Tuesday, October 31, 2006

Top 10 Mistakes: Preliminary 20-Day Notice

By Suzanne Ervine, Construction Commando

1. Failing to Provide a Preliminary Notice at All. Any subcontractor who enters into a contractual relationship exceeding $400 is required by law to prepare and serve a Preliminary Notice. Failure to do so constitutes grounds for disciplinary action by the Registrar of Contractors.

2. Serving the Notice Too Late. To preserve Mechanic’s Lien or Stop Notice rights, a Preliminary Notice must be served within 20 calendar days of the first date services were performed or materials were provided on a job. If the Preliminary Notice is served later than 20 days after you first worked on a job, you are entitled to Lien or Stop Notice rights only for work performed within the 20 days prior to serving the Notice.

3. Waiting Until the 19th Day to Prepare the Notice. Putting off the preparation of a Preliminary Notice leaves little time to resolve any problems that may arise, such as difficulty reaching the prime contractor to request additional information, or delays at the governmental offices where you need to verify information in recorded documents and/or building permits. Furthermore, because the law requires the Notice to be sent via certified or registered mail, simply arriving at the Post Office even 5 minutes after the counter closes could result in missing the cutoff. Plan ahead!

4. Mailing the Notice by Regular First Class Mail. The Preliminary Notice may only be served by personal delivery, or by first class certified or registered mail. Sending the Notice by regular first class mail is not sufficient, and the courts have ruled against contractors who did not comply with the strict requirements of the statute. In IGA Aluminum Products, Inc. v. Manufacturers Bank, the court ruled, “The statute clearly states that proper notice is a prerequisite to perfecting a mechanic's lien, and that if service of the notice is accomplished by mail, the notice must be sent by registered or certified mail.” Proof that the Notice was served by mail in accordance with the statute must be accompanied by either the return receipt of certified or registered mail, or by a copy of the record of delivery; or in the event of nondelivery, by the returned envelope itself.

5. Providing an Arbitrary Estimate of the Total Price for the Job. While the law requires a Preliminary Notice to contain an estimate of the total price of a job, any such estimate must be a good faith estimate. The estimate must be “a derived figure, arrived at by rational analysis.” (Rental Equipment, Inc. v. McDaniel Builders, Inc..) Estimates that are “made up out of whole cloth” are insufficient.

6. Deviating from the Required Language in the “Notice to Property Owner” (private works only). California law is very specific about the language required in a Preliminary Notice for private works of improvement. The California Civil Code sets forth the exact language required in the “Notice to Property Owner” contained on the face of the Preliminary Notice. California courts have long held that deviation from this language will render your Notice invalid. In Harold L. James, Inc. v. Five Points Ranch, Inc., the court held that, “Where the Legislature has provided a detailed and specific mandate as to the manner or form of serving notice upon an affected party that its property interests are at stake, any deviation from the statutory mandate will be viewed with extreme disfavor” (emphasis added).

7. Failing to Verify Proper Identities of Notice Recipients. Many subcontractors rely on information obtained from the prime contractor. However, this is insufficient and could render your Notice invalid, thus barring any future mechanic’s lien or stop notice legal action. Contractors seeking to enforce a lien or stop notice remedy have a duty to inspect readily available public records to determine the identities of a property owner or construction lender. In Romak Iron Works v. Prudential Ins. Co., the court held that Civil Code section 3097, subsections (i) and (j) “impose on a prospective stop notice claimant the duty to examine…the building permit and the specially-indexed official records of the county.” The court further ruled that, “If he fails to examine the two sources, subdivisions (i) and (j) operate to charge him with constructive notice of the information recorded in either.” Ignorance is no excuse – make sure you check the official public records!

8. Failing to File the Preliminary Notice with the County Recorder. Although not required by law, filing a copy of the Notice with the County Recorder can help contractors ensure that mechanic’s lien or stop notice rights are fully protected. If a contractor has filed a Preliminary Notice, the County Recorder is required to notify him of any subsequently filed Notice of Completion or Notice of Cessation. If a property owner files either of these documents, the time within which to file a mechanic’s lien or stop notice action is shortened to just 60 days for prime contractors, or 30 days for subcontractors and suppliers. Notification of this shortened time frame enables you to seek legal counsel and initiate legal action before the deadline. Please note, however, that the County Recorder’s failure to notify a potential claimant of a Notice of Completion or Cessation does not extend the amount of time you have to initiate litigation to perfect the lien or stop notice.

