THERE ARE MANY FINE LEGAL TREATISES which provide resource material for attorneys including case citations and detailed explanations. What this article intends to do is demystify the basic mechanics’ lien law and provide the non-specialist practitioner with a basic foundation of how the mechanics’ lien law works.
The mechanics’ lien law is an umbrella term which includes construction law, contract law, sometimes the laws relating to open accounts and common counts, and, most importantly, the law relating to Preliminary Notices, Mechanics’ Liens, Stop Notices, Payment Bonds as well as the myriad of releases, both statutory and non-statutory, which modify and waive those rights. The right to record a mechanics’ lien originates in the California Constitution2 and is codified in the California Civil Code3.
Preliminary Notices
The engine which drives the mechanics’ lien law train is the Preliminary Notice, sometimes also referred to as a “20 Day Notice”, a “20 Day Preliminary Notice” or a “Prelim”. Much like “attorney” and “lawyer”, they are all the same. Let’s start by examining the Preliminary Notice. A Preliminary Notice is a notice served on the property owner, construction lender and general contractor informing them that the sender will be providing labor, services, materials or equipment to the project. It is not a lien. It is required to be served in all projects exceeding $4004.
Who Must Serve a Preliminary Notice?
All claimants, that is any person who intends to improve or enhance the property of others and be protected by the mechanics’ lien law, except one working under a direct contract with a property owner who is paying for the construction or a person performing actual labor for wages, must give a Preliminary Notice or forfeit its mechanics’ lien, Stop Notice and payment bond rights. In other words, a claimant providing services5 on a privately owned project, working under contract directly to a property owner, who is paying for the construction, does not need to serve a Preliminary Notice. If a claimant contracts with a tenant or a property manager, the claimant must serve a Preliminary Notice. If a project is being financed by a third party (someone other than the property owner), a claimant must serve a Preliminary Notice in order to have the right to serve a Stop Notice.
A claimant providing services to a public project does not need to serve a Preliminary Notice if the claimant is contracting directly with the prime general contractor. Laborers for wages are not required to serve a Preliminary Notice. This group includes employees of the general contractor or any of its subcontractors. Employees of a `supplier are not included in this group, as neither the supplier nor they provide actual labor to the project. Even though the claimant may not be required to serve a Preliminary Notice, the claimant should still serve a Preliminary Notice. The claimant should adopt a procedure of serving a Preliminary Notice on every project, whether or not the claimant is required to do so. By adopting this policy, the claimant will not have to worry if it did not serve a Preliminary Notice when it was required to do so. Also, when it’s time to write the checks, it’s nice to be on this list!
The bottom line with Preliminary Notices is that there is no penalty for serving one or a second or subsequent one (this is not necessary unless something changes, e.g., the scope of work or the party for who the labor, services, equipment or materials are being provided). While there is no penalty for serving a Preliminary Notice even if the claimant never provides anything to the project, there is a severe downside for not serving one when it is required — a complete loss of all mechanics’ lien law rights!
When Must a Preliminary Notice be Served?
Under Civil Code §3097, a Preliminary Notice must be served not later than twenty days after the claimant has first furnished labor, equipment or materials6 to the jobsite. The Preliminary Notice can be given before the claimant commences work or delivers materials and must contain certain statutorily required information7. If a Preliminary Notice is not given within the first twenty days after the claimant initially furnishes services, the claimant will be limited to recovery for those services furnished within twenty days prior to the service of the Preliminary Notice and all services furnished thereafter. For example, if the claimant begins work at the jobsite on May 1, 2009, a Preliminary Notice must be served no later than May 20, 2009. If the Preliminary Notice is not served until May 30, 2008, it will only cover those services provided after May 10, 2009. Any services provided from May 1, 2009 to May 10, 2009 would not be covered by the Preliminary Notice.
This is important for several reasons. A claimant should still serve a Preliminary Notice even when it failed to do so timely because it will be effective from the 20th day prior to the date it is served and reach forward thereafter and because most payment disputes and problems don’t arise until the later stages of a project.
Mechanics’ Liens
Mechanics’ lien is a lien against a work of improvement on real property or a structure8 on the real property which makes the property responsible for the value of the unpaid services and allows the claimant to foreclose on that lien and cause the sale of the property to satisfy the lien.
When Must a Mechanics’ Lien be Recorded?
