Before You Take That Deposit: Understanding Alberta’s Prepaid Contracting Rules
- kgill038
- Nov 12
- 4 min read
In Alberta, residential contractors are subject to rules regarding who can collect deposits from their clients and when. These rules are set out in the Consumer Protection Act RSA 2000, c C-26.3 (the “Act”) and more specifically the Prepaid Contracting Business Licensing Regulation Alta Reg 185/1999 (the “Regulation”). The Act states that no person shall engage in designated businesses without a licence and the Regulation designates “prepaid contracting” as one such business that requires a licence. Mechanical construction contractors who take deposits or payments before completing their work such as in plumbing, HVAC, and mechanical installation may not realize that when they ask for partial payment or a deposit before finishing a residential job, they could be breaking the law. If your company takes deposits or payments before completing residential construction or maintenance work, you must hold a valid prepaid contracting business licence issued by the Ministry of Service Alberta and Red Tape Reduction.
How do I get the Prepaid Contracting Business Licence?
Contractors can apply for this licence through the Ministry of Service Alberta and Red Tape Reduction, who will confirm that your company has met specific requirements. The paperwork to support your application is relatively straightforward and includes: providing a police information check, providing compliant information regarding your business such as copies of your standard sales contract or invoice, paying a licensing fee, and providing a financial security deposit such as a bond or letter of credit. The licensing application fee is minimal, currently costing $75.00 per year.
Before contractors apply, they should know that not every contractor needs this licence as it is designed to protect consumers, not businesses. The Regulation therefore does not apply to construction contracts which are, for example:
1. for the construction of buildings that are to be used primarily for business purposes;
2. between any two of a general contractor, a subcontractor, and a subtrade; or
3. for the construction of a home where the contract is covered by the Alberta New Home Warranty Program.
If you only work on commercial buildings or subcontract for another contractor, you may be exempt. However, if you do any residential projects where even partial payment (ie. a deposit) is collected before completion, the Regulation likely applies to you.
You can access the form application for a prepaid contracting licence here: Prepaid Contracting Licence Application Form. (1)
Some contractors may be apprehensive about applying for this licence due to the bond requirement, however its mores straightforward than many assume it to be. In order to satisfy the security requirement you can post the amount of money required in cash, or you can provide a general surety bond, a cash security agreement, or an irrevocable letter of credit. The amount of the bond, or security agreement typically starts at around ten thousand dollars, depending on the nature and scale of your business(2). If you wish to check what the security amount for your business might be, the form application automatically calculates the amount of the security for you based on the type of goods and service you provide to consumers (3).
Ongoing Requirements to hold the Prepaid Contracting Licence
Once you receive your prepaid contracting licence, contractors are required to follow certain standards, most notably relating to the written contracts that they use with customers. After receiving a prepaid contracting licence, contractors must meet specific standards, particularly regarding their written agreements with clients. Each contract used must clearly outline the scope of work, materials to be used, start and completion dates, payment schedule, and the homeowner’s right to cancel. If a homeowner exercises this right within the permitted conditions, the contractor is required to refund any deposit or advance payment without delay. It is recommended to have contract templates reviewed periodically to ensure ongoing compliance.
Additional compliance requirements include notifying Service Alberta within fifteen days of any changes to the contractor’s business address, ownership, or operations. Contractors must also keep their licence readily available and present it to customers upon request.
What if I don’t get licenced?
Ignoring this Regulation can be costly. Penalties for noncompliance can reach several thousand dollars, and they can be applied daily if the violation continues. Contractors who repeatedly ignore the law may face business licence suspensions, court orders, financial penalties, or even imprisonment for up to 2 years (4). In the past, investigators from Service Alberta have even conducted “sting” operations to monitor compliance with these regulations (5).
Although the licence is another administrative burden for contractors, our experience is that licensing such as this may actually build public trust in the construction industry. Viewed optimistically, the prepaid contracting licence may elevate public confidence in the industry by holding non-compliant operators accountable while providing reputable contractors with verifiable, secured, government-recognized proof of their reliability. Displaying this licence in marketing materials might even provide a competitive advantage when pursuing residential projects. Conversely, penalties for non-compliance with this licensing can include heavy fines, negative publicity, and even jail time. Taking the time to understand and comply with the regulation is a simple step that protects both contractors and their customers in the long run.
Goodfellow and Schuettlaw is pleased to provide contract reviews for contractors looking to do prepaid contracting work and will gladly assist your business in attaining a prepaid contracting licence. To learn more about Alberta’s prepaid contracting licence requirements, or to coordinate a contract review with a member of our legal team, please reach out to Russell Patterson at Goodfellow and Schuettlaw.
[1] Designation of Trades and Businesses Regulation, Alta Reg 178/1999, section 5(3)
[2] Government of Alberta, Application for Prepaid Contracting Business Licence Online: https://formsmgmt.gov.ab.ca/Public/CONP11116.xdp
[4] Consumer Protection RSA 2000, c C-26.3, Section 164(1)
[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/