9. Failing to Send a Copy of the Notice to the Surety Company. To enforce a claim on a payment bond, notice must be given to the bond surety and bond principal within 15 days of the recording of a Notice of Completion or Notice of Cessation (or within 75 days after completion of the work if neither Notice is recorded). This payment bond notice can be accomplished by simply serving the bond surety with the Preliminary Notice, and further ensures that a very short 15-day deadline is not missed.

10. Serving Only One Notice if Multiple Notices Are Required. Generally, a contractor must serve only one Preliminary Notice per job, regardless of the length of time or amount of materials and services provided. However, if you are providing services or materials to a jobsite under multiple contracts with multiple subcontractors, a separate Notice must be prepared and served pursuant to the contract with you have with each subcontractor. This most often occurs with suppliers who provide materials to many contractors for the same job.

About the Author: Suzanne Ervine is a Registered Legal Document Assistant and owner of Construction Commando. A trained paralegal and bookkeeper, Ms. Ervine specializes in assisting contractors with preliminary notices, mechanic’s liens, stop notices, bond claims, and bookkeeping. She is a member of the American Institute of Professional Bookkeepers and the California Association of Legal Document Assistants. Together with her husband Roger, she owns and operates Fidelity Electric, a full-service electrical contracting company. Contact Suzanne at suzanne@constructioncommando.com.

9 comments:

Experienced Contractor said...

First, I love this blog, the information Construction Commando and Carl are providing is simply amazing.

Second, SIMPLE QUESTION:

Can a Preliminary 20-Day Notice be served BEFORE services or material are being supplied to the job?

For example, let's say I know a job will be starting 2 months from today. The prime contractor purchases supply from me and stores it at his warehouse for 2 months. Can I serve the Prelim 20-Day Notice now to protect my lien rights, or must I wait 2 months before serving it? What if the prime is dishonest about when the job is actually starting? I would like to serve my Prelim 20 Day Notice ASAP before missing the 20 day window. The nightmare situation is trying to serve a Prelim 20-Day Notice only to discover the project has ended and I am without lien rights.

Anonymous said...

What if I'm a sub and my work is done and I'm paid within the 20 day period? Do I still have to serve a preliminary notice?

Anonymous said...

If there are several Lenders named on the Prelim. Info. Sheet, do i have to send notices to all lenders?

Anonymous said...

I have a question. We got roof work done paid the roofer and three days after we paid the roofer we got the Certified Mail from the roofing supply company.

Now, 6 months later we have received a letter from the roofing supply company's Law Office that our contractor HAS NOT paid them ! We were not aware before we paid the contractor - we have all the documentation.

Are we still liable for the unpaid material?

I think we've been scammed. What are my rights ? I would have paid the roofing material company directly if I would have received this letter before I paid the contractor.

Anonymous said...

We are a construction supply company and do alot of Government work. Is it possible to serve a 20-Day Notice on a Government Job? Or is there another way to insure payment?

peter said...

I was wondering if a Contractor can require their Sub to provide releases from the sub-tiers even if they haven't filed a Prelim.

eg:

I work for a Architectural Concrete company. The GC is requiring us to provide releases from our Subs who have never filed a Prelim and if we are unable to they either hold payment or cut Joint Checks. What is the California Law regarding this issue.

Thanks

Anonymous said...

Where can I find a good 20 day prelim notice form for subcontractor private/public works, preferably to download for free??
Thank you!

Anonymous said...

I want to file my preliminary notices for my company. Is there a website online where I can file myself?

mesparza1@verizon.net said...

I received a contract from a company sent certified 20 day prelims to general, lender and owner. just received a e-mail saying there is no lender but signed contract indicates there is a lender. General wants me to simply re send a new 20 day prelim with no explanation or contract changes. Born yesterday