The supplier and subcontractor must record a mechanics’ lien in the county in which the property is located within thirty calendar days after the date of recordation of a Notice of Completion or Notice of Cessation. If no Notice of Completion is recorded, a mechanics’ lien must be recorded within ninety calendar days after completion of the entire project. “Completion” is a bit of a moving target but is generally determined by occupancy of the building along with a complete cessation of labor other than punch lists, pick-up or warranty work or acceptance of the project by the property owner. The general contractor, who contracts directly with the property owner, must record a mechanics’ lien no later than sixty calendar days after recordation of a Notice of Completion or Notice of Cessation, or ninety calendar days after completion of the entire project. In privately owned projects, if there is a complete cessation of labor for sixty consecutive days, then the time for recording a mechanics’ lien begins to run and the claimant has ninety days thereafter to record a mechanics’ lien. This is a total of 150 days from the last work at the jobsite. A delivery of materials or an invoice after a complete cessation of labor to the jobsite does not extend the time period. During the last day for recording a mechanics’ lien falls on a holiday which is defined as a Saturday, Sunday or other day that the county recorder’s office is not open for business, then the mechanics’ lien may be recorded on the next day the county recorder’s office is open for business.
When Must the Claimant Commence its Lawsuit to Enforce its Mechanics’ Lien?
An action to foreclose a mechanics’ lien must be commenced within 90 days of the date of recording of the lien. If the claimant fails to enforce its mechanics’ lien within this time period, the mechanics’ lien will become null and void. The mechanics’ lien may also be subject to a Petition to Release the Mechanics’ Lien under Civil Code §3154 which carries a$2,000 plus costs maximum statutory penalty assess able against the mechanics’ lien claimant, even if the claimant has not been paid! The lawsuit to enforce the mechanics’ lien must be filed within ninety days in the proper judicial district. The proper judicial district is the judicial district in the county in which the property is located.
Stop Notices
Stop Notice is a notice served to the lender, which includes any party paying for the cost of construction, to “hold the money.” If the Stop Notice is being served to an institution all end err including a bank, savings and loan, thrift and loan and even an insurance company, then the Stop Notice must be served accompanied by a bond. This is called a “Bonded Stop Notice.” When a bond is required and the Stop Notice is served without a bond, the lender may, and will, ignore the Stop Notice.
When Must a Stop Notice be served?
Supplier or subcontractor must serve a Stop Notice within thirty calendar days after the date of recordation of a Notice of Completion or Notice of Cessation. If no Notice of Completion is recorded, a Stop Notice must be recorded within ninety calendar days after completion of the entire project or sixty days after cessation of all labor. General contractor must serve a Stop Notice no later than sixty calendar days after recordation of a Notice of Completion or Notice of Cessation, or ninety calendar days after completion of the entire project. If there is a cessation of labor for sixty consecutive days on a private works project or thirty days on a public works project, the time for serving a Stop Notice begins to run and the claimant has an additional ninety days thereafter to serve a Stop Notice. This is a total of 150 days from the last work at the jobsite. A delivery of materials after a complete cessation of labor to the jobsite does not extend the time period. If the last day for serving a Stop Notice falls on a holiday which is defined as a Saturday, Sunday or other day that the courts are not open for business, then the Stop Notice may be served on the next day the courts are open for business.
How Does a Claimant Enforce its Stop Notice?
A complaint to enforce a Stop Notice must be filed in a proper court no sooner than ten days after service of the Stop Notice and no later than ninety days from the expiration of the mechanics’ lien recording period.
Payment Bonds
Payment bonds are the piggy banks of the mechanics’ lien law, particularly now with the onslaught of falling property values and foreclosures. Payment bonds are required on almost all public works projects and on such projects are the claimant’s primary and best remedy. Payment bonds are infrequently, but occasionally, found on private works projects. A payment bond is essentially a guaranty by the surety giving the bond to pay the same class of persons or claimants having a right to record a mechanics’ lien or serve a Stop Notice.
When Must the Claimant file a Lawsuit under a Payment Bond?
If the surety does not voluntarily pay, the claimant must file a lawsuit to recover under the payment bond. A lawsuit must be filed not later than six months plus thirty days if a Notice of Completion was recorded or six months plus ninety days after completion of the project if no Notice of Completion was recorded. The lawsuit may, but need not, include many causes of action including (providing the statute of limitations has not run), foreclosure of a mechanics’ lien, enforcement of a Stop Notice or breach of contract, or a single cause of action for recovery on the payment bond. Mechanics’ lien law rights are cumulative and may each be pursued separately.
The Right to Recover Attorneys’ Fees
Attorneys’ fees may not be included in a mechanics’ lien, but may be recovered from the contracting party if there is an attorneys’ fee provision. Attorneys’ fees are also not included in a Stop Notice but can be recovered from the lender if the Stop Notice is bonded or from the contracting party. Most importantly, attorneys’ fees can be recovered in an action to enforce payment under a public works payment bond from the surety and the principal on the bond and from the contracting party.