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Mechanics Lien Law.Basic Mechanics Lien Coverage.
All persons who, at the request of the owner or owner's agent, furnish labor, material, leasing equipment, special skills, or other necessary services to a project for constructing a work of improvement on real property are entitled to a mechanics' lien unless they come within a statutory or case law exception.
Under Civil Code '3110, the following suppliers of labor or material are entitled to a mechanics' lien: Mechanics, materialmen, contractors, subcontractors, lessors of equipment, artisans, architects, registered engender, licensed land surveyors, machinists, builders, teamsters and draymen, and all persons and laborers of every class performing labor upon or bestowing skill or other necessary services on, or furnishing materials or leasing equipment to be used or consumed in or furnishing appliances, teams, or power, contributing to a work of improvement...whether done or furnished at the instance of the owner or of any person acting by his authority or under him as contractor or otherwise. A claimant is entitled to a mechanics' lien for furnishing material or leasing equipment Ato be used or consumed in a work of improvement. CC '3110.
You must prove both that the material was actually used in the particular construction project and that it was furnished with that purpose in mind. Obviously any records you can keep on this subject, such as delivery receipts, help later when collecting the money. However, you need not prove delivery of the material or equipment to the construction site; showing intent that the material be used in a particular project and that it was so used is sufficient. If you prove delivery to a particular site, a presumption of use on that site is demonstrated. Consolidated Elec. Distribs., Inc. v Kirkham, Chacon & Kirkham, Inc. (1971) 18 CA3d 54,58,95,CR 673, San Pedro Lumber Co. v Kreis (1931) 111 CA 466, 295 P 890.
Civil Code '3123(a) provides that the amount of a mechanics' lien is limited to the claimant's contract price or the reasonable value of the labor, services, equipment, or material furnished, whichever is less.
Civil Code '3123(a) provides a claimant is not precluded from including in the lien any amount due for labor, services, equipment, or material furnished, based on a written modification of the contract or as a result of the recession, abandonment, or breach of the contract. If the owner authorizes changes to the original plans that require additional labor and material, and material, and then refuses to pay for them, the owner breaches the contract and '3123(b) permits the contractor to include in its lien the reasonable value of the additional labor, services, equipment, or material it has furnished. A lien claimant may include in the mechanics' lien an amount for the reasonable value of the furnished labor, services, equipment, or material, even if based on oral modifications to the contract with the owner. Basic Modular Facilities, Inc. v Ehsanipour (1999) 70 CA4th 1480, 83 CR2d 462.
Claims Against Owners and Preliminary Notices.
When an owner (or one claiming an interest in the land) has actual knowledge (see '8.18) of construction initiated by another and fails to post a statutory notice of nonresponsibility, the owner (or such person) is considered to have caused the construction. CC '3129. See Halspar, Inc. v La Barthe (1965) 238 CA2d 897, 48 CR 293. Each claimant's lien, however, attaches as of the date of the first work performed by anyone under the entire plan.
For most claimants who furnish labor, services, equipment, or material to a private work of improvement, service of a preliminary 20-day notice is a prerequisite to the enforcement of both mechanics' lien and stop notice rights. CC ''3114, 3160.
A claimant need give only one notice for all labor, services, equipment, and material furnished for the entire structure or scheme of improvement, except when they are furnished under separate contracts with two or more subcontractors. In that event, a separate notice is required for each subcontract.
The legislator imposed the preliminary notice requirement to alert owners, contractors, and lenders to secured claims arising from contracts to which they were not parties and of which they would otherwise have no knowledge.
Two categories of claimants must serve a preliminary 20-day notice as a prerequisite to enforcing mechanics' lien, stop notice, or payment bond rights:
- Persons furnishing labor, service, equipment, or material under a direct contract with the owner 9except those exempt, see '3.14) must serve a 20-day notice only on the construction lender or the reputed construction lender (CC '3097(b)); and
- All others furnishing labor, services, equipment, or material, for which a lien or payment bond could otherwise be claimed or a stop notice given under the mechanics' lien law, must serve a 20-day notice on the owner or reputed owner, the original contractor or reputed contractor, and any construction lender or reputed construction lender (CC '3097(a)).
