California’s constitution assures contractors and suppliers that they will be paid for their contributions to real property (Cal. Const. Art XIV, § 3). However, the details are left to the state legislature. That has resulted in a constant tug-of-war among owners, contractors, subcontractors, suppliers, and lenders that twists and turns the mechanics lien laws; those statutes are continually made more and more complex.

Today, they have numerous and confusing time limits for various actions required of contractors. The penalty for missing one of those deadlines could be severe: A contractor’s right to pursue a mechanics lien, stop payment notice or bond claim could be completely lost. The same obtains for other contractor rights.

Here are the critical time deadlines on private works projects, in the laws governing mechanics liens, stop payment notices, bond claims, sub-bidder promissory estoppel and supplier bid confirmations, work suspensions for lack of security, and stop work notices for nonpayment of undisputed amounts.

Definitions of Key Terms on Private Works

Work of Improvement: Construction, alteration, repair or demolition of, or on, any building or other structure, ditch, well, tunnel, road or landscaping, or the change in the grade of any land (Civ. Code § 8050). In other words, a construction project.

Direct Contractor or Prime Contractor: A contractor who has a direct contractual relationship with an owner; since 2012, the the contract has been a Direct Contract (Civ. Code § 8016) and the contractor a Direct Contractor (Civ. Code § 8018).

Subcontractor: All contractors who do not have a direct contractual relationship with an owner (Civ. Code § 8046).

Private Work: A work of improvement contracted for by an owner who is not a public entity (Civ. Code §§ 8036, 8160 & 9000). Beware of private corporations that look like public agencies, e.g., various utilities.

Completion of a Private Work: Completion of a private work is usually the date when the first of these events occurs (Civ. Code § 8180(a)):

(1) The work of improvement is actually completed;

(2) The work of improvement is occupied and used by the owner and there is a cessation of labor;

(3) There has been a cessation of labor for 60 continuous days; or

(4) A notice of cessation of labor is recorded, but only if there had been a cessation of labor for 30 continuous days before it was recorded.

Completion is a fact question, neither substantial completion nor receipt of a certificate of occupancy qualifies, and, depending upon the nature of a multi-unit project, it can be by unit or for the entire project (Picerne Construction Corp. v. Castellino Villas (2016) 244 CA4th 1201, 199 CR3d 257). If the private work must be “accepted” by a public entity (e.g., a storm drain in a new subdivision that is being installed by the developer, but which must be “accepted” by the public agency that will take over its operation), then the work is not complete until the acceptance by the public agency (Civ. Code § 8180(b)). These definitions of completion impact deadlines for private works mechanics liens, stop payment notices and bond claims.

Sub-bidder Promissory Estoppel & Supplier Bid Confirmations

A subcontractor must honor its bid (a) if the prime contractor relied on that bid in preparing its own bid to the owner and (b) if the prime contractor accepts the subcontractor’s bid within a reasonable time (Drennan v Star Paving Co. (1958) 51 C2d 409, 413-15, 33 P2d 757). The same rule does not govern supplier’s bids. Instead, the following procedures apply:

Oral bid under $2,500: Does not have to be confirmed by the contractor. Supplier is held to the bid for 90 days, or 10 days after award of the contract, whichever occurs first (Com. Code § 2205).

Oral bid over $2,500: Confirm supplier’s bid in writing within 48 hours of receipt of the bid (not 48 hours of the bid opening), in order to hold the supplier to that bid for 90 days, or 10 days after award of the contract, whichever occurs first (Com. Code § 2205).

Written bid: Does not have to be confirmed by the contractor. Supplier is held to the bid for 90 days, or 10 days after award of the contract, whichever occurs first – unless the bid specifies a different expiration date for the bid (Com. Code § 2205).

Private Work Preliminary Notice

Private Work Preliminary Notice (Civ. Code § 8034(a)): All subcontractors (Civ. Code § 8046), material suppliers (Civ. Code § 8028), design professionals (Civ. Code §§ 8014 and 8300), and providers of services or equipment (Civ. Code §§ 8004, 8022, 8048, 8400, 8520), but not laborers (Civ. Code § 8200(e)(1)), must deliver a preliminary notice, or send it by certified mail, express mail, or overnight delivery by an express service carrier (Civ. Code §§ 8106 and 8110, but see Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. (2016) 244 CA4th 855, 198 CR3d 335), to the reputed direct (prime) contractor, the reputed owner and the reputed construction lender. All direct contractors must give a preliminary notice to the reputed construction lender, but not to the owner, to preserve their mechanics lien and bond claim rights (Civ. Code §§ 8200(c),(d) and (e)(2) 8410 and 8612(a)).

