As many of you may already know, effective July 1, 2012, California has completely revamped its statutory scheme associated with construction remedies (mechanic's liens, bonds, stop notices, preliminary notices, releases, etc.). The new statutory scheme works in basically the same way as the old statutory structure, but owners, contractors, subcontractors, and material suppliers should be aware of some key substantive changes.
- Revised Forms — One of the most practical changes to the code is that the forms you have used for years must be revised. Release forms and preliminary 20-day notice (now just "preliminary notice") forms must now follow a new form prescribed by statute. Accordingly, any construction industry member concerned with these issues needs to obtain the updated forms if it has not already done so. (For the new release language for all release forms, see California Civil Code sections 8132-8138; For the new Preliminary Notice language, see California Civil Code (for private works) sections 8102, 8200, 8202 and (for public works) section 8102, 9300, 9302, 9303)
- Statute Numbering Changes — Though this may not be critical to non-attorneys, the code numbering scheme is changed. Where the construction remedy statutes used to be found at California Civil Code sections 3082-3268, they are now found at California Civil Code sections 8000-9566.
- Terminology Changes — Many of the common terms used in the past are now changed, though they have similar (though not necessarily identical) definitions. For example, a "Preliminary 20-Day Notice" is now a "Preliminary Notice." A "Materialman" is now a "Material Supplier." The "Original Contractor" is now referred to as a "Direct Contractor" (a change clearly intended to address projects with multiple prime contractors). A "stop notice" is now referred to as a "stop payment notice."
- Direct Contractors Must Give Preliminary Notices — Under the previous law, persons that had a direct contract with the owner were not required to provide preliminary 20-day notices. The new law requires claimants with a direct contract with the owner to provide a Preliminary Notice to the construction lender. Accordingly, general contractors will now be required to submit preliminary notices to lenders where they were not previously required to do so.
- Changes in Completion Definitions — The new statutes also change the definition of "completion." The rules are different for public and private projects. On the private-works side, "actual completion," and "occupation or use" will still be the most common forms of completion. "Acceptance by the owner" will no longer be sufficient to establish completion. On the public-works side, completion occurs at the earliest of the "acceptance of the work" by the public entity or "cessation of labor" for a continuous 60-day period. Contracts under the State Contract Act require a cessation for 30 days.
- Notice of Completion Deadline — The notice of completion deadline has been extended from 10 days to 15 days.
- Petition to Expunge — Historically, when a lien went stale (i.e., it expired by the passage of time without a suit being filed), the petition to expunge was the owner's only remedy to remove the lien. Unfortunately, a $2,000 cap on fees associated with the petition was typically not enough to accomplish removal of the lien. The new statute provides for a 10-day demand to the lien claimant for release of the lien. If that demand does not work, then the lien claimant must pay "reasonable attorney's fees" to expunge the lien. In essence, the cap has been removed.
- Mechanic's Lien Release Bonds — Lien release bonds must now be for 125% of the amount of the lien rather than 150%.
- Conditional Upon Progress Release — The form has changed, and must now identify all previously executed conditional releases that have not been paid.
- Conditional Upon Final Release — Must now identify the claimant's customer in the release.
The above summary covers the major changes, but does not cover every change in the upcoming statutory shift. The new statutory scheme addresses many relatively infrequent issues that may come up from time to time. Accordingly, if you have any doubt on an issue, research the new code or seek guidance of counsel.
Overall, the system will largely work as it did previously, but it will be critical to update forms (especially the preliminary notice and release forms), update procedures, and generally familiarize yourselves with the revisions.
(For a chart comparing the old statutes to the new versions, please follow this link)
© 2012 All rights reserved. Please note that the information contained herein is not intended to provide specific legal advice. You should consult with an attorney and not rely on any information contained herein regarding your specific situation.