When a noncontracting owner has actual knowledge of the construction, the claimant may be excused from serving a preliminary 20-day notice.
The service of a preliminary 20-day notice is Aa necessary prerequisite to the validity@ of any mechanics' lien, stop notice, or payment bond. CC '3097(a)-(b).
The preliminary 20-day notice must contain:
- A general description of labor, services, equipment, and material furnished or to be furnished along with a total price estimate (CC '3097(c)(1));
- The name and address of the person furnishing labor, services, equipment, and material (CC '3097(c)(2));
- The name of the person who contracted for the purchase of labor, services, equipment, and material (CC '3097(c)(3));
- A description of the jobsite sufficient for identification (CC '3097(c)(4)); and
- A ANotice to Property Owner@ required by CC '3097(c)(5), set forth in boldface type (see 20-day notice form in '3.102).
Serve by registered or certified mail rather than personally or regular mail.
On private works, failure to serve the notice within 20 days after the claimant first contributes to the work of improvement does not invalidate the entire claim. With late service, the claimant is limited to a lien or stop notice for only labor, services, equipment, or material furnished within 20 days immediately preceding service of the notice and continuing through completion of work. CC '3097(d).
A prevailing practice in the construction industry is for a subcontractor or supplier to send out a 20-day notice immediately after entering into a contract, receiving an order, or signing a purchase order.
A preliminary notice does not cover work performed before the beginning of the 20-day period.
Civil Code '3097(f) prescribes the manner of serving preliminary 20-day notices for private works.
If the party to be given notice resides in California, under CC '3097(f)(1), the preliminary notice may be:
- Served personally on the party to be notified;
- Left at the party's residence or place of business with a responsible person; or
- Mailed by certified or registered mail (but not ordinary first class mail), postage prepaid, and addressed to the party to whom notice is to be given at his or her residence or place of business.
To enforce a mechanics' lien claim, the original contractor (defined in CC '3095; see '7.1) must complete the contract work and then record a lien. The time frame to record the claim depends on whether the owner has recorded a notice of completion or cessation
If a notice of completion (CC '3093) or notice of cessation (CC '3092) has been recorded, the contractor must record the lien claim within 60 days after recordation of a valid notice of completion or cessation. Otherwise, the time is 90 days after the work of improvement is completed. CC '3115. See '3.36.
If neither a completion notice nor a cessation notice has been recorded, the time for filing the lien claim runs from the date of completion. As defined in CC '3086, completion of a private work of improvement means Aactual completion.
When actual completion has occurred, the following are considered the Aequivalent of completion@ (CC '3086(a)-(c)):
- Occupation or use by the owner or the owner's agent, accompanied by a cessation of labor;
- Acceptance of the work of improvement by the owner or the owner's agent; or
- Cessation of labor for a continuous period of 30 days or more if the owner records s notice of cessation or 60 days if the owner does not record a notice of cessation.
- Claimant's demand after deducting all credits and offsets;
- Name of owner or reputed owner, if known
- General nature of labor, services, equipment, or material furnished by claimant;
- Name of person who employed claimant or to whom claimant furnished labor, services, equipment or material;
- Description of site sufficient for identification; and
A stop notice (sometimes called a Anotice to withhold@) is a statutory remedy designed to reach unexpended construction funds in the owner's or lender's hands and is available on both private and public works. CC ''3103, 3264.
As a part of the mechanics' lien statutory framework, a valid stop notice must be preceded by a preliminary 20-day notice. See CC '3160.
A mechanics' lien is the preferred remedy when the level of unexpended construction funds is low and when no other encumbrance takes priority over the mechanics' lien. When a project fails, however, the stop notice may be the more valuable remedy because it is a direct charge on unexpended loan funds; mechanics' lien claims must complete with the lender's foreclosure of its deed of trust.
