What is a Notice of Completion?
A “notice of completion” is a document recorded by the owner of property where construction work was performed. Specifically, it is recorded at the Office of the County Recorder in the County where the work was performed. The notice of completion tells the world at large that the construction project is complete. It also triggers the deadlines for those who have not been paid to make their claims for payment.
Is an Owner of a California Private Works Project Required to Record a Notice of Completion?
No, there is no requirement that an owner of a California private works construction project record a Notice of Completion. However, there are consequences which depend on whether an Owner elects to record the notice or not.
For My Collection Rights, Why Does it Matter Whether a Notice of Completion Has Been Recorded?
The date of recording of a valid notice of completion sets the deadline for those who have not been paid for work performed and materials supplied to a California construction project to pursue such important collection remedies as the “mechanics lien”, the “stop payment notice” and the “payment bond claim.” These are very powerful collection remedies for those who have not been paid. If the deadline to pursue these remedies is missed by a claimant, then the claimant’s right to pursue these remedies is also missed. One of these remedies, the mechanics lien, will enable the claimant to sell the owner’s property where the work was performed in order to get paid.
Why do Owners Record Notices of Completion as Opposed to Not Doing so Altogether?
The specific reason that the owner of property where work was performed will record a notice of completion is that doing so will speed up the time for claimants to make claims for payment, including the mechanics lien claim against the owner’s property.
For example, note: If there is no valid notice of completion recorded on a project then all claimants, including the “direct” or “prime” contractor, and all subcontractors and suppliers on the project will have 90 days from project completion to record a mechanics lien.
However, when a valid notice of completion has been recorded, the direct contractor has only 60 days and subcontractors and suppliers have as few as 30 days before they must record a mechanics lien.
With these varying deadlines in mind, you can see that owners will record a notice of completion to speed up the timeline for all claimants to record mechanics liens from 90 days to as few as 30 days. Owners know that with the shorter period of time available if the owner records a notice of completion, it is more likely that claimants will miss the deadline and thereby also miss the opportunity to record a mechanics lien on the owner’s property and possibly sell the owner’s property through a mechanics lien foreclosure lawsuit in order to get paid.
Are There Times when a Facially Valid Notice of Completion Might Not Actually be Valid?
Yes. Many of the notices of completion recorded are in fact, not valid. The usual reason that they are not valid is because they were not recorded within a very short window of time for recording notices of completion. The very important rule which must be followed by owners, and which is most often violated, is that a notice of completion is valid only if it is recorded within 15 days after actual completion of the entire project. Note that this “actual completion” is completion as to the entire project. It does not matter whether a specific trade is completed. What matters is whether the entire project is completed by all trades who work on the project.
What Happens When a Notice of Completion is Not Valid?
When a notice of completion is not valid then it is, in a legal sense, treated as if it does not exist. When this happens, the deadline for all claimants, including the direct contractor, and all subcontractors and suppliers to record a mechanics lien defaults to the deadline applicable when there is no notice of completion, which is 90 days after the entire project is fully completed.
When it is Time to Make a Mechanics Lien Claim, How Does a Claimant Know if a Notice of Completion is Timely and Valid?
This is the problem. When it comes time to record a mechanics lien, the claimant will generally not know if the notice of completion is valid. This is because it is extremely difficult for a claimant in a single trade to know for certain when the last of all the other trades on the project has completed its work on the project. It is generally therefore impossible for that single claimant to know whether or not the owner recorded the notice of completion within the short 15-day window after a entire project was fully completed. Understand that we are talking about the entire project, and not just the scope of work of a single claimant. What is important is when the last bit of contract work on the project was completed. It might have been the last brush of paint, or the last sprinkler head screwed on, the last electrical wall plate installed, or the last door handle put in place.
If a Claimant Does Not Know if a Notice of Completion is Valid, How Does a Claimant Know if it has 30 or 60 or 90 Days to Record a Mechanics Lien? How is the Issue Dealt with in a Practical Sense?
