A Contractor's, Subcontractor’s and Supplier's Step-By-Step Guide to Getting Paid - California - Webinar

In this blog, presented by SunRay Construction Solutions and William L. Porter, Founder & President, Porter Law Group Inc., construction professionals in California can learn in detail about the three key remedies that can help them in getting paid successfully for the work they perform on private or public construction projects.

What is the California Preliminary Notice?

Before we jump into the three remedies, let’s look at the first action item you should be performing, i.e., sending a Preliminary Notice.

A) Definition

• A preliminary notice is a prerequisite to make claims for mechanics lien, stop payment notices, and payment bonds. This is the first step that you need to take to get paid.
• Subcontractors and material suppliers are required to serve the preliminary notice on the owner, direct contractor, and construction lender (if there is one).
• Direct contractors who have a direct contract with the owner do not have to send the preliminary notice to purse a mechanics lien. However, the exception to this rule is that if there is a construction lender, then the direct contractor must serve the preliminary notice on the construction lender.

B) What is the Procedure and Deadline for California Preliminary Notice?

• Direct contractors, subcontractors and suppliers must fill out the California Preliminary Notice and send it within 20 days after first furnishing labor, materials or equipment to a jobsite. A key point to remember is that the effect of the preliminary notice goes back 20 days.
• The preliminary notice can be served personally; however, it is highly recommended that you serve it via registered mail, certified mail with return receipt requested, express mail, or overnight delivery by an express carrier. Also, ensure that you are sending it to the correct address of the intended recipients.
• Always make copy of your preliminary notice for your personal records. Also, when you get the receipt for certified mail or any other return receipt, staple it to the copy of your preliminary notice. This way, if you find yourself in a lawsuit later, this will serve as evidence.
• If you fail to send the preliminary notice as per the deadline, then it will invalidate your claim for mechanics lien, stop payment notice, or payment bond. The late serving of the notice will invalidate these remedies to the extent it is late.
• For example, if you are late by 30 days, then whenever you put the preliminary notice in the mail it will still go back only to 20 days.
• This is why, if you are required to serve the preliminary notice, then make sure you do it as per the timelines.

What is a Mechanics Lien?

Let us assume that you have sent out your preliminary notice, performed your work, etc., but have still not been paid. This is where you will exercise your three remedies – mechanics lien, stop payment notice, and payment bond. Let us learn in detail about Mechanics Lien first.

A) Definition

• The mechanics lien is considered to be one of the most valuable tools available to contractors, subcontractors, and material suppliers because it gives them the right to sell the property where the work was performed in order to get paid.
• Usually, subcontractors and suppliers don’t have a direct contract with the owner, but having a mechanics lien enables them to go over the direct contractor and directly go against the owner. So, even if you don’t have a contract with the owner, you can still sell their property.
• This puts a lot of pressure on the prime contractor to ensure that they are paying you on time.
• This remedy attaches directly to the property, so even if the owner sells the property, the lien will still be attached to it, and it will be the new owner’s responsibility.

B) What is the Deadline for Recording Mechanics Lien in California?

1. If a Valid Notice of Completion or a Notice of Cessation Has Been Recorded

• A Notice of Completion is valid only if it is recorded within 15 days after actual completion of the work of improvement. A Notice of Cessation may be recorded only after work has stopped for 30 days.
• For Direct Contractors – If a valid Notice of Completion or Notice of Cessation has been recorded at the County Recorder’s office in the county where the project is located, then the direct contractor has 60 days after the date of the notice being recorded to record their mechanics lien.
• For Subcontractors and Materials Suppliers – If a valid Notice of Completion or Notice of Cessation has been recorded at the County Recorder’s office in the county where the project is located, then subcontractors and material suppliers have only 30 days after the date of the notice being recorded to record their mechanics lien.
• Because the time period for subcontractors and suppliers is short, it is important that you watch the calendar and the project and find out if there is a Notice of Completion or Notice of Cessation.
• In many of the large projects, the owners are required to notify you that a Notice of Completion or a Notice of Cessation has been recorded. However, it is recommended that you pay attention yourself to avoid missing out on the deadline.