Claimants must pursue their mechanics' lien, stop notice, and payment bond remedies on private works simultaneously because the notice requirements for the remedies overlap in time, the statues of limitations are brief, and causes of action that are viable when a dispute begins may dead end if a defendant files bankruptcy or the property declines in value.
Under CC '3159(a), any of the persons named in CC ''3110 and 3112 as potential mechanics' lien claimants, including the original contractor, may serve a stop notice on a construction lender for a private project.
The bonds and security devices most frequently used by the construction industry in private works of improvement are:
- Performance bonds
- Payment (labor and material) bonds
- Mechanics' lien release bonds
- Stop notice release bonds
- Contractor license bonds
A performance bond contractually obligates the surety to pay damages attributable to the general contractor's failure to promptly and faithfully perform its contract obligations by the agreed-on date.
Payment bonds guarantee that all claims for labor, material, leasing equipment, and services provided to a construction project will be paid. See CC '3226. If the bond principal (usually the contractor, the owner, or a subcontractor) defaults, the surety is responsible both to the named obligee and to unpaid subcontractors, laborers, equipment renters, and material suppliers as unnamed beneficiaries.
A stop notice is defined in CC '3103 as a written notice, signed and verified by the claimant or its agent, which states in general terms the following:
- Kind of labor, services, equipment, or material furnished by claimant;
- Name of person who employed claimant or to whom claimant furnished labor, services, equipment, or material;
- Estimated values of work already done or furnished and of the whole of work agreed to be done or furnished; Name and address of claimant; and
Foreclosure of Lien Necessary within 90 days.
A recorded mechanics' lien is released by operation of law if the claimant does not bring a lien foreclosure action within 90 days after the lien was recorded. See CC '3144(a).
Additionally, '3144(b) provides that if the claimant fails to file the action within 90 days, Athe lien automatically shall be null and void and of no further force and effect.@
The expiration of the 90-day invalidates only the mechanics' lien but does not terminate the underlying lien claim. Under this interpretation, the claimant would be entitled to record another claim if the lien period were still open. In other words, because the recording of one lien claim does not bar additional recordings during the statutory recording period(see '3.33), the failure to bring a foreclosure action during the 90-day period under the first lien does not necessarily preclude all lien relief. A subsequently recorded lien, if recorded in timely manner, may even include cumulative claims from earlier recorded, but not timely enforced, mechanics' liens. See Koudmani v Ogle Enters. (1996) 47 CA4th 1650, 1658, 55 CR2d 330.
A material supplier brought an action to foreclose a mechanics' lien against a tenant's leasehold interest. The supplier furnished material in April 1978 and recorded a claim of lien in July 1978. It recorded another lien claim on February 13, 1979, and filed an action to foreclose on May 8, 1979. Because the supplier recorded its second claim before the project was completed, the claim was recorded within the permissible statutory period and the action to foreclose the lien was therefore timely. Electric Supplies Distrib. Co v Imperial Hot Mineral Spa (1981) 122 CA3d 131, 175 CR 644. See additional examples in Schwartz & Gottlieb, Inc. v Marcuse (1917) 175 C 401, 165 P 1015; Coast Cent. Credit Union v Suoerior Court (1989) 209 CA3d 703, 257 CR 468; In re Paul Potts Builders, Inc. (Grover v County of Marin) (9th Cir 1979) 608 F2d 1279.
The 90-day period is extended if an extension of credit is given and notice of that fact and the terms of credit are recorded after the claim of lien has been recorded and before the 90 days has expired. The lien's effective period is extended until 90 days after the credit expires, but no longer than 1 year after completion of the work improvement. CC '3144(a). The extension is ineffective against good faith purchasers or encumbrancers for value whose rights are acquired after the original 90-day period expires, unless evidenced by a notice or agreement recorded before the purchaser's or encumbrancer's rights are acquired. CC '3145.
An action to enforce payment under a stop notice may be initiated at any time after 10 days from the date the claimant serves the stop notice on either the owner or construction lender and must be filed within 90 days after expiration of the period within which lien claims must be recorded. CC '3172.