In most cases, since an individual claimant will not know for certain if a notice of completion is valid and timely (within the short 15-day window), the claimant has no choice but to presume that the notice of completion is NOT valid. The fact is that until “discovery” is conducted as part of the much later court litigation process, no one can be certain when the very last bit of work was performed by the very last subcontractor on the project. Thus, no one can be certain of their deadline. Therefore, as a practical matter, if a claimant is done with its work and is concerned that the project is complete or nearing completion, the claimant should consider recording its mechanics lien without delay if it has not been paid, rather than risk missing the deadline.
When is Too Early to Record a Mechanics Lien?
A claimant cannot record a mechanics lien on a project until after the claimant has finished its own work on the project.
What About Punch Lists and Repairs? Do They Extend the Date of Actual Completion?
A “punch list” is a list of items of work to complete and repairs to be made in order to achieve completion of a contractor’s or subcontractor’s contractual scope of work. Punch lists are typically composed of many items, some which are for work not performed (installing a missing electrical face plate, some painting missed, some lights not installed) and others are for repairs to work actually completed (installed electrical not functioning, some finished painting damaged, installed lights not working). It is necessary to look at a punch list in its multiple component items. Generally, a project is not “complete” until all of the contract or subcontract work is completed. Therefore, completing uncompleted items will generally extend the date of completion. However, repairs to completed work will generally not extend the date of actual completion.
Are There Substitutes or Alternatives to a Notice of Completion of Which I Should be Aware?
Yes, one common alternative to a notice of completion is a “notice of cessation”. A notice of cessation has a different set of rules as to when it is timely and valid. A notice of cessation” may generally be recorded only after work on the construction project has stopped for a continuous period of 30 days. This type of notice is often used when a project runs out of money and stops for lack of funds. This would mean that if no contractor or subcontractor at all was working on a project for 30 days, even though the project was not actually completed, the owner could record a notice of cessation which would have the same effect as a notice of completion. Because of this, you may need to keep an eye on a project and drop by from time to time to see if all work has stopped, even though the project is not actually complete.
Is the Owner Required to Let Potential Claimants Know That a Notice of Completion or a Notice of Cessation has Been Recorded?
Although an owner is not “required” to tell a potential claimant that a notice of completion or notice of cessation has been recorded, in some cases there is a penalty to the owner if they do not let potential claimants know that a notice of completion or notice of cessation has been recorded. It works like this: Generally, as to subcontractors and suppliers to a private construction project who served the owner with a preliminary notice, owners of private public works projects should notify them when they have recorded a notice of completion or a notice of cessation. Owners should provide this notice within 10 days after recording a notice of completion or a notice of cessation. If this properly occurs, then the subcontractor or supplier will have only 30 days to record a mechanics lien. However, if an owner under such circumstances fails to properly notify a subcontractor or supplier within 10 days after recording a notice of completion or notice of cessation, then the subcontractor or supplier will have 90 days to record a mechanics lien. This is a penalty on the owner who hopes to achieve an advantage by secretly recording a notice of completion or notice of cessation without notifying subcontractors and suppliers who served the owner with a preliminary notice. This law does not apply to public works projects or owner-occupied personal residences of less than 5 units.
If you are a subcontractor or supplier who has finished supplying labor and materials to a California construction project and payment to you is delinquent, you need to protect your construction claim rights. If you have concerns that a project is nearing completion or has been completed, you should consider recording your mechanics lien and serving your stop payment notice without delay. In general, at the time that a notice of completion is recorded it is not possible for an individual subcontractor or supplier to determine if a notice of completion was timely recorded within the small 15-day window of time after a project is completed. In fact, many notices of completion fail in this regard. The best advice is to record the mechanics lien and serve the stop payment notice without delay. Leave it for another time to make the determination of whether the notice of completion is or is not valid. To do otherwise may cause you to miss your mechanics lien and stop payment notice claims deadlines. If you miss these deadlines you may ultimately never be paid.
Legal sources: California Civil Code sections 8180-8190, 8200-8216, 8400-8488, 8460-8470, 8500-8560, 8600-8614.
Article by William L. Porter, Esq. in 2019. Mr. Porter is a principal in The Porter Law Group, Inc. in Sacramento, California. He can be reached by phone at (916) 381-7868. Visit the firm’s website at www.porterlaw.com and www.AppliedLegal.com