The short version
California regulates residential payment schedules more tightly than most states. Two statutes — Bus. & Prof. Code §7159 and §7159.5 — control what a home improvement contract must say about payments and how much a contractor can collect before work is done.
The headline rule: a down payment can't exceed $1,000 or 10% of the contract price, whichever is less. Every payment after that has to match the value of work actually completed. Getting this wrong isn't just a contract dispute — it's a misdemeanor and a licensing issue.
What §7159 requires in the contract itself
Bus. & Prof. Code §7159 sets the baseline: home improvement contracts over $500 must be in writing, and if the contract uses a payment schedule rather than a single payment at completion, that schedule has specific, mandatory content.
Per CSLB's own guidance on §7159(d)(8) and (9), every contract with a payment schedule must include:
- The heading "Down Payment," with a space showing the actual dollar amount
- A required statement, in at least 12-point boldface type: "THE DOWN PAYMENT MAY NOT EXCEED $1,000 OR 10 PERCENT OF THE CONTRACT PRICE, WHICHEVER IS LESS."
- A section headed "Schedule of Progress Payments," with each payment stated in dollars and cents and tied to a specific description of the work, materials, or services it covers
- A required statement, also in 12-point boldface: "IT IS AGAINST THE LAW FOR A CONTRACTOR TO COLLECT PAYMENT FOR WORK NOT YET COMPLETED, OR FOR MATERIALS NOT YET DELIVERED. HOWEVER, A CONTRACTOR MAY REQUIRE A DOWN PAYMENT."
None of this is optional boilerplate — it's the statutory language CSLB expects to see in the contract, word for word.
The §7159.5 deposit cap
Bus. & Prof. Code §7159.5 is the operative cap: "the downpayment shall not exceed one thousand dollars ($1,000) or 10 percent of the contract amount, whichever amount is less."
This is not "10%, unless that's under $1,000." It is the smaller of the two numbers, every time, with no exception for project size.
| Contract Price | 10% | Legal Deposit Cap |
|---|---|---|
| $8,000 | $800 | $800 |
| $10,000 | $1,000 | $1,000 |
| $50,000 | $5,000 | $1,000 |
| $250,000 | $25,000 | $1,000 |
Once the contract price crosses $10,000, the $1,000 figure controls no matter how large the project gets. This surprises a lot of contractors doing high-end remodels, where a proportional deposit feels normal — it isn't legal in California above that threshold.
The cap also excludes finance charges: it applies to the deposit itself, not to any financing cost layered on top of it.
Progress payments, too, are capped by the value of work done. Beyond the deposit, a contractor "shall neither request nor accept payment that exceeds the value of the work performed or material delivered" at any point in the job.
The bond exception
A contractor who furnishes a performance and payment bond, a lien and completion bond, or an equivalent joint-control arrangement approved by the CSLB registrar covering full performance and payment is exempt from the deposit and progress-payment restrictions in §7159.5. This is the one legal way around the cap — it isn't a workaround available by contract language alone.
Penalties for violating the deposit or progress-payment rules
CSLB has been explicit on this point: a violation of §7159.5's down payment and progress payment restrictions is punishable as a misdemeanor, separate from any license discipline CSLB pursues on its own.
Under the statute, that misdemeanor carries a fine of not less than $100 nor more than $5,000, imprisonment in county jail for up to one year, or both. Contractors found in violation are also subject to CSLB disciplinary action, and — for solar and related work — inclusion on the Public Utilities Commission's watch list.
None of this requires a homeowner to prove damages. Collecting an over-cap deposit, or invoicing ahead of completed work, is the violation — regardless of how the job eventually turns out.
Documenting each phase before you invoice
Because the statute ties every payment to a specific, completed piece of work, the burden is on the contractor to show that a payment matched the work done at the time it was collected. In practice, that means:
- Photographing each milestone before submitting the invoice tied to it
- Keeping inspection sign-offs or permit approvals attached to the relevant phase
- Matching every invoice line item to the exact language used in the contract's Schedule of Progress Payments — not a rounded-up or renamed version of it
None of this is required by the statute's text directly, but it's the practical evidence that separates a contractor who can demonstrate compliance from one who's simply asserting it.
The 2026 legislative angle: SB 440
SB 440, the Private Works Change Order Fair Payment Act, took effect January 1, 2026, and is codified starting at Civil Code §8850. It creates a structured process for resolving change-order and time-extension claims on private construction projects: a written claim, a 30-day response window for the owner, a meet-and-confer step, and interest of up to 24% annually on undisputed amounts left unpaid past the deadline.
Here's the part that matters most for residential remodelers: the statute explicitly does not apply to the construction of a residential project if the project is not mixed use and does not exceed four stories. In plain terms, a typical single-family home remodel or home improvement contract falls outside SB 440's mandatory change-order process. The law was built for larger private commercial and multi-story work, not a kitchen-and-bath job for a homeowner.
That doesn't mean change-order discipline stops mattering for residential jobs — §7159 still requires that any change in scope or price be agreed to in writing and incorporated as a change order before it's enforceable. It just means SB 440's specific 30-day-response, interest-penalty framework isn't the mechanism doing that work on most residential contracts.
A compliant payment schedule, worked example
Here's how a $120,000 California remodel actually has to be structured to stay inside §7159.5 — note how different this looks from the $12,000 deposit that would be normal (and legal) in a state without a statutory cap.
| Phase | Milestone | Amount |
|---|---|---|
| 1. Down payment | Contract signed, permits pulled (capped by law) | $1,000 |
| 2. Rough-in | Framing, plumbing, electrical, HVAC rough-in pass inspection | $29,750 |
| 3. Drywall | Insulation installed, drywall hung, taped, and inspected | $23,800 |
| 4. Interior finishes | Cabinets, flooring, trim, paint, fixtures installed | $35,700 |
| 5. Final / punch list | Final walkthrough, punch list cleared, certificate of occupancy issued | $29,750 |
The percentages after the deposit are illustrative — the actual dollar amount at each stage should track the real value of work completed at that point, per §7159.5, not a fixed formula. What doesn't move is the $1,000 ceiling on Phase 1.
FAQ
How much can a California contractor collect as a down payment? $1,000 or 10% of the contract price, whichever is less — capped at $1,000 on any contract over $10,000, with no exceptions for project size.
Is this a flat 10% rule? No. It's the lesser of $1,000 or 10%, always. A lot of contractors assume "10%" and get it wrong on anything but a small job.
Can a California contractor collect payment before finishing a phase? No — §7159 requires the contract to state, in bold type, that collecting payment for incomplete work or undelivered materials is against the law. The down payment is the only exception.
What happens if a contractor violates the deposit cap? It's a misdemeanor: a $100–$5,000 fine, up to a year in county jail, or both, plus separate CSLB license discipline.
Does SB 440 change how California contractors handle payment schedules? Not for most residential remodelers — SB 440's change-order process explicitly excludes non-mixed-use residential projects of four stories or fewer.
Does the deposit cap apply to new home construction, or just remodels? It applies to home improvement contracts under CSLB's home improvement rules — remodeling, repair, and improvement of an existing residence. New ground-up construction sits under different statutory provisions.
Can a contractor avoid the deposit cap with a bond? Yes — a performance and payment bond, lien and completion bond, or CSLB-approved joint control arrangement exempts a contractor from the §7159.5 deposit and progress-payment restrictions.