2. If No Valid Time Notice of Completion or Notice of Cessation Has Been Recorded

• If there is no valid timely Notice of Completion or Notice of Cessation recorded, then all parties, i.e., contractors, subcontractors and suppliers have 90 days after the actual completion of the entire work (all trades) to record their mechanics lien.
• So, how do you calculate the date of completion? You need to take the earliest date of any of the below conditions:
• There is actual completion of the work of improvement; or
• Work ceases and the owner or agent occupies the work of improvement; or
• There is a cessation of labor for 60 days.
• Ideally, you shouldn’t wait until you are closer to the 90-day mark. If you have completed all your work and you sense that you will not get paid, then you should go ahead and record your mechanics lien.
• Once you are past the 90-days deadline, then the time period for recording your mechanics lien expires.

What is the Procedure to Record a Mechanics Lien/Claim of Lien in California?

• Your time period to record a mechanics lien can be as early as 30 days or as late as 90 days. You will need to fill out the form titled “Notice and Claim of Mechanics Lien”.
• It must be recorded in the County Recorder’s office in the county where the project is located. If you are in a larger county, you must go the County Recorder division.

3. Mechanics Lien Lawsuit Deadline

• The deadline for mechanics lien lawsuit is quite strict. The lawsuit must be filed within 90 days of the recording of the mechanics lien.
• If you fail to file the lawsuit within 90 days, your lien will expire, and you will need to release the expired lien.
• This is why you need to let your attorney know all the details in advance, so that they can take appropriate action on time.
• You can also use this time period to resolve things with the other party and see if you can get paid without going all the way to a lawsuit.

What is a Stop Payment Notice?

The next remedy that can help you get paid is a Stop Payment Notice.

A) Definition

• A stop payment notice is a notice that you will send out to the entity that is holding the construction funds, such as the owner or a construction lender.
• When the owner or the construction lender receives a stop payment notice, they are required to set aside the money for a claimant who must be paid. The amount is usually 125% of the amount of the stop payment notice.
• If you are working on a private project, the stop payment notice is sent to the owner, the owner’s architect (if there is one), or to the manager or any other responsible office at the branch of the lender administering the funds.
• The time period to send the stop payment notice on private projects is like the time period of recording a mechanics lien.
• You can use the stop payment notice in conjunction with the mechanics lien claim and/or the payment bond claim. All these remedies are complimentary and not mutually exclusive. What it means is that if you mess up your mechanics lien in some way, you can rely on a stop payment notice or payment bond claim.

Typically, if everything goes well, then you get your money through one of these remedies because of the pressure and leverage these remedies have, it is rare to go up to a trial.

B) Bonded or Not Bonded?

• If there is a construction lender on the project, then you should obtain a bond from a bonding company who does construction type bonding. This is because if you don’t bond a stop payment notice on a private project, then the construction lender is under no legal obligation to withhold the funds. So, make sure to find out if there is a construction lender on the project, and if there is, then bond the stop payment notice.
• However, if you are giving the stop payment notice to the owner on a private project, then you don’t have to use a bonded stop payment notice. You can use a non-bonded stop payment notice with the owner.

C) What is the process to Give a Stop Payment Notice in California?

• You need to fill in the form titled “Stop Payment Notice” and give it to the owner, owner’s architect, and the construction lender (if any).
• You should send it via express mail, registered mail or certified mail with return receipt requested.
• When serving the bonded stop payment notice to the construction lender, ensure that you are serving it to the manager or other responsible officers at the branch of the lender where the funds are being held.

