Construction projects involve numerous parties, intricate agreements, and substantial financial investments. To protect the rights and interests of contractors, subcontractors, suppliers, and laborers, California has established a robust mechanic’s lien law and procedure. Understanding the mechanic’s lien process is essential for construction professionals operating in California.
Purpose of Mechanic’s Lien Law
The primary purpose of the mechanic’s lien law in California is to provide security and protection to contractors, subcontractors, suppliers, and laborers who contribute to the improvement of a property. It ensures that these parties have a legal claim on the property to secure payment for the services or materials they provide.
California mechanic’s lien law extends protection to various parties involved in a construction project. This includes general contractors, subcontractors, suppliers, equipment lessors, architects, engineers, and laborers who provide labor, services, materials, or equipment that enhance the value of a property. Transporters of materials to a jobsite also are among those afforded mechanic’s lien rights so long as the transporter: (1) is hired by an agent of the owner; (2) participates in the work of improvement; and (3) owns the materials being delivered, and the cost of transporting the materials is included in the cost of materials.
Requirements for Filing a Mechanic’s Lien
To establish a valid mechanic’s lien in California, certain requirements must be met:
- Preliminary Notice:
Unless exempt, a claimant must serve a preliminary notice to the property owner, general contractor, and construction lender. The preliminary notice only preserves the right to pursue a mechanic’s lien for work performed during the 20 days immediately preceding the date the preliminary notice was served and for work going forward. In other words, only work performed within the 20 days of the preliminary notice being served will be covered. Direct contractors are usually exempt from the preliminary notice requirement (unless there is a known construction lender).
- Timely Filing:
A mechanic’s lien must be filed within a specified timeframe, depending on the type of claimant. If the claimant is the direct contractor, the claimant must record a mechanic’s lien: (i) 90 days after the completion of the work of improvement, if the owner does not record a notice of completion or notice of cessation; or (ii) 60 days after the owner records a notice of completion or notice of cessation. If the claimant is not the direct contractor (for example, a subcontractor), the claimant must record a mechanic’s lien after the claimant stops providing work but before the earlier of: (i) 90 days after the completion of the work of improvement, if the owner does not record a notice of completion or notice of cessation; or (ii) 30 days after the owner records a notice of completion or notice of cessation.
- Description and Delivery:
The mechanic’s lien must contain a precise description of the property, a statement of the work performed or materials supplied, the amount owed, and the claimant’s (and lender’s, if applicable) name and address. The mechanic’s lien must be verified and served on the property owner, general contractor, and construction lender within the time parameters discussed above.
- Enforcing the Mechanic’s Lien:
A claimant enforces a mechanic’s lien by filing a complaint to foreclose the mechanic’s lien within 90 days after the claimant recorded its mechanic’s lien. If the claimant fails to timely commence an action to enforce the lien, the mechanic’s lien expires by operation of law and is unenforceable. However, before the filing period expires, the claimant and the property owner may agree to extend the filing period by executing an extension of credit agreement. An action to foreclose the mechanic’s lien requires the claimant to strictly comply with filing and recording requirements. If the claimant succeeds in the lawsuit, the court may order the foreclosure of the mechanic’s lien. Foreclosure involves selling the property to satisfy the outstanding debt owed to the claimant.
- Release of Mechanic’s Lien:
Once the claimant receives payment for the work performed or materials supplied, they should release the mechanic’s lien by filing a Release of Mechanic’s Lien with the county recorder’s office. This action clears the encumbrance on the property.
California mechanic’s lien law and procedure play a crucial role in safeguarding the interests of contractors, subcontractors, suppliers, and laborers in construction projects. By following the prescribed requirements and procedural steps, eligible parties can secure their right to payment and protect themselves from non-payment or unfair practices. It is essential for construction professionals to consult with experienced construction attorneys when faced with a payment dispute that may require recording and enforcing a mechanic’s lien.