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.
The excuses for failing to serve the Preliminary Notice range from “for the last ten years the customer has always paid on time” to “I didn’t want to imply the contractor was not going to pay me” to “it is too much trouble to do on every job” or, simply, “I forgot”. Contractors and suppliers are well advised that any subcontractor or supplier who fails to properly and timely serve a Preliminary Notice is depriving itself of the most powerful tool available for compelling payment of construction related debt on a private works project. For all but the smallest contracts failure to serve the Preliminary Notice is also a violation of contractors’ license law and constitutes grounds for discipline by the Contractor State License Board, up to and including suspension of the contractor’s license.
Most of these rules are found in California Civil Code Section 8200-8216. The requirements of these sections are far too numerous to itemize here. Suffice it to say every contractor, subcontractor and construction material supplier to private construction projects should be familiar with these sections of the California Civil Code. They set forth most of the rules which relate to Preliminary Notices on private construction projects. Some of the most important features are as follows:
Without giving a Preliminary Notice, a subcontractor or supplier cannot file a mechanics lien on the property for which they supplied labor or materials.
The Notice only allows the filing of mechanics liens for the value of materials or labor supplied beginning twenty days prior to serving the notice and ending when the job is deemed “completed” under the law. For example, a valid mechanics lien cannot be filed for labor or material supplied by a subcontractor twenty one days or earlier before the Preliminary Notice was served. The notice need only be served once in order to protect the contractor, subcontractor or material supplier from 20 days before the notice is served until the job is completed.
Those with a direct contract with the owner, for example, the prime contractor, are not required to serve a Preliminary Notice on the owner in order to later file a mechanics lien. However, it is crucial to note that where a construction lender is involved, the prime contractor must still serve the Preliminary Notice on that construction lender.
Under Civil Code section 8216, where the price to be paid to a subcontractor exceeds four hundred dollars, failure to serve a preliminary notice is a violation of state law for which a subcontractor may be disciplined.
When a contractor on a private construction project is unable to pay for materials, the owner is sometimes the only remaining viable source for payment. There is often no payment bond on a private works project. Without a proper and timely Preliminary Notice, a supplier or subcontractor will find itself without any legal right whatsoever to file a mechanics’ lien to obtain any payment from the owner.
Many suppliers and subcontractors find that the best way to avoid these problems is to serve a Preliminary Notice as soon as the contract is signed. It is, in fact, legally acceptable to serve the Notice before the materials are even delivered or work is performed, as long as the contract or equivalent agreement has been finalized. If there is any complaint from the owner about receiving a Preliminary Notice, a subcontractor can honestly and accurately respond that the law requires the service of a Preliminary Notice.
If you make the Preliminary Notice part of your regular routine with all but the very smallest of contracts you can rest assured that you are following the law and will benefit from an added level of protection in the event your customer, even an old and trusted customer, experiences a financial reversals or bankruptcy. Follow these guidelines and the rules set forth in Civil Code section 8200-8216 will help ensure you will be paid for the work you perform and the materials you supply. By following the law you can help keep your customers’ financial problems from becoming your own.
Article written by William L. Porter, Esq. and revised in 2014. Mr. Porter is a principal in The Porter Law Group, Inc. in Sacramento, California. He can be reached by phone at (916) 381-7868.