by John McGill
Sometimes the help we get causes more problems than it solves. Doctors have the right idea; they have the directive to “do no harm”. Not so much in the law though. In the legal system the effort is to reach the correct decision within the constraints of what the statutes provide. For the most part it works, but sometimes it works a little too well- and then we have problems.
For this article, the issue is when can the contractor file a Mechanics Lien? The Mechanics Lien statutes say that the Lien can be recorded at completion. If owner files a notice of completion, then the General has 60 days to record a Lien and a subcontractor has 30 days to record. If the Owner does not file the Notice of Completion, or a Notice of Cessation, then the General and the subcontractor have 90 days to record, and that 90 days follows after there is a cessation of work for 60 days. After the 60 day period, the project is deemed complete and that triggers the Lien recording period, and everybody has 90 days. If you don’t record in that time, you lose the right to a Mechanics Lien.
Some other Mechanics Lien basics here: in order to have the right to record a Lien you must have “contributed to the work of improvement”; ie- you are general, a sub, or a supplier. You must also have sent a Preliminary Lien Notice to the Owner, the General, and any lender if you are a subcontractor. Generals don’t have to send notice to the Owner but they do need to send to any lender, not so much for the Mechanics Lien but if they want to assert a Stop Notice. If the subcontractor does not send the Preliminary Notice or if it comes in too late to protect the work performed- all work performed 20 days prior to the Notice and all work thereafter- then there is no right to a Mechanics Lien.
The more interesting issue though is when is the project completed if the Owner does not file a Notice of Completion or Cessation? In the case of Picerne Const. Corp. v Castellino Villas the court went out of its way to save Picerne from having a late and therefore void Mechanics Lien. In doing that however, the court may have introduced some Owner defenses; ie- that a Lien might be determined to be invalid because it is recorded too early. The best laid plans….!
In Picerne, the issues were very complicated but to summarize, the project involved 11 apartment buildings, all of which were part of the same project. Picerne and Castellano got into a dispute over payment and release of retention. Each building received a Certificate of Occupancy from the building department but there was still work to be done under the contract; for example- safety tape on stairs, certain roof and gutter work, other relatively minor but still base contract work.
Picerne waited to file its Lien until all of the base scope was done. Castellano argued that they waited too long and that the remaining work was inconsequential and minor so that the Lien was recorded late. Both the trial court and the appellate court disagreed and found that the Lien was properly and timely filed and could be foreclosed on so that Picerne could be paid.
According to the court, “interpreting completion as actual completion gives lien claimants the maximum time to assert their rights before such rights are cut off, whereas interpreting completion as substantial completion could cutoff mechanics liens rights much earlier.” True enough, but a premature Lien is not valid either and so depending on what “actual completion” means, a Lien can be void or valid depending on what needs to be done on the project, if anything.
Under Picerne, a Lien claimant can record the lien after the work is completely done, which apparently means all punchlist and any other contract work. Installing a door knob won’t be enough, but the installation of warning tape on stairs is enough to keep the Lien period open. Under Picerne, substantial completion is not enough; now it is actual completion of the contract work that triggers the Lien recording period.
The problem will be knowing when that actually happens. If Picerne becomes the standard, then Owners may not be quick to file Notices of Completion or Cessation. Contractors will need to monitor the project very closely so they know when all of the work is complete and then wait 60 days to record the Lien. This is not going to be easy or practical, especially when tape on a step is enough to keep the project from being actually complete.
The Picerne court did a good thing for the contractors on this project insofar as the decision allowed those contractors to pursue their rights and get paid. The decision creates a lot of uncertainty however because the actual completion of a project is sometimes a best guess, if that. It may be that Picerne is an outlier and won’t be followed, but you can bet that Owner’s and contractor’s attorneys will be citing it and using the actual completion language to whatever advantage they can. A Mechanics Lien is only valid when it is timely and that means not too early and not too late.
John McGill is Special Counsel at Archer Norris in Walnut Creek where he represents contractors and suppliers throughout the Bay Area and Northern California in private and public work disputes, employment, transactional, and administrative matters. John is a licensed General Contractor and worked for 20 years in the construction industry before getting his law degree. He received his JD with distinction from the University of the Pacific, McGeorge School of Law, and is a member of the school's Traynor Honor Society.
John is the author of California Contractor’s DESKTOP GENERAL COUNSEL What You Need To Know About California Construction Law.
John can be reached at (925) 930-6620. jmcgill@archernorris.com.
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