Mechanics’ Liens, Stop Notices, Bond Claims
1. California Mechanics’ Liens
The key difference between private construction projects and public works construction projects is the right to place a lien on real property on a private project. Anyone who provides labor, services, equipment, materials, or design services on a private construction project and is not paid can serve and record a mechanics’ lien.
Comprehensive revisions to California mechanics’ lien laws went into effect as of July 1, 2012. There are three key requirements for a successful mechanics’ lien claim: (1) serve the Preliminary Notice within 20 days of starting work; (2) record the mechanics’ lien at the County Recorder’s office where project is located; (3) file suit to foreclose on the lien within 90 days of recording. If a lawsuit is not filed within 90 days of the lien being recorded and it is not released, then the owner may file a petition with the court to have the lien removed and recover attorney’s fees.
The purpose of the Preliminary Notice (previously called 20-Day Notice) is to provide the owner, general contractor, and the construction lender with notice that someone is on the project with the right to payment. Some of the most common ways in which the notice is provided to the owner, general contractor, and the lender include personal service, registered mail, certified mail, express mail, or overnight delivery by an express mail carrier.
Anyone who served a Preliminary Notice and was not paid is entitled to record a mechanics’ lien after their scope of work is completed. If the owner records a Notice of Completion (within 15 days of actual completion) then the mechanics’ lien must be recorded by subcontractors within 30days of that date and within 60 days by the prime contractor. If no Notice of Completion was recorded, then the mechanics’ lien must be recorded by either the subcontractors or prime contractor within 90 days of actual completion.
2. Stop Payment Notices
Stop payment notices (previously called stop notice) provide claimants in both private and public works construction projects with the ability to lien undisbursed construction funds. Stop payment notices and mechanics’ liens are cumulative remedies on private projects. Anyone entitled to a mechanics’ lien is also entitled to file a stop payment notice. These are cumulative remedies.
In general, all mechanics’ lien requirements discussed above apply to stop payment notice claims with regard to service of the Preliminary Notice and the time for filing suit. A successful suit on a stop notice claims also requires service of the Preliminary Notice within 20 days of starting work. A stop payment notice must be served on the owner, construction lender, or any other person holding construction funds within 60 days, if a Notice of Completion was recorded and within 90 days, if none was recorded.
3. Payment Bond Claims
Payment bonds are more common on public projects than private projects. In fact, all public works contracts in excess of $25,000.00 must be bonded by the general contractor. To perfect a claim on the bond the claimant must serve the Preliminary Notice; and bring suit on the bond within six months after the period for filing stop notices expires. Note that if the owner records a payment bond, then the lender can ignore bonded stop notices (except those of general contractor).
FEDERAL PROJECTS – MILLER ACT
The Miller Act applies to federal construction projects. It is the equivalent to the bond provisions for state public construction projects. The bond applies to projects exceeding $100,000.00 and covers labor and material.
In order to enforce a claim under the Miller Act bond some claimants must provide preliminary notice prior to filing suit on the bond. Claimants that do not have a contractual relationship with the prime contractor must give written notice of the claim by registered mail to the prime contractor within 90 days of last furnishing labor or material to the job.
The Miller Act bond protects up to third tier claimants with the prime contractor and its direct subcontractors constituting the first tier. Unpaid claimants must file the Miller Act bond suit within one year after the last furnishing of labor and material. The suit must be brought in the federal district court where the job is located.
HOME IMPROVEMENT CONTRACTS – RESIDENTIAL CONSTRUCTION PROJECTS
Home improvement projects can be a stressful time for homeowners. However, being informed about your rights and maintaining an open dialogue with your contractor can minimize potential conflicts. To start, homeowners should always confirm that their contractor is licensed, bonded, and insured.
Additionally, the contract between the homeowner and the contractor must be in writing. Any extra work to be performed by the contractor should also be in writing and should clearly include the extra scope and related extra cost. The contract should include a completion date and if possible a liquidated damages clause. A liquidated damages clause compensates the owner at an agreed upon rate for each delay day established to have been caused by the contractor.
The contract should have an indemnity clause protecting the homeowner. The homeowner should also request to be added to the contractor’s liability policy as an additional insured.
The down payment for a residential projects must be the lesser of $1,000.00 or 10% of the total written contract. Additionally, progress payments should correlate to the percentage of work completed.
Homeowners should request copies of the subcontracts and purchase orders from their contractor. As the construction progresses and certain items are completed, the homeowner should get mechanics’ lien releases from their contractor, subcontractors, and any suppliers.
All of these requirements are set forth in California Business & Professions Code §7159.
(“These articles provide general information. If you have a specific legal question or need legal advice, please contact an attorney.”)