Contractors – Construction Liens – California
Note: This summary is not intended to be an all inclusive discussion of California’s construction lien laws, but does include basic provisions.
When, and By Whom, A Lien May Be Filed.
California law provides that any claimant who, at the instance or request of the owner, or one acting on the owner’s behalf as contractor or otherwise, of any parcel of real property, makes any site improvements, has a lien on such real property for work done or materials provided. California Civil Code § 3112.
Summary of the Lien Process.
First: Serving a Preliminary Twenty Day Notice;
Second: Recording the Mechanic’s Lien, serving the Stop Notice or making a claim on the payment bond; and
Third: Filing suit to (a) foreclose the lien; (b) enforce the Stop Notice, or (c) enforce the claim against the bond or surety.
The Preliminary Twenty Day Notice.
In order to preserve Mechanic’s Lien or Stop Notice rights, a preliminary notice must be served with twenty (20) calendar days of the first date services or materials were performed or provided on the job. California Civil Code § 3114. Proof of service must be made in accordance with the provisions of California Civil Code § 3097.1. See form CA-027-09 or CA-027A-09 entitled “Proof of Service Affidavit.”
Notice of Nonresponsibility
The Preliminary Twenty Day Notice is intended to alert the Owner to activity regarding the real property that will result in a potential lien claim. If the owner objects to the improvements specified in the Preliminary Twenty Day Notice, he must give “notice of nonresponsibility.” California Civil Code § 3129. In order to utilize the notice of nonresponsibility, the owner, or one claiming an interest in the property, must post a properly drafted notice of nonresponsibility in a conspicuous place on the property and record the notice within ten (10) days of learning of the proposed improvements. See form entitled “Notice of Nonresponsibility”, CA-05-09 and CA-05A-09.
The Claim of Lien.
The time period a party has for filing the claim of lien depends on their status in relation to the owner. An original contractor must record his claim of lien after he completes his contract and before the expiration of (a) ninety (90) days after the completion of the work of improvement, as defined in § 3106, if no notice of completion or notice of cessation has been recorded, or (b) sixty (60) days after a notice of completion or notice of cessation has been recorded. California Civil Code § 3115. Also see California Civil Code Section 3084 and forms entitled “Notice and Claim of Lien,” CA-02-09 and CA-02A-09
A claimant, other than an original contractor, must record his claim of lien after he has ceased furnishing labor, services, equipment or materials, and before the expiration of (a) ninety (90) days after completion of the work of improvement, if no notice of completion or cessation has been recorded, or (b) thirty (30) days after the recording of a notice of completion or notice of cessation. California Civil Code § 3116.
Amount of the Lien
The liens under the California Mechanic’s and Construction Lien Laws are direct liens and are limited to the lesser of (a) the reasonable value of the labor, services, equipment, or materials furnished OR (b) for the price agreed upon between the claimant and the party with whom he or she contracted. California Civil Code § 3123.
The Stop Notice is a verified statement stating in general terms (a) the services or materials provided, the name of the person to or for whom labor, services, equipment, or materials were performed or provided, (b) the amount owed for that already done or furnished and the total amount agreed to be done or provided, and (c) the name and address of the claimant. Civil Code § 3103. The combination of the Claim of Lien and the Stop Notice, gives the claimant a lien against undisbursed construction funds in the possession of the owner or the lender. California Civil Code §§ 3159 and 3161.
The Civil Code also provides that a person eligible to serve a Stop Notice who fails to do so after a written demand (See form CA-016-09 and CA-016A-09 – Demand for Stop Notice) shall forfeit their right to a mechanic’s lien. See California Civil Code § 3158.
Bonded Stop Notice.
In order to bind a construction lender, the Stop Notice must be bonded. “Bonded stop notice” means a stop notice, given to any construction lender, accompanied by a bond with good and sufficient sureties in a penal sum equal to 11/4 times the amount of such claim conditioned that if the defendant recovers judgment in an action brought on such verified claim or on the lien filed by the claimant, the claimant will pay all costs that may be awarded against the owner, original contractor, construction lender, or any of them, and all damages that such owner, original contractor, or construction lender may sustain by reason of the equitable garnishment effected by the claim or by reason of the lien, not exceeding the sum specified in the bond. To be effective such bonded stop notice must be delivered to the manager or other responsible officer or person at the office of the construction lender or must be sent to such office by registered or certified mail. If such notice is delivered or sent to any institution or organization maintaining branch offices, it shall not be effective unless delivered or sent to the office or branch administering or holding such construction funds. California Civil Code § 3083.
Stop Work Order by Original Contractor.
After nonpayment lasting at least thirty-five (35) days, the Original Contractor can serve the Owner with a “Ten Day Stop Work Order” requiring payment or resolution within ten (10) days of notice. See forms CA-024-09 and CA-024A-09 “Ten Day Stop Work Order”. At least five days before service of the order on the owner, the original contractor must post in a conspicuous location on the work site and main office a notice of his intent to serve the owner with the ten day stop work order. See form CA-025-09 and CA-025A-09. A copy of the written notice must also be served on all subcontractors with whom the original contractor has a direct contractual relationship at the same time as the notice is served on the owner. Five days after receiving the notice, the owner must serve the construction lender with a copy of the notice by first class mail. California Civil Code § 3260.2. When the dispute is resolved, the original contractor must post notice of the resolution and serve all subcontractors with notice of the resolution. California Civil Code § 3260.2.
Filing Original Contract and Payment Bond.
The owner is permitted to limit his liability to the amount of the original contract with the contractor if he files the original contract and records a payment bond. The owner also is allowed to protect his interest in cases where the contractor fails to perform under the contract or to make full payment by demanding such bond or security as he deems necessary. California Civil Code § 3236.
Notification of Changes in the price of the contract.
If the price of the original contract varies by 5% or more, the owner is required to notify the prime contractor and the construction lender. California Civil Code § 3123. See form entitled “Owner’s Notice of Increase in Construction Costs” CA-014-09 and CA-014A-09.
Notice of Completion or Notice of Cessation.
The Owner is required to notify the original contractor, and any other claimant providing a preliminary twenty day notice, that a notice of completion or notice of cessation has been recorded. See form entitled “Notice That Notice of Completion Recorded, form CA-020-09 and CA-020A-09. The notice must be sent within ten (10) days of recording the notice of completion or the notice of cessation. The notice must be sent by registered or certified mail, or by first class mail evidenced by a certificate of mailing. California Civil Code § 3259.5.
When must the Claim of Lien be filed?
order to enforce a lien, an original contractor must record his claim of lien after he completes his contract and before the expiration of (a) ninety (90) days after completion of the work if no notice of completion or notice of cessation is recorded, or (b) sixty (60) days after the notice of completion or notice of cessation is recorded. California Civil Code § 3115
Claimants other than an original contractor, in order to enforce a lien, must record the claim of lien after he has ceased furnishing labor, services, equipment, or materials, and before the expiration of (a) ninety (90) days after completion of work of improvement if no notice of completion or cessation has been filed, or (b) thirty (30) days after the recording of a notice of completion or cessation. California Civil Code § 3116
Waiver or Release of Construction Lien.
California statutes provide for four specific forms of waiver or release of construction liens: (a) Conditional Waiver and Release Upon Progress Payment, CA-LIEN-3; (b) Unconditional Waiver and Release Upon Progress Payment, CA-LIEN-4; (c) Conditional Waiver and Release Upon Final Payment, CA-LIEN-5; and (d) Unconditional Waiver and Release Upon Final Payment, CA-LIEN-6. See California Civil Code § 3262