled-in copy. Don't sign anything with blanks.

Price, deposit and payment schedule

This is where most ADU disputes start. Section 7159.5 sets three hard rules: the price must be in dollars and cents; the down payment can't exceed $1,000 or 10% of the contract price, whichever is less; and apart from that down payment, the contractor may not ask for or accept more than the value of the work done or materials delivered. Breaking any of those three is a misdemeanor, with a fine of $100 to $5,000, up to a year in county jail, or both. The deposit cap applies even to special-order materials.

What a fair ADU payment schedule looks like

Source: the board's ADU Fast Facts. Your contract must express each payment in dollars, not just percentages, and tie it to work you can see. “Framing complete and passed framing inspection” is checkable. “Phase 2” isn't. On a $350,000 ADU, the first payment can be no more than $1,000; mobilization in the table above would come later, once the crew and equipment are actually on site. For context on totals, see what an ADU costs in San Diego.

Be wary of payments labeled “plans” or “permits” before work starts. The board's ADU guidance suggests asking for an accounting, confirming design costs with the architect or engineer, and checking permit fees with your city. That's exactly how several failed ADU companies collected large sums early; our guide to ADU builder red flags has the cases.

Scope, plans and permits

The board wants detail: sizes, colors, who does each task, material quantities and manufacturer model numbers, plus who pulls the permits, cleanup and debris removal, and any warranty in writing. For an ADU, that means the scope should name:

• The plan set by date and revision. List the approved plans and specifications as documents incorporated into the contract (the statute has a heading for this). If the city requires changes, the price change goes through a change order.
• Who gets the permit and who pays the fees. The board's homeowner checklist asks you to confirm the contractor must obtain permits before work starts and that permit fees are in the contract. If they're not, write in a dollar estimate. Our guide to the ADU permit process in San Diego explains what the city charges for.
• Utilities, start to finish. Underground utilities are easy to leave out. Spell out trenching, the sewer connection, water, the electrical panel or meter, and gas if any.
• Site work. Demolition, grading, retaining walls, soil export and tree removal, each in or expressly out.
• Finishes and appliances. Model numbers where you can. If the contract uses allowances (“$4,000 for tile”), say what happens if you go over or under.
• Exclusions. A clear list of what's not included is as useful as the list of what is.

Change orders

ADUs almost always change mid-build: a plan check comment, a buried pipe, an upgraded window. The contract must carry a “Note About Extra Work and Change Orders”, and the law makes extra work unenforceable against you unless a written change order states the scope, the amount added or subtracted, and the effect on payments and the completion date, all before the work begins. The board adds that both of you should sign it; once signed, it becomes part of the contract. Keep a running log so the final bill doesn't surprise you.

Start and completion dates

The law requires an “Approximate Start Date” and “Approximate Completion Date”, plus a statement of what counts as substantial commencement of work. For an ADU, tie the start to a clear event, such as permit issuance plus a set number of days, because permit timing isn't in the contractor's control. Ask how the contract handles delays: what counts as an excused delay, how you'll be notified, and what happens if work stops for weeks. Under lien law, a job where labor stops for 60 days in a row can be treated as complete, which matters if your builder disappears; see mechanics liens in California.

Insurance, bonds and subcontractors

• General liability. The contract must state whether the contractor carries commercial general liability insurance and, if so, the insurer's contact information. Ask for a certificate naming your project.
• Workers' comp. The contract must say either that the contractor has no employees and is exempt, or that it carries workers' comp for all employees. If it says exempt and a crew shows up, ask who employs them.
• Performance and payment bond. The contract must tell you of your right to require one. It costs extra, but on a six-figure ADU it's worth pricing.
• Subcontractors. The contract must say, yes or no, whether the contractor will use subcontractors. And since January 1, 2026, the contractor must give you each sub's name, contact information, license number and classification on request. Then check a contractor's license for each one.

Lien protection

Section 7159 requires a statement that, once you pay for work, the contractor will give you a full and unconditional lien release before any further payment. Section 7159.5 backs it up: you may withhold all further payments until those releases arrive. Write the mechanics of that into your contract:

• A conditional release on the statutory form from the contractor with every payment request, and from any sub or supplier who sent you a preliminary notice.
• Unconditional releases once each payment clears.
• The right to pay big suppliers by joint check.
• Final payment only against final releases from everyone who served notice.

Our California mechanics lien guide explains the four release forms and the deadlines.

Your right to cancel

You can cancel a home improvement contract by midnight of the third business day after you receive the signed copy, or the fifth if you're a senior; the licensing board puts that at 65 and older. Since 2026 you can cancel by email, using the address the contractor must print on the first page. The notice must be in at least 12-point bold right before your signature, in the same language as the sales pitch, with a detachable cancellation form. The contractor must return your payments within 10 days of getting your notice.

One catch: the right to cancel doesn't apply if the contract was negotiated at the contractor's place of business. If you sign in their showroom, read it at home first.

ADU contract checklist

Bring this to the signing. It folds the board's homeowner checklist into the ADU-specific points above.

When the contract is solid, the next step is comparing builders on the same plans. Start with our list of verified ADU builders in San Diego.

Common questions