Step-By-Step Guide to Getting Paid (West Coast) - California Webinar

In this webinar, presented by SunRay Construction Solutions, and legal expert William Porter, Founder & President, Poter Law Group Inc., we’ll dive deep into each of these mechanisms, providing step-by-step guidance on how to use these legal tools effectively.

California construction law provides several legal tools to help ensure that you receive compensation for your work. These include:

• The Preliminary Notice

• The Mechanics Lien

• The Stop Payment Notice

• The Payment Bond Claim

We will look at each of them to understand their purpose, and how to use them effectively.

The Importance of the Preliminary Notice

The Preliminary Notice is a critical first step in securing your payment rights. Subject to a few exceptions, serving this notice is required before you can file a Mechanics Lien, Stop Payment Notice, or Payment Bond Claim. Failing to serve this notice correctly and within the deadline may result in losing your right to pursue these legal remedies.

Who Needs to Serve a Preliminary Notice?

If you are a subcontractor or material supplier (at any level), you must serve a Preliminary Notice. However, if you supply materials to another material supplier, you generally cannot file a mechanics lien or use related legal remedies.

Who Should Receive the Notice?

You must serve the Preliminary Notice to:

• The Property Owner

• The Direct Contractor

• The Construction Lender (if applicable)

When and How to Serve the Preliminary Notice

The Preliminary Notice must be served within 20 days of starting work or supplying materials. While it can be sent earlier (e.g., upon signing a contract), it should never be sent later than the 20-day deadline.

Methods of Serving the Preliminary Notice:

• Certified Mail with Return Receipt Requested

• Registered Mail

• Express Mail or Overnight Delivery (FedEx, UPS, etc.)

Before sending the notice, always make a copy of your records. Attach proof of delivery (such as a certified mail receipt) to this copy. Proper documentation is essential in case of a dispute.

How to Use the Mechanics Lien in California

A Mechanics Lien is one of the most effective tools for securing payment in the construction industry. By filing a lien, you place a legal claim on the property where the work was performed. If payment is not made, you may have the right to force the sale of the property to recover what is owed.

How Does a Mechanics Lien Work

When you record a Mechanics Lien, it attaches the debt to the property itself. This means that even if the property is sold, the lien remains unless it is settled.

Where to File a Mechanics Lien

The lien must be filed at the County Recorder’s Office where the project is located. Some counties, like Los Angeles, may have multiple recording offices. In cities like San Francisco, including the Assessor’s Parcel Number (APN) is necessary for processing.

When to File a Mechanics Lien

The filing deadline depends on whether a Notice of Completion or Notice of Cessation has been recorded:

• If a Notice of Completion or Notice of Cessation is recorded:

• Direct contractors have 60 days to file a lien.

• Subcontractors and suppliers have 30 days to file.

• If no notice is recorded:

• All parties have 90 days from actual project completion to file.

Filing your Mechanics Lien early ensures you don’t miss the deadline and risk losing your right to recover payment.

What Is the Stop Payment Notice

A Stop Payment Notice is another legal tool that helps ensure payment. This notice requires the property owner or lender to withhold funds from the general contractor, effectively freezing the money owed to you.

Deadlines for Serving a Stop Payment Notice

• If a Notice of Completion or Cessation is recorded: You have 30 days to serve the notice.

• If no notice is recorded: You have 90 days from project completion.

How to Serve a Stop Payment Notice

• Step 1 - Send via registered mail, certified mail, or express delivery.

• Step 2 - If the project has a construction lender, a bonded Stop Payment Notice is required.

• Step 3 - If no lender is involved, serve the notice to the property owner.

A Stop Payment Notice can be used alongside a Mechanics Lien and a Payment Bond Claim to maximize the chances of securing payment.

The Payment Bond Claim: Essential for Public and Some Private Projects

Public works projects typically require a Payment Bond to ensure subcontractors and suppliers get paid. Some large private projects also include payment bonds.

How to File a Payment Bond Claim

• Step 1 - Serve the Payment Bond Claim within 15 days of a recorded Notice of Completion.

• Step 2 - If no Notice of Completion exists, serve the claim within 75 days of actual completion.

• Step 3 - Send claims to both the surety company and the bond principal (usually the direct contractor).

Lawsuit Deadline for Payment Bond Claims

The deadline to file a lawsuit for a Payment Bond Claim is six months from project completion, making it the longest deadline among the remedies discussed.

Final Thoughts

Getting paid in the California construction industry requires knowledge and proactive action. By leveraging the Preliminary Notice, Mechanics Lien, Stop Payment Notice, and Payment Bond Claim, you can protect your financial interests and ensure fair compensation. Stay vigilant, meet deadlines, and document everything to secure your rightful payments. By following these steps, you can minimize financial risks and keep your construction business thriving.

Common Questions Contractors Ask

1. As a General Contractor (GC), am I required to send a preliminary notice?

No, a GC is generally not required to send a preliminary notice. However, if there is a lender involved in the project, then the GC must serve a preliminary notice to the lender.

2. Are there any exceptions that extend the 20-day period to send a preliminary notice?

• Not exactly, but there is a key consideration. If you miss the 20-day deadline but send the preliminary notice within 30 days, the notice is still valid. However, its effective date will go back only 20 days from the mailing date. This means any work or materials provided in the first 10 days before sending the notice would not be covered.

• In long-term projects, this delay may not significantly impact payment, as early invoices are often settled before payment issues arise later in the project.

3. Who is required to send the Notice of Completion?

Typically, the property owner files the Notice of Completion. However, the GC can also file it as an agent for the owner.

4. What is the benefit of a GC recording a Notice of Completion?

• Recording a Notice of Completion shortens the timeframe for subcontractors and suppliers to file a mechanics lien, stop payment notice, or payment bond claim.

• If filed and properly served, it reduces the lien filing period from 90 days to 30 days.

• This benefits the GC and owner by expediting payments and reducing the risk of unexpected claims later in the project.

• It may also cause subcontractors and suppliers to miss deadlines, reducing the chances of liens being filed against the property.

5. What happens if a Notice of Completion is not recorded?

• If a Notice of Completion is not recorded, claimants have 90 days from project completion to file a lien, instead of just 30 days.

• This could delay payments to the GC, as owners may prefer to wait until the 90-day period expires before making final payments.

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