Special Advisory: New Mechanics Lien Act in California

[authors: Edward Lozowicki and Scott Vignos]

In 2010, the California Legislature enacted Senate Bill ("SB") 189 to reorganize and simplify the laws governing works of improvement. The bill completely re-writes the statutes which provide for mechanics liens, stop notices and certain construction bonds. These revisions took effect on July 1, 2012. In addition to this reorganization, some substantive changes to the laws governing mechanics' liens, construction bonds, and stop notices were made. As a result, all of the forms commonly used in the industry, such as the 20-Day Preliminary Notice, Notice of Completion, and Progress/Retention Payment Releases must be changed.

Case law interpreting the previous construction remedy laws is intended to survive. Legislative history accompanying SB 189 provides that cases construing provisions of the former statutes that are continued and restated in the new statutes will remain in force. However, SB 189 also made several substantive changes to the construction remedy laws that are essential to understand. The most notable of these changes include:

New Definitions and Terminology

The new portions of the Civil Code governing works of improvement now contain a distinct and separate definitions section. Civil Code section 8000 et seq. provides operative definitions applying to the works of improvement statutes, generally. Included are definitions for common terms previously omitted from the statutes like "contract price" and "admitted surety insurer." The definition of "design professional" was also expanded to include licensed landscape architects, who by their inclusion, will now be entitled to record mechanics' liens. The new statutes also recast several definitions. The term "direct contractor" replaces the term "original contractor" as used in the previous statutes and also encompasses the term "prime contractor." Additionally, "stop notices" are now known as "stop payment notices" to more accurately describe their function.

New Notice Section

Perhaps the most important addition to the new construction remedy statutes are the standardized notice provisions governing all works of improvement. Civil Code section 8100 et seq. provides standardized rules for the contents of notice, acceptable manners of giving notice, and sufficient methods of proving notice has been given. Due to their broad application, many of the standard notice-type forms used by contractors and owners should be changed to comply with the new Act.

The new statutes also describe proof sufficient to demonstrate notice was given, a frequent point of disagreement among parties. If notice was given in person, Civil Code section 8118 provides for a "proof of notice declaration" as sufficient proof. If notice was given by mail, the statute provides for several acceptable forms of documentary proof.

New Preliminary Notice Section

SB 189 also created a separate preliminary notice section governing private works of improvement. While largely consolidating the previous preliminary notice requirements from the old statutes, Civil Code section 8200 now requires that a claimant with a direct contractual relationship with an owner (including prime contractors) must provide preliminary notice but only to the construction lender. The new provisions also note that only "laborers," as defined in Civil Code section 8024, are not required to provide preliminary notice in order to enforce a mechanics' lien.

Changes Regarding Completion

The various components of the existing mechanics' liens statutes governing completion of private works projects have been consolidated and simplified within the new statutes. While largely unaltered in substance, several changes are important to note. Civil Code section 8180 deletes "acceptance by the owner" as an acceptable form of completion that previously existed in Civil Code section 3086. Civil Code section 8182 also lengthens the period of time in which an owner must record a notice of completion from 10 to 15 days.

Changes to Mechanics' Liens Procedures

In reorganizing the rules related to mechanics' liens, the drafters of SB 189 were focused primarily on simplifying the prior version of the statutes. As a result, the substance of new Civil Code section 8400 et seq. will be largely familiar to practitioners. However, several changes are noteworthy.

Civil Code section 8416 makes an adjustment to the required contents of a mechanic's lien claim, providing that the claim must now include the claimant's address. Further, Civil Code section 8424 now requires a release bond be in the amount of 125% of the claim of lien, where previously 150% of the amount was required.

Release of Lien Changes

Many of SB 189's changes to the mechanic's liens statutes concern procedures for the release of liens. Civil Code sections 8480 though 8488 now govern the summary court procedure for release of expired liens. Pursuant to Civil Code section 8482, an owner must demand that a claimant release its lien at least 10 days before filing a petition to release his or her property after the expiration of the 90 day period to file an enforcement action. Previously, no demand was necessary. Civil Code section 8488 also makes burden of proof and production assignments within the summary procedure where previously these burdens were unarticulated.

Tips

Sheppard Mullin has published a new edition of its Mechanics' Liens, Stop Notices and Payment Bonds book incorporating these statutory changes, as well as recent case law, to provide lawyers, owners, and contractors the most current overview of laws affecting their day-to-day operations. To purchase a copy ($65), contact Megan Bennett, E-mail: mbennett@sheppardmullin.com.

The new Mechanics Lien Act changes all of the forms used by Owners and Contractors as of July 1, 2012. Members of the industry are cautioned to replace their old forms with new forms that comply with the new Mechanics Lien Act.

Authors: Edward Lozowicki is a partner in Sheppard Mullin's San Francisco office and specializes in construction and energy law. Scott Vignos is an associate in that office and member of the Firm's Construction Industry Team.

 

Published In: Administrative Agency Updates, Civil Remedies Updates, General Business Updates, Construction Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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