Asking for a deposit: what the law lets you do

A contractor can take a deposit where the applicable rules allow it, but residential work may have limits on the amount and how the money is held. Check the payment cap, cancellation rights, required notices and any escrow or trust-fund duties before requesting money.

Which rules affect a contractor’s deposit?

These rules are commonly aimed at residential home improvement work and can depend on the job size and trade. The same payment setup can therefore have a different answer on a commercial job.

What a statutory cap looks like when a state has one

Some states cap the up-front payment on residential home improvement work. Under California Business and Professions Code §7159.5, the ordinary cap is the lesser of $1,000 or 10% of the contract amount. Later payments cannot exceed the value of work performed or materials delivered. The statute includes an exception for specified bonds or registrar-approved joint control covering full performance and payment.

The caps take a few recognizable shapes:

• A percentage of the contract price.
• A flat dollar ceiling.
• The lesser of the two — the shape that surprises people, because on a large remodel the dollar figure wins and the percentage never comes into it. California is written this way.
• A different calculation for qualifying special-order materials. Massachusetts §2(a)(6), for example, uses the greater of one-third of the contract price or actual qualifying special-order costs needed in advance.
• A higher payment permitted only if you post a bond or use an approved payment control — California's own exception works like this.

For a fictional example, a customer requests a remodel priced at $14,000 and the cabinet supplier wants $4,000 before fabrication. On a $14,000 California remodel the down payment ceiling is $1,000 — not the $4,000 the cabinet shop wants — and California does not add a special-order allowance on top of it. A lawful delivery payment still leaves the contractor funding the supplier’s earlier advance. Arrange that funding or negotiate different supplier terms; do not solve the gap by exceeding the customer’s deposit cap. Use a bond or joint-control exception only if its requirements are met.

These figures can change. Get the current number from your own licensing board, and never carry a number across a state line. A cap can affect both license discipline and your ability to enforce the contract.

Check whether a cancellation window applies

Subject to its exclusions, the FTC Cooling-Off Rule covers a consumer sale you personally solicit somewhere other than your own place of business — $25 or more at the buyer's home, $130 or more at a temporary location like a fair or hotel room. The buyer may cancel until midnight of the third business day after the transaction, and the rule puts the work on you: hand over a completed cancellation notice in duplicate at the time of sale, and refund all payments within 10 business days of receiving a valid cancellation notice.

Skipping the federal notice is a violation. State law can also tie the cancellation window to notice delivery: California §7159, for example, measures the stated window from receipt of the signed, dated contract copy containing the notice. Check which event starts the applicable deadline.

The exclusions are narrower than a contractor usually hopes. The repair exclusion applies only when the buyer initiated contact and specifically requested a visit to the buyer's home to repair or maintain the buyer's personal property. If the seller adds goods or services beyond the replacement parts necessarily used for that repair, the add-on is not excluded. The emergency exclusion also requires buyer-initiated contact, a bona fide immediate personal emergency, and a separate dated and signed handwritten statement that describes the emergency and expressly waives cancellation. Read 16 C.F.R. §429.0, rather than copying a competitor's form. States can add their own rules and longer windows.

So on a contract you solicited and signed at the kitchen table, do not place the special order or spend the deposit until the window has closed and you have recorded delivery of the required notices. If the job genuinely cannot wait, that is what the emergency waiver is for, and it has to be the buyer's own signed statement.

Money you are holding may not be yours yet

State law may treat construction payments as trust funds rather than money available for any purpose. New York Lien Law §70, for example, makes specified contractor receipts trust assets, and §71 identifies permitted project expenditures, including subcontractor, labor and material claims. Track each job’s deposit, purchases and labor separately, and check your state’s rules before moving money between jobs.

Explain cancellation costs without promising forfeiture

A blanket “non-refundable” label does not override a statutory cancellation right. Under the FTC rule, a valid cancellation requires a full refund. Outside that right, have local counsel check which documented costs your agreement can recover.

Compare the wording below. The $4,000 figure is fictional and must be replaced with an amount permitted for the job. The cost-recovery example applies only where local law permits it and no statutory full-refund right applies; it is not a ready-to-use legal form:

Keep supplier restocking receipts and special-order confirmations to support any deduction the contract and law allow. Credit the deposit against the contract price and itemize the refund calculation. Deliver any required cancellation forms in the prescribed format and number of copies; a reference in the quote is not proof of delivery.

Reuse reviewed deposit terms

In DoneQuote you can save reviewed deposit wording in your default Agreements and attach reviewed terms to quotes. Check the amount and wording for each job. Complete and deliver the required cancellation notices separately in the form and copies the applicable rules require; saved quote text does not establish compliance.