Subsequently, BSB petitioned the Circuit Court for Baltimore City to establish and enforce a mechanic's lien against Stewart's property. A hearing was held shortly thereafter, at the conclusion of which the Circuit Court ruled that because BSB had no home improvement license, it had no right to enforce the contract or to establish a lien based on the contract. BSB appealed to the Court of Special Appeals, arguing that it did in fact have a home improvement license, or in the alternative, that it substantially complied with state licensing requirements.

On appeal, BSB argued that it complied with state licensing requirements because James Kunkel, a 50 percent owner of BSB, held a home improvement license through a company called Stonehenge International, Inc (Stonehenge). According to BSB, Stonehenge worked on Stewart's home inasmuch as Mr. Kunkel, as representative of Stonehenge, oversaw and managed BSB projects. The Court of Special Appeals, however, was not convinced.

Md. Code Ann., Bus. Reg. § 8-301 plainly states that all entities or persons who contract to perform construction projects must have a valid contractor's license. Because Stewart's particular project called for improvements to his home, BSB was required to have a home improvement license. While it is true that Stonehenge had such a license, BSB did not. Because BSB was the one who contracted with Stewart, and because it did not have a home improvement license at the time of contract formation, it did not comply with the provisions of Section 8-301.

Nor did BSB substantially comply with state licensing requirements. BSB argued that because one of its members who oversaw work in Stewart's home had a home improvement license, the legislative purpose of Section 8-301 was fulfilled because Stewart was protected against the possibility of having an unskilled and financially irresponsible builder working on his home. Instead, the Court held that the relationship between BSB, builder, and Stonehenge, license holder, was too attenuated to be considered substantial compliance.

The court distinguished both Maryland and other state cases where the possibility of substantial compliance was found. For example, in Dereggi Constr. Co. v. Mate, 130 Md. App. 648 (2000), the contractor procured a license after the contract was executed but before any actual work began. The case was remanded so that additional evidence could be produced concerning whether the builder substantially complied with licensing requirements. In another case, Jones v. Short, 696 P.2d 665 (Alaska 1985), the contractor filed the necessary paperwork and paid the required filing fee before entering into the contract. His insurance agent, however, failed to procure the necessary insurance certificate. The contractor substantially complied with Alaska's regulatory statute because his good-faith attempts "afforded the public the same protection that strict compliance would offer." Finally, in Aesthetic Prop. Maint., Inc. v. Capital Indem. Corp., 900 P.2d 1210 (Ariz. 1995), a contractor substantially complied with Arizona licensing requirements when he moved to a new address and filed the necessary paperwork. Although the Registrar of Contractors erroneously sent a renewal notice to the contractor's old address, it was through no fault of the contractor himself. Once the contractor discovered that his license had expired, he immediately sought and received reinstatement.

The common features in these cases, the Maryland Court of Special Appeals noted, was that shortly after the contract was signed, the contractor obtained a license, the owner was not prejudiced, and the purpose of the statute was accomplished even though the contractor had not strictly complied with the law. BSB, on the other hand, entered into a contract and began work without a home improvement license, and further, BSB made no attempt to cure its mistake before construction began. As a result, Stewart had no assurances that the builder he hired was properly skilled or financially sound.

Most important, the Court added, was the fact that, in the event Stewart suffered actual loss due to unsatisfactory workmanship by BSB, he would be unable to recover from Maryland's Home Improvement Guaranty Fund, which provides a remedy to homeowners who suffer actual loss "due to the act or omission of a licensed contractor." Having denied Stewart a statutorily-created remedy through no fault of his own, it would be inequitable to allow BSB to maintain its own cause of action against Stewart. The Court therefore held that BSB did not substantially comply with the provisions of Section 8-301, and the mechanic's lien was unenforceable.

Baltimore St. Builders v. Stewart serves to remind all Maryland construction contractors that compliance with state licensing requirements is essential to doing business. Should a contractor decide to proceed without obtaining a license, it may be unable to enforce a contract or establish a mechanics lien against an owner who refuses payment. Courts will only make exceptions if a contractor in good faith attempts to procure a license before work begins pursuant to the construction contract.