Except for design professionals, the notice is to be given within 20 days after the first labor, services, equipment or materials are furnished to the jobsite. If the notice is late, it only covers labor, services, equipment or materials furnished during the 20 days before the notice was given and any furnished after it was given (Civ. Code § 8204(a)). Design professionals must give the notice within 20 days after commencement of work (Civ. Code §8204(b)). A notice that contains an accurate general description of the labor, services, equipment and materials provided through the date of the notice will cover everything provided after the notice, even if that general description fails to describe everything subsequently provided (Civ. Code § 8206(b)).

If the notice is not given, no stop payment notices nor mechanics liens are enforceable (Civ. Code §§ 8410 and 8508(a)). Failure to give the notice also bars any claim against a payment bond, unless the alternative procedure described under Payment Bond Claim Notice, below, is followed (Civ. Code § 8612(a)).

Private Work Payment Bond Claim Notice

Private Work: If a timely Preliminary Notice is given, no other notice is required. If a Preliminary Notice is not given, then the subcontractor or supplier must deliver a payment bond claim notice, or send it by certified mail, express mail, or overnight delivery by an express service carrier (Civ. Code §§ 8106, 8110 and 8614, but see Hub Construction Specialties, Inc. v. Esperanza Charities, Inc. (2016) 244 CA4th 855, 198 CR3d 335), to the payment bond surety and principal (usually the prime contractor, but can be the owner) within 15 days after a Notice of Completion was recorded, and if none was recorded, then within 75 days after completion of the project (Civ. Code § 8612(b)). An attempt has been made to prevent a subcontractor or supplier to a subcontractor (i.e., 2d tier subcontractor or supplier) from using the payment bond claim notice to preserve its payment bond claim when the 1st tier subcontractor received all of the progress payments to which it was entitled (Civ. Code. § 8612(c) and (d)). The language in the statute is hopelessly ambiguous and confusing. However, 2d tier subcontractors and suppliers should give preliminary notices to avoid losing their right to pursue a payment bond claim.

Work Suspension For Failure To Provide Payment Security

Upon demand of the direct contractor, the owner (except certain publicly traded companies and qualified private companies) of a fee interest in private property who enters into a contract greater than $5,000,000, or of less than a fee interest who enters into a contract greater than $1,000,000, for a work of improvement on the property (other than a single-family residence or certain housing developments) shall provide and maintain security for the owner’s payment obligations under the contract, e.g., a bond, irrevocable letter of credit or escrow account. If the owner fails to provide or maintain the security within 10 days after notice demanding it, the direct contractor may suspend the work until the security is provided. (Civ. Code §§ 8700 et seq.)

Stop Work Notice (for Nonpayment of Amount Due)

If there is no dispute about performance, a direct contractor who is not paid an amount due under a written private work contract, within 35 days of the payment due date, may post a notice of intent to give a stop work notice, with copies to all 1st tier subcontractors, and 5 days later can give the owner a stop work notice, and cease work until the payment issue is resolved, without any liability for delay in completion of the project (Civ. Code §8830 et seq.).

Mechanics Lien

A mechanics lien must be recorded within a specified window of time (Howard S. Wright Construction v. BBIC Investors, LLC (2006) 136 CA4th 228, 38 CR3d 769). A lien recorded before the claimant has ceased furnishing labor, services, equipment or materials to the project is likely to be found to be premature.

Notice and Proof of Service: No lien is enforceable unless it includes (1) the statutory “Notice of Mechanics Lien” and (2) a “proof of service affidavit” showing that both the lien and the notice were served on the reputed owner by certified mail, or first-class mail (evidenced by a certificate of mailing), postage prepaid, addressed to the reputed owner of the property at his/her residence, place of business, address on the building permit or address on the recorded construction trust deed (Civ. Code § 8416).

Direct (Prime) Contractor: Record lien “after the contractor completes the direct contract” and either (1) before 60 days after a Notice of Completion or Notice of Cessation was recorded or (2) before 90 days after Completion of the Private Work (Civ. Code § 8412). If the owner of a project (other than the owner’s personal residence in a building with four or fewer residential units) fails to deliver a copy of the Notice of Completion or Notice of Cessation, or send it by certified mail, express mail, or overnight delivery by an express service carrier, to the direct contractor within 10 days after it is recorded, then the time is extended to before 90 days after the notice was recorded (Civ. Code §§ 8106, 8110 and 8190).

