Lien rights are important to contractors. When all else fails, foreclosing on a lien can be the only way to get paid. But contractors make mistakes – injuring their lien rights – every day. Consequently, the importance of understanding and complying with the legal requirements and deadlines to perfect a construction lien cannot be overstated. And the deadlines and requirements differ, depending on a company’s role on a project. The easiest distinction is between a direct or prime contractor versus a subcontractor or a material supplier. A direct or prime contractor is one who contracts directly with the property owner. A subcontractor or material supplier typically contracts with the direct contractor, but has no direct contractual relationship with the property owner. Enforcing lien rights differs based on this distinction.
The Recording Of A Valid Notice of Completion or Notice of Cessation And Where No Notices Have Been Recorded
Where a valid notice of completion or notice of cessation has been recorded in the county where the project is located, a direct or prime contractor has 60 days from the notice of completion to file a mechanic’s lien. A notice of cessation may only be filed after 30 continuous days of work being stopped at a project.
In instances where neither a notice of completion or a notice of cessation has been recorded on a project, direct contractors, subcontractors, and material suppliers have 90 days from the date that work is complete to record a mechanic’s lien on the property.
The Preliminary Notice Requirement For Subcontractors And Material Suppliers
For subcontractors and material suppliers, the issuance of a preliminary notice is nearly always a prerequisite to perfecting a mechanic’s lien claim. With respect to private projects, the preliminary notice places the property owner on notice that work has been performed on, or materials have been provided to, the project and that the subcontractor or material supplier may later file a claim for payment. The best practice for subcontractors and material suppliers is to serve the preliminary notice within 20 days after first providing the labor or materials to a project to obtain the greatest protection of their right to later file a mechanic’s lien.
For a direct contractor, there is no requirement that the contractor submit a preliminary notice in relation to a lien. On the other hand, a subcontractor or material supplier must submit a preliminary notice in order to perfect their lien rights.
The content of a preliminary notice is set forth in Civil Code Section 8102. That code section provides:
(a) Notice under this part shall, in addition to any other information required by statute for that type of notice, include all of the following information to the extent known to the person giving the notice:
(1) The name and address of the owner or reputed owner.
(2) The name and address of the direct contractor.
(3) The name and address of the construction lender, if any.
(4) A description of the site sufficient for identification, including the street address of the site, if any. If a sufficient legal description of the site is given, the effectiveness of the notice is not affected by the fact that the street address is erroneous or is omitted.
(5) The name, address, and relationship to the parties of the person giving the notice.
(6) If the person giving the notice is a claimant:
(A) A general statement of the work provided.
(B) The name of the person to or for whom the work is provided.
(C) A statement or estimate of the claimant’s demand, if any, after deducting all just credits and offsets.
(b) Notice is not invalid by reason of any variance from the requirements of this section if the notice is sufficient to substantially inform the person given notice of the information required by this section and other information required in the notice.
In addition to the foregoing, a subcontractor or material supplier’s notice should also include: (1) A general description of the work to be provided; (2) An estimate of the total price of the work provided and to be provided; and (3) The following statement in boldface type:
NOTICE TO PROPERTY OWNER
EVEN THOUGH YOU HAVE PAID YOUR CONTRACTOR IN FULL, if the person or firm that has given you this notice is not paid in full for labor, service, equipment, or material provided or to be provided to your construction project, a lien may be placed on your property. Foreclosure of the lien may lead to loss of all or part of your property. You may wish to protect yourself against this by (1) requiring your contractor to provide a signed release by the person or firm that has given you this notice before making payment to your contractor, or (2) any other method that is appropriate under the circumstances.
This notice is required by law to be served by the undersigned as a statement of your legal rights. This notice is not intended to reflect upon the financial condition of the contractor or the person employed by you on the construction project.
If you record a notice of cessation or completion of your construction project, you must within 10 days after recording, send a copy of the notice of completion to your contractor and the person or firm that has given you this notice. The notice must be sent by registered or certified mail. Failure to send the notice will extend the deadline to record a claim of lien. You are not required to send the notice if you are a residential homeowner of a dwelling containing four or fewer units.
If preliminary notice is given by a subcontractor that has not paid all compensation due to a laborer, the notice should include the name and address of the laborer and any person or entity described in subdivision (b) of Section 8024 to which payments are due.
Deadlines to Record The Mechanic’s Lien For Direct Contractors, Subcontractors, and Material Suppliers
To be valid, a mechanic’s lien must be recorded at the county recorder’s office in the county where the project is located. The deadline by which to record a mechanic’s lien against a project depends on whether a valid notice of completion or notice of cessation have been recorded. Where a valid notice of completion or notice of cessation has been recorded, the claimant has 30 days from the date the notice of completion or cessation is recorded to record a mechanic’s lien on the project, subject to one exception.
The single exception to the 30-day recording deadline applies only to subcontractors and material suppliers. To initially qualify for the exception, the subcontractors and material suppliers must properly serve a preliminary notice on the owner. When this occurs, the owner becomes obligated to notify the subcontractor or material supplier within 10 days of the owner recording a valid notice of completion or notice of cessation on a project. If the owner fails to provide the required notice, the subcontractor or material supplier has 90 days to record the mechanic’s lien, rather than the typical 30 days. If the owner provides the notice, the deadline to record the lien remains at 30 days.
Finally, where no notice of completion or cessation has been recorded, the deadline for subcontractors, material suppliers, and direct contractors is 90 days after work on the project has been completed.
Zachariah H. Rowland is a partner in the law firm of Dunn DeSantis Walt & Kendrick. He advises clients on all types of commercial litigation and construction matters in state and federal courts throughout California. He can be reached at email@example.com.
Dunn DeSantis Walt & Kendrick provides a broad spectrum of legal services to businesses of all sizes, from small, local start-ups and non-profits to large, national companies. DDWK’s real estate development and construction practice includes representing all segments of the development and construction industries on both private and public projects.
You can find additional information and resources related to helping business owners and their businesses through COVID-19 challenges on the DDWK website.