California Mechanic’s Lien–New Rules for Preliminary 20-Day Notices
In California, it is not simply a case of recording a mechanic’s lien without taking any other steps in between. In many cases, especially as to subs and suppliers, there is also the requirement of a preliminary 20-day notice. In the past, it was very simple as to these rules: regardless of your license status, if you did not have a direct contract with the owner, you are required to serve this pre-lien notice. But because of the confusion of late, here are some of the updated rules.
No Notice is required if you are performing labor for wages only. For example, this would apply to one of your crew members who is paid an hourly rate with payroll deductions. If you are performing labor but not for wages (for example, a lump sum contract or T&M/cost plus), you must serve the Notice. For example, a company that supplies a backhoe and an operator under a lump sum contract price is not supplying labor for wages.
It is grounds for discipline with the California Contractors’ State License Board if you do not serve the Notice on contracts exceeding $400. However, it would be rare if discipline were imposed for this reason only. in the experience of National Lien Law, they have never seen enforcement of this provision.
Because of the confusion in this area, the following examples may be helpful:
A) A licensed general does framing work only (no other services) through a contract with the prime contractor who has contracted to do the whole project. The pre-lien notice would not be required.
B) The owner acts as his/her own general or owner/developer and signs separate contracts with various subcontractors and generals. Since everyone has a direct contract with the owner, whether licensed as a general or subcontractor, no Notice is required. This is because there would be direct privity of contract with the owner.
C) A licensed general has a contract with another general (who acts as the prime) to perform specialty plumbing and HVAC work. A Notice is required.
D) A licensed general, does all the work on the project as the prime contractor, but has a contract only with the architect and engineer and not the owner. A Notice is required. Be careful if you have a contract directly with the owner’s agent, such as a project manager or architect. Although one could argue that you have a contract with the owner because it is through his/her agent, this is a gray area and to be safe you should serve the Notice.
E) Either a general or subcontractor has a direct contract with XYZ company, but it is not entirely certain whether this is a general partnership, limited partnership, corporation, or otherwise. There is even more confusion as to whether or not this company, which might be a corporation, is also a managing general partner of another larger entity who actually owns the property. If there are any doubts, always serve the Notice on all applicable entities or persons.
F) A licensed subcontractor has a direct contract with the owner. The
owner is acting as an owner-builder and there is no prime contractor on the job. The Notice is required but it is only served on the construction lender, if any.
G) Your contracts with the “owner” are through an individual who holds himself/herself out as the owner. But you also suspect he/she is merely the agent or officer of another company who actually holds title.
If you have any questions as to this tricky area, feel free to call National Lien Law for a free consultation.