D) Deadlines for Serving a Stop Payment Notice

• If there is a valid timely Notice of Completion or Notice of Cessation recorded at the County Recorder’s office in the county where the project is located, then subcontractors and suppliers have 30 days from the date of the notice being recorded to send their stop payment notice.
• As mentioned earlier, the Notice of Completion should be recorded within 15 days after actual completion of the work and the Notice of Cessation should be recorded after the work has stopped for a continuous period of 30 days.
• If there is no valid Notice of Completion or Notice of Cessation recorded, then you need to take the earliest date of any of the below conditions:
• There is actual completion of the work of improvement; or
• Work ceases and the owner or agent occupies the work of improvement; or
• There is a cessation of labor for 60 days.
• The deadline to give a stop payment notice expires 90 days after the earliest date of any of the above options.

E) Stop Payment Notice Lawsuit Deadline

• You can file a lawsuit to enforce a stop payment notice any time after 10 days from the date when the stop payment notice was served, but no later than 90 days following the expiration of the period within which stop payment notice must be served.
• The above deadline may sound confusing, so the ideal option is to just calendar 90 days because that is the same amount of time you have to file a lawsuit to enforce your mechanics lien.
• You can let your attorney know all the details in advance, so they can file the stop payment notice lawsuit as part of your mechanics lien lawsuit.

What is a Payment Bond in California?

The final remedy that can help subcontractors and suppliers get paid successfully is a Payment Bond.

A) Definition

• In general, payment bonds are available on all public projects in California. They are not very common on private projects.
• The payment bond is typically issued by a bonding company to pay subcontractors and suppliers. It is generally the prime contractor who gets the bond.  
• There is no legal requirement to serve a payment bond notice before you proceed to sue on the bond. However, if you have failed to serve the Preliminary Notice, then you must serve a payment bond notice within 15 days from the day the Notice of Completion was recorded.
• If a Notice of Completion was not recorded and the claimant failed to send the Preliminary Notice, the payment bond notice should be sent within 75 days from completion.  
• This is why you must always ensure that you are serving your Preliminary Notice on time.

B) Procedure to Serve a Payment Bond Notice

• You need to serve the payment bond notice on both the bond principal (usually the direct contractor) and on the payment bond surety.
• The preferred methods are registered mail, certified mail with return receipt requested, express mail, or overnight delivery by an express service carrier.

C) Payment Bond Lawsuit Deadline

• If the payment bond is recorded at the County Recorder’s office, then the lawsuit to enforce the payment bond must be filed within six months after the completion of the work improvement.
• If the payment bond is not recorded, then you have four years to file the lawsuit.

As mentioned above these three remedies – mechanics lien, stop payment notice, and payment bond are not mutually exclusive. It is ideal that you are aware of how all these three remedies work in conjunction, so that you can increase your chances of getting paid successfully. Don't risk payment delays! Secure your rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.

FAQs

What is a California Stop Notice?

In California, a Stop Notice is a helpful way to collect money on home projects. It stops the money from going to the owner, general contractor, and others involved in the project. If you're a subcontractor, make sure to send the Stop Notice within 90 days after the project is done or 30 days after the Notice of Completion is recorded.

When can a Claim of Lien be recorded in California?

A Claim of Lien can be recorded for residential projects in California any time after completion of the subcontractor's work and up to 90 days after completion of the entire work. However, if a Notice of Completion or Notice of Cessation is recorded, the time is reduced to 30 days for a subcontractor.

When should you send a California Preliminary Notice?

If you're a subcontractor working on a California residential project, make sure to send a Preliminary Notice within 20 days of starting work or providing materials. If you send it late, it only covers work from 20 days ago. For instance, if you start on the 1st and send the notice on the 25th, it only covers work from the 5th onward. While it's not required by law to re-notice a job, it's good practice to do so if the estimated amount significantly increases, like a job initially quoted at $1,000 becoming a $10,000 job. This ensures your lien rights are protected.

What will happen if you miss sending the California 20-days Preliminary Notice?

In California, if you forget to send the right notice before starting construction work, you can't later file a mechanics lien or bond claim if you don't get paid. This is a big risk, especially considering how common payment issues are in the construction industry.

Who Should Send a California Preliminary Notice?

Contractors, suppliers, and vendors in California must send preliminary notices for all projects in the state, including both "private" and "public" jobs.