Summary of Changes to California’s Mechanics’ Lien Law – Effective July 1, 2012

by Snell & Wilmer

Effective as of July 1, 2012, the existing statutes governing California’s mechanics’ lien law, including stop notices and payment bonds, will be repealed and replaced with entirely new statutes. The Legislature has portrayed the new law as a largely non-substantive reorganization of existing law, and in most respects this portrayal is accurate. However, there are many notable changes that contractors, owners, lenders and design professionals should familiarize themselves with to avoid potential pitfalls.

The following is a brief summary of some of the significant changes to California’s mechanics' lien law that will take effect on July 1, 2012:

  • Certain long-standing terminology will change under the new law. A “stop notice” will become a “stop payment notice.”  An “original contractor” will be renamed a “direct contractor.”  A “materialman” will be called a “material supplier.” 
  • If an owner files a lawsuit to expunge a lien that has not been timely acted upon by the lien claimant, the attorneys’ fees the owner can recover are no longer capped at $2,000. Under the new law, the prevailing owner is entitled to recover all of its reasonable attorneys’ fees in connection with the action to expunge.
  • Lien release bonds are reduced from 150 percent to 125 percent of the lien amount under the new law, making it more affordable to bond around a lien.
  • The new law requires the use of revised conditional and unconditional waiver/release forms for both progress payments and final payment (note that the mechanics’ lien form itself was previously modified in January 2011).
  • The definition of “completion”—which starts the time to record a mechanics’ lien, file a stop notice and make a bond claim—has been modified. Of significance, completion will no longer include acceptance by a private owner.
  • The deadline for an owner to record a notice of completion is extended under the new law from 10 days to 15 days after completion of the project.
  • Where a work of improvement is done pursuant to separate direct contracts with the owner, the owner may record separate notices of completion for each scope of work set forth in each direct contract.
  • The new law changes the language required in a “preliminary notice” (previously called a “preliminary 20-day notice”). In addition, the new law clarifies that contractors in direct contract with the owner are required to give a “preliminary notice” only to the construction lender or reputed construction lender, if any.
  • The new law requires owners to provide all entities who served it with a preliminary notice of the name and address of any construction lender who made a post-commencement construction loan for the project.
  • Existing design professional lien laws have been repealed, and design professional liens will be part of the mechanics’ lien law. Landscape architects will also be added as protected design professionals under the new law and be able to record mechanics’ liens.   

Now is the time for contractors, owners, lenders and design professionals to familiarize themselves with the new law and to update their contracts and forms accordingly.

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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