2012 CHANGES TO CALIFORNIA MECHANICS LIEN LAWS

The article below was provided to me by Scott Levitt at Levitt Law. You can find more information on Levitt Law at http://www.levittlawca.com/.

Effective July 1, 2012 the State of California has created new code sections which cover the lien laws and other related items (stop-notice, bonds, foreclosures, etc.).  The major change is that the Code numbers have been moved from the 3000’s to the 8000’s and 9000’s.  It will take some time for most people to begin referencing the new codes.  However, such must be done as there is no “grace period” for citing old codes.

The actual verbiage of many of the codes has been changed.  Below are the pertinent changes that your company should be aware of.  Please contact Levitt Law, APC for further information regarding these changes to the California mechanics lien laws.

Definition of Completion. The deadline for recording a mechanics lien is generally triggered by the "completion" of a work of improvement.  Under current law, acceptance by the owner is one of the criteria deemed to constitute "completion".   Under new §8180, such is no longer the case.  Each of the following constitute "completion": (1) actual completion of all work on the project, (2) occupation or use coupled with cessation of labor, (3) a cessation of labor for 60 continuous days or (4) for 30 days after recording of a notice of cessation).   Acceptance by a public entity remains unchanged.

Time for Recording Notice of Completion. Under the current law, owners have to record notices of completion within 10 days after actual completion of the project. Under the new law (§8182), that time period is extended to 15 days.

Preliminary Notice. Under existing law, the "Preliminary 20-Day Notice" must be served by most types of lien claimants (not the general contractor) at the outset of their work.  Under the new law, this notice is referred to simply as a "Preliminary Notice” and the required language for the Preliminary Notice has been changed (contact Levitt Law for further information). 

Also, §8200 clearly states that contractors in direct contract with the project owner (GC’s) need only provide a Preliminary Notice to construction lenders, if any.

Waiver and Release of Lien Rights. In order to ensure that a "downstream" subcontractor has validly released its right to assert lien, stop notice, or payment bond rights, the law requires that specific waiver and release language be used. Under the new law (§§8132, et seq.), the required language has been changed slightly; one should be careful to utilize the current form as of July 1, 2012 (contact Levitt Law for further information).

The form utilized for progress payments (as opposed to final payment) does not cover certain disputed or extra work items, or claims based on breach of contract, so “upstream” parties may want to supplement the statutory form with additional releases.

Release Bond. Under the new law (§8424), the amount of the bond required to release property from a lien has been reduced from 150 percent to 125 percent of the lien amount.

Separate Notices of Completion Permitted (Private Works) §8186(a).  In projects where the scope of work is being performed under separate direct contracts with the owner, the owner can now record separate notices of completion upon completion of the scope of work under each separate contract.

Design Professionals’ Liens Can Now Be Converted Into Mechanic’s Liens §8319.  Under existing law, design professional liens were extinguished upon commencement of work. After July 1, 2012, design professionals have the added protection of being allowed to convert their design professional liens into a mechanic’s liens.

Construction Contracts: Space Provided For Identification of Lender §8170(b).  Construction contracts after July 1, 2012, must provide a space for the owner to identify any construction lender.  This requirement does not apply to home improvement contracts or pool contracts.  Also, this section does not relieve a contractor from the service of preliminary notice requirements.  If a construction lender is not identified in the contract, a contractor as part of its due diligence should conduct a search of the county clerk records to identify any undisclosed construction lenders and serve them with the required Preliminary 20-day Notice prior to commencement of work.  For subcontractors, §8202 requires direct contractors to make owner and construction lender information available to subcontractors seeking this information for their Preliminary Notices.

Terminology Updates. The term “stop notice” has been replaced with “stop payment notice.” (§8044).   The term “original contractor” has been replaced with “direct contractor” (§8018).

Errors In A Claim Of Lien Will Not Invalidate The Lien §8422(a)(b).  This new Section codifies existing case law that holds that errors in a claim of lien (i.e., errors in a claimant’s demand, credits, and offsets deducted; the work provided; or the description of the site) do not invalidate the lien.  However, such errors will render the lien invalid if a court determines that: (1) the claim of lien was made with the intent to defraud or slander title; or (2) an innocent third party, without notice, actual or constructive, became the bona fide owner of the property after recordation of the claim of lien, and the claim of lien was so deficient that it did not put the party on further inquiry in any manner.

Attorney's  Fees on Petition to Expunge Lien. The new law removes the current $2,000 limit on the amount of attorney's fees that are recoverable on petitions to expunge stale liens; under the new law, all "reasonable" fees will be recoverable to the prevailing party.  The new law also requires that an owner first make a demand that the lien claimant withdraw the lien at least 10 days before initiating a petition to expunge.