Subcontractor and Supplier: Record lien “after the claimant ceases to provide work” and either (1) before 30 days after the Notice of Completion or Notice of Cessation is recorded or (2) before 90 days after Completion of the Private Work (Civ. Code § 8414). If the subcontractor/supplier gave the owner a Preliminary Notice, and the project is not the owner’s personal residence in a building with four or fewer residential units, and the owner fails to deliver a copy of the Notice of Completion or Notice of Cessation, or send it by certified mail, express mail, or overnight delivery by an express service carrier, to the subcontractor/supplier within 10 days after it is recorded, then the time is extended to before 90 days after the notice was recorded (Civ. Code §§ 8106, 8110 and 8190).

Design Professional: The special design professional lien right exists between the time the building permit or other governmental approval is obtained and the time that construction work commences (Civ. Code §§ 8302 and 8304). The lien expires when either (1) construction starts or (2) 90 days after the lien was recorded (Civ. Code § 8306); however, it can be converted into a mechanics lien under certain circumstances (Civ. Code § 8319). Once construction commences, the design professional has the same rights to a mechanics lien as anyone else who provided services to the project (Civ. Code §§ 8310, 8314 and 8400).

Stop Payment Notice on Private Work

Deadlines exist for service of stop payment notices and bonded stop payment notices; they do not have to be served in a window of time as with mechanics liens.

A reduction or release of a stop payment notice “does not preclude the claimant from giving a subsequent stop payment notice that is timely and proper” (Civ. Code § 8128(c)(3)) However, a stop payment notice is only effective against money still in the possession of the owner at the time the stop payment notice is served.

Private Work – Prime Contractor: Deliver stop payment notice to the construction lender not later than either (1) 60 days after a Notice of Completion or Notice of Cessation was recorded or (2) 90 days after Completion of the Private Work (Civ. Code §§ 8412 and 8508). If the stop payment notice is not accompanied by a bond in 125% of the amount of the claim, the construction lender – but not the owner –can elect to ignore it (Civ. Code § 8536).

Private Work – Subcontractor or Supplier: Deliver stop payment notice to the owner or construction lender not later than either (1) 30 days after the Notice of Completion or Notice of Cessation is recorded or (2) 90 days after Completion of the Private Work (Civ. Code §§ 8414 and 8508). If the stop payment notice is not accompanied by a bond in 125% of the amount of the claim, or if a payment bond was recorded before the first stop payment notice was delivered to the construction lender, then the construction lender can elect to ignore the stop payment notice (Civ. Code § 8536).

Lawsuit

Warning: An attorney usually needs a few days to get the legal papers together. So, he or she cannot be consulted for the first time on the day before the lawsuit must be filed.

Mechanics Lien: File lawsuit within 90 days after the lien is recorded (Civ. Code § 8460). Within 20 days of filing the lawsuit, record a notice of pendency of the lawsuit; only from the date of that recordation will a purchase or encumbrancer have constructive notice of the lawsuit (Civ. Code § 8461).

Mechanics Lien Release Bond: File lawsuit within 6 months of the date that notice of recording the bond, with a copy of the bond, was delivered, or sent by certified mail, express mail, or overnight delivery by an express service carrier, to the lien claimant (Civ. Code §§ 8106, 8110 and 8424(d)).

Private Work Stop Payment Notice – by a Prime Contractor: File lawsuit within 90 days after expiration of either (1) 60 days after a Notice of Completion or Notice of Cessation was recorded or (2) 90 days after Completion of the Private Work (Civ. Code §§ 8412, 8508 and 8550). Within 5 days after the action is filed, deliver, or send by certified mail, express mail, or overnight delivery by an express service carrier, notice of commencement of the action to the persons to whom the stop payment notice was given (Civ. Code § 8550).

Private Work Stop Payment Notice – By a Subcontractor/Supplier: File lawsuit within 90 days after expiration of either (1) 30 days after the Notice of Completion or Notice of Cessation is recorded or (2) 90 days after Completion of the Private Work (Civ. Code §§ 8414, 8508 an 8550). If the lawsuit is not timely filed, “the notice ceases to be effective and the person withholding funds . . . shall release them” (Civ. Code § 8550). Within 5 days after the action is filed, deliver, or send by certified mail, express mail, or overnight delivery by an express service carrier, notice of commencement of the action to the persons to whom the stop payment notice was given (Civ. Code § 8550).

Private Work Payment Bond: File lawsuit within 6 months after completion of the project, though longer statute of limitations may apply in some circumstances (Civ. Code §§ 8609 and 8610).

By Bernard S. Kamine, ECA Legal Counsel Emeritus