The contract is where an ADU project is won or lost. A good one spells out what is built, what it costs and when you pay. A bad one leaves gaps that tend to be filled in the builder's favor. This guide lists what to look for before you sign.
LA ADU Guide is an information site, not a law firm or a contractor. This is not legal advice. For a contract dispute or a review of your own contract, talk to an attorney.
Start with the law
CSLB says "building an ADU is considered a home improvement project under the Contractors State License Law." That means the home improvement contract rules apply. CSLB says a written contract should include:
- Scope of work
- Project timeline
- Payment schedule
- Materials and finishes
- The contractor's license number
- Notice of cancellation rights
If any of these is missing, ask for it before you sign. Verbal promises, in CSLB's words, offer "little to no legal protection if a dispute arises."
Red flags by topic
| Topic | Red flag | Why it matters |
|---|---|---|
| Down payment | More than $1,000 or 10 percent of the contract price, whichever is less | Business and Professions Code 7159 sets this cap |
| Payments | Money due before the work is done | CSLB says payments "must reflect the actual work completed or materials delivered" |
| License | No license number, or a name that does not match the CSLB record | See how to check a CSLB license |
| Scope | Phrases like "per plans" or "standard finishes" with no list | You cannot hold anyone to a vague promise |
| Timeline | No start date, end date or milestones | Delays then cost you |
| Cancellation | No notice of your right to cancel | CSLB says three days from signing, five days if you are 65 or older, seven in disaster zones |
| Change orders | No written process or pricing rule | Extras can add up quickly |
| Permits | Unclear who pulls them or pays fees | See the ADU permit process |
| Allowances | Large "allowance" lines for items you chose later | Overages come out of your pocket |
| Pressure | "Sign today for this price" | A real price should hold while you review it |
Payment red flags in detail
CSLB's 2024 ADU payments release repeats the down payment cap. Do not pay a contractor for plans unless you know they have paid for them first. Ask for an accounting or contact the designer. Document each payment and keep receipts.
CSLB's fact sheet gives a sample schedule for illustration only. It spreads payments across milestones from mobilization to the punch list, with the smallest amounts at the start and the end. Use it to see how a fair schedule is shaped. It is not a rule.
If you borrow for the build, your lender may release money on its own schedule. Make sure the loan and the contract line up. See ADU construction loan vs HELOC.
Scope and cost red flags
- A price that is far below other bids with no explanation. Get at least three bids on the same scope. See ADU cost in Los Angeles.
- No mention of utilities, site work, soil or drainage, which often drive cost.
- Fees and permits "to be determined" with no cap or process. See impact fees and utility connections.
- No line for the final inspection and certificate of occupancy.
- Subcontractors not identified.
- No clear warranty terms.
Other warning signs
CSLB warns against "unlicensed individuals offering cash deals or vague estimates." Add these:
- The builder will not show a license, insurance or references.
- A contract signed by someone other than the licensed business.
- Blank spaces left to be filled in later.
- Terms that waive your right to a final walkthrough or to withhold payment for unfinished work.
- Mandatory arbitration or fee clauses you have not read. Ask an attorney what they mean.
- Required use of the builder's own lender with no option to compare.
Review checklist
- [ ] License active, class matches the work, name matches the contract
- [ ] All six CSLB contract items present
- [ ] Down payment no more than $1,000 or 10 percent, whichever is less
- [ ] Payments tied to completed work
- [ ] Detailed scope, with materials and finishes listed
- [ ] Start date, end date and milestones
- [ ] Who pulls permits and who pays each fee
- [ ] Written change order process
- [ ] Final punch list before the last payment
- [ ] No blanks, and every verbal promise written in
If you have already signed
Check the cancellation window first. Then contact CSLB at 800-321-CSLB (2752) with questions or complaints about a licensed contractor or unlicensed work.
What to remember
- Never sign a contract with blanks or without a license number.
- Keep the down payment within the legal cap and payments tied to progress.
- Put every promise in writing, including who handles permits and extras.
See also questions to ask an ADU builder and the hiring an ADU builder hub.