By William L. Porter, Esq.*
The most important changes to California construction law in decades will become effective on July 1, 2012. Signed into law in 2010, Senate Bill 189, reorganized and renumbered all those California Civil Code provisions dealing with such familiar construction claim remedies as the Mechanics Lien, Stop Notice and Bond Claim. While this effort greatly simplified the legal rules and made them easier to follow, there are a number of important substantive changes to these laws. These changes include new definitions, new rules and new procedures found in new Civil Code Sections 8000 to 9566. These changes also mean that new forms will be necessary. As a result of these changes, all those in the construction industry should begin using the new forms and procedures beginning on July 1, 2012. Failure to do so could result in loss of important legal rights. Some of the most important changes to the forms are outlined below. A website to access the new forms free of charge is also identified below.
Changes to Construction Forms Generally:
Beginning on July 1, 2012, the most important forms contractors, subcontractors and suppliers have been using for decades to preserve their rights to payment will become obsolete. Beginning on July 1, 2012, the following forms must be discarded and new forms used: The “Preliminary 20 Day Notice” (both public and private), the four “Conditional” and “Unconditional” Releases on “Progress Payment” and “Final Payment”, the “Mechanics Lien”, the “Release of Mechanics Lien”, the “Stop Notice”, “Release of Stop Notice” and “Notice of Completion”. There are other forms which have also changed, but the above forms include the most important changes. All of the new forms, updated to include all legal changes as of July 1, 2012 are available at the following website at no charge: http://www.porterlaw.com/forms.htm. Begin using these forms on July 1, 2012. Further details are set forth below:
The Preliminary Notice:
The document the construction industry has know for decades as the “Preliminary 20 Day Notice” has a new title. Although it should still be served within 20 days after first providing work or materials to a project, it is now simply called the “Preliminary Notice”. In addition to hand delivery and certified or registered mail, the Preliminary Notice can now be served by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action. The language of the “Notice” section at the top of the private works Preliminary Notice has also changed. The Preliminary Notice must also now describe “the relationship to the parties of the person giving the notice”, meaning that the claimant must generally state whether they are a contractor, subcontractor or material supplier in relation to those served. Also, unlike previously, the public Preliminary Notice must now provide an “estimate of the total price of the work provided and to be provided”. There are other changes, but these are the most important. Free copies of both the private and public Preliminary Notice forms are available free of charge at http://www.porterlaw.com/forms.htm .
Conditional and Unconditional Waiver and Releases on Progress and Final Payment:
Each of the four traditional forms (The “Conditional Waiver and Release on Progress Payment”, the “Unconditional Waiver and Release on Progress Payment”, the “Conditional Waiver and Release on Final Payment”, and the “Unconditional Waiver and Release on Final Payment”) has been changed at least slightly. The most significant change is that the Conditional Waiver and Release on Progress Payment allows the exclusion from the waiver and release as to sums for which the claimant has given a prior Conditional Waiver and Release but for which payment has not been received.
Mechanics Lien:
The Mechanics Lien Form has also changed. However, the changes for 2012 are only slight. The major changes to the Mechanics Lien form took effect at the beginning of 2011 and include an important new notice provision and new service requirements. The new form is also available at the above website free of charge.
Stop Payment Notice:
The Stop Notice Form has also changed. To provide greater clarity and distinguish itself from the “Stop Work Notice” the Stop Notice is now more accurately deemed the “Stop Payment Notice”. Like the new Preliminary Notice, the new Stop Payment Notice may now be served by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action. Unlike the Prior Stop Notice the new Stop Payment Notice must be served on the “direct contractor” (previously termed the “original contractor”) as well as the owner or reputed owner and the lender, if any.
Payment Bond Notice:
The Payment Bond Notice Form has also changed. The Payment Bond Notice may now be served the same as the above forms, that is by personal service or by registered or certified mail, but also now by overnight delivery by an express mail carrier or in the same manner in which a summons and complaint is served in a civil action. The major change though was as a result of a companion Bill to SB 189, SB 293. Under prior law a potential Payment Bond claimant who failed to properly serve a Preliminary 20 Day Notice could still successfully make a claim on a Payment Bond if the claimant served a Payment Bond Notice within 15 days of a Notice of Completion or 75 days from actual completion (if there was no Notice of Completion). Serving the Payment Bond Notice would “cure” the failure to properly serve the Preliminary 20 Day Notice for those seeking to make a claim on the Payment Bond. SB 293 changes this.
Under SB 293 and the resulting new Civil Code sections 8612 and 9560, a potential Payment Bond claimant who failed to serve a Preliminary Notice and wished to cure this failure by sending the Payment Bond Notice within 15 days of a Notice of Completion or 75 days after actual completion (if there is no notice of completion) will not be permitted to successfully make such a Payment Bond Claim if either “(1) All progress payments, except for those disputed in goodfaith, have been made to a subcontractor who has a direct contractualrelationship with the general contractor to whom the claimant hasprovided materials or services” or“(2) The subcontractor who has a direct contractual relationshipwith the general contractor to whom the claimant has providedmaterials or services has been terminated from the project pursuantto the contract, and all progress payments, except those disputed ingood faith, have been made as of the termination date.” This somewhat confusing language represents a major change in the law. However, for those who properly serve a Preliminary Notice at the beginning of work on a project as they should, this new law will have no impact on them.
Notice of Completion:
SB 189 changes the rules applicable to the Notice of Completion. One significant change in this regard is that under prior law a Notice of Completion was generally valid if recorded within 10 days after the true date of completion of the work of improvement. This has been changed under the new law to 15 days for both public and private works projects. There are other less significant changes to the form. An example of a new form is also available at the above website.
Other Forms:
The same changes as outlined above necessitated changes to the “Release of Mechanics Lien”, Partial Release of Mechanics Lien”, “Release of Stop Payment Notice”, “Partial Release of Stop Payment Notice”, “Notice of Cessation” and “Extension of Time to Enforce Mechanics Lien”. All of these forms are available on the website cited above.
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*Mr. Porter is a partner at Porter Law Group in Sacramento, CA. Mr. Porter was chair of the committee of seven California construction attorney selected to work with the California Legislature and the California Law Revision Commission in drafting 2010 Senate Bill 189, a 244 page bill which rewrote construction claims remedies and became current California Civil Code Sections 8000 - 9566. The other attorneys on the committee were Conor H. McElroy, John L. Boze, Bruce D. Rudman, Scott E. Holbrook, Daniel F. McLennon and Patricia E. Walsh.