Sweeping Changes To Mechanic's Lien Laws

(Effective July 1, 2012)

By Joseph M. Sweeney, Esq., Christopher J. Olson, Esq.,

Kristen E. Green, Esq. and Dana R. Corey, Esq.


In September 2010, Governor Brown signed into law SB 189, which made numerous changes to California’s existing mechanic’s lien laws. In addition to the changes to the mechanic’s lien form (effective January 1, 2011), the California Legislature authorized a mass overhaul of the existing statutes regarding public and private works of improvement. These changes were enacted with the intent to modernize, simplify and clarify the law so as to make it more user friendly and efficient for claimants. The changes affect the California Civil Code by repealing the current code sections and codifying an entirely new body of sections. The new Civil Code Sections become effective July 1, 2012.

While many of the changes simply renumber and reorganize the existing laws, there have been substantive changes. Following is a summary of the significant changes to existing statutes:

Forms - Generally, all forms will need to be updated to reference new code sections and terminology. In addition, several forms have been modified by the new statutes, including:

Waiver and Releases – The conditional and unconditional forms on progress and final payment which were formerly codified in Civil Code §3262 have been overhauled. Civil Code §8132 sets forth the new mandatory release and waiver forms.

Preliminary Notice –The “preliminary notice” is no longer referred to as a “20-Day Preliminary Notice.” Under the new statutes it is referred to as a “Preliminary Notice.” The new statutes consolidate the requirements of preliminary notices for both public and private works of improvement in the same code sections as opposed to the previous separate statutes and change the statutory language of the required “Notice to Property Owner.” Additionally, the new statutes clarify that a contractor in direct contract with an owner must provide the construction lender or reputed construction lender with a Preliminary Notice.

Definitions - The 2012 code changes create several new definitions and make substantive changes to certain current definitions.

New Definitions

Contractor – Includes a contractor, subcontractor or both.

Direct Contractor – A contractor that has a direct contractual relationship with the owner. The new code also provides that any other statutory references to “prime contractor” shall mean a direct contractor.

Direct Contract – A contract between an owner and a direct contractor that provides for all or part of a work of improvement. Note: this would include a specialty contractor only performing a portion of the work of improvement.

Substantive Changes to Existing Definitions

Contract - Originally, the term contract was limited to an agreement between the owner and any original contractor performing on the work or improvement or any portion thereof. The new code section expands the definition to “an agreement that provides for all or part of a work of improvement” and includes subcontract agreements.

Work of Improvement - The term “work of improvement” has been expanded to include demolition and removal. The new definition refers to “real property” as opposed to the prior reference to “any lot or tract of land.” The definition now provides that “work of improvement” means the entire structure or scheme of improvement as a whole, including site work, except when otherwise provided for in the statutes.

Material Suppliers – In an effort to clarify terms “Materialmen” will be referred to as “Material Suppliers.”

Stop Notice Payment - “Stop Notice” will be referred to as “Stop Payment Notice.”

Completion – Under the new statutes, “acceptance by owner” is no longer the equivalent of completion for private works of improvement. “Completion” shall continue to mean “actual completion,” occupation or use by owner accompanied by a cessation of labor, a cessation of labor for 60 continuous days or a recorded notice of cessation following a cessation of labor for 30 days. In regards to a public work of improvement, completion may continue to be achieved by the public entity’s acceptance of the project.

Notices of Completion

One of the most significant changes allows owners working with multiple direct contractors, to record a separate Notice of Completion with respect to each direct contractor’s scope of work. This change has the potential to drastically affect claimants’ time periods relating to mechanic’s liens, stop notices and payment bond claims.

An owner of either a public or private work of improvement will be entitled to record a notice of completion within 15 days following actual completion. The current law requires the Notice be filed within 10 days.

Petitions to Expunge Stale Liens

The new lien law removes the $2,000 cap on attorneys’ fees and costs recoverable in a petition to expunge a “stale” mechanic’s lien against real property. The prevailing party will now be entitled to “reasonable” attorneys’ fees and costs.

SMWB will be offering seminars on the new lien laws and forms. If you are interested in attending a seminar, please contact Joseph Sweeney, Christopher Olson, Dana Corey or Kristen Green.

 

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