The Importance of Preliminary Notices on Private Works Projects

Time and time again I receive calls from subcontractors and suppliers who find themselves faced with a customer who is either unwilling or unable to pay for labor or materials supplied for a private works project. As an attorney, the first question I usually ask is “did you serve a Preliminary Notice?” The second question I usually ask is “did you serve the Notice within twenty (20) days after first furnishing labor, service, equipment or materials to the job site?” The answers to these questions will often determine the ability to collect on the claim.

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Notice of Completion Determines Mechanics Lien Deadline

The California Mechanics Lien is one of the most valuable collection devices available to contractors, subcontractors and suppliers who are unpaid for work performed and materials supplied in relation to a California Private Works project. The mechanics lien allows the claimant to sell the property where the work was performed in order to obtain payment. The process starts with the recording of a mechanics lien in the office of the County Recorder where the property in question is located. As noted below, certain deadlines must be met.

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Will a Notice of Non-Responsibility Prevent Enforcement of a California Mechanics Lien?

The “Notice of Non-Responsibility” is one of the most misunderstood and ineffectively used of all the legal tools available to property owners in California construction law. As a result, in most cases the answer to the above question is “No”, the posting and recording of a Notice of Non-Responsibility will not prevent enforcement of a California Mechanics Lien.

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A “Supplier to a Supplier” on a California Construction Project Sometimes Does Have A Right to A Mechanics Lien, Stop Payment Notice or Payment Bond Claim

For purposes of seeking payment on a construction related project in the California construction industry, the proper legal classification of the party seeking payment is of key importance. Whether one in contract with a prime contractor is a subcontractor or a material supplier determines the availability for mechanics’ liens, stop payment notices and payment bond claims. Generally, those in contract with subcontractors have the ability to assert mechanics liens, stop payment notices and payment bond claims against the owner, general contractor and/or sureties. On the other hand, those who supply materials to material suppliers are generally not entitled to assert a mechanics lien, stop payment notice or payment bond claim. The “rule” has generally been stated as: “A supplier to a supplier has no lien rights.” However, this rule is not always true.

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Understand how the Mechanics’ Lien Deadline Depends on the Validity of the Notice of Completion

Working within deadlines is absolutely crucial to preserving mechanics lien rights under California law. The deadlines differ, depending on whether you are a ”direct” contractor, also known as “original” or “prime” contractor (one who contracts directly with the property owner) or a subcontractor or material supplier. The primary differences are that except as to serving the construction lender if any, the direct contractor is not required to serve a “Preliminary Notice” (Civil Code section 8200-8216), whereas the subcontractor and material supplier are required to do so. Another difference is that a direct contractor has a longer period of time in which to record a mechanics lien after a valid “notice of completion” or a “notice of cessation” has been recorded (Civil Code sections 8180-8190), (60 days for original contractors as compared to 30 days for subcontractors and suppliers – See Civil Code sections 8412 and 8414).

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Penalty for Failure to Release Expired Liens

I was recently contacted by a commercial building owner in the process of trying to sell the building. Two years prior to this, a subcontractor had recorded a mechanics’ lien with the local County Recorder’s office in relation to the owner’s property. The subcontractor recorded the mechanics lien after the subcontractor was not paid by a prime contractor for work the subcontractor had performed on the property. Unfortunately for the subcontractor, the subcontractor then failed to file a lawsuit to foreclose on the lien within the requisite ninety (90) day time period for filing a lawsuit to foreclose on the mechanics’ lien. Since the subcontractor missed this 90 day deadline to file the mechanics lien foreclosure lawsuit, the mechanics lien expired.

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Why Bonding Around a California Mechanics’ Lien can Unintentionally Extend the Deadline to File a Mechanics’ Lien Lawsuit by Six Months or More

Where California mechanics’ liens are concerned there are few dates, the passages of which are more appreciated by property owners than the last day to file a lawsuit to foreclose on a mechanics’ lien. This is because unless the deadline to file a lawsuit to foreclose on the mechanics lien has been extended by a properly drafted and notarized “Notice of Credit” which has been duly recorded with the County Recorder in the county where the property is located, under California Civil Code section 8460, the deadline to file such a lawsuit will expire ninety (90) days after the mechanics lien was recorded. While exceptions may possibly exist when that date falls on a holiday or weekend, for the most part the 90th day is the absolute drop dead date for filing a suit. After that date the mechanics’ lien automatically expires and is no longer enforceable.

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