By Mark J. Rice, Construction Attorney
You remember what they say about how laws are made? That it’s like sausage – tasty, but you do not want to see how it’s made. Well, that really is not close to accurate. The process of legislation is more like Tofu – no matter how you dress it up, its still Tofu, bland and tasteless, still ugly to watch being made, and ultimately, no substitute for a good Kielbasa with sauerkraut, relish and mustard, swilled down with a hearty IPA watching the game at the Flatiron.
The new lien law is a bit like Tofu. Actually, it’s a lot like Tofu. And I am only being half critical. Tofu as in, unfamiliar, and Tofu as in, probably harmless, and maybe even better for you than the “old lien law” that it replaced, which like grandma’s old creaky rocker or a good burger, was real comfy on a Friday night.
Rather than pontificate more, let me highlight what to watch out for. As 2014 starts, these bullets are point out a few “biggies” so when you aim to collect, you do not get burned by new lien law procedures or forms that you missed out on when eating that delicious burger (or tofu):
The Preliminary Notice. The Preliminary 20-day notice remains the key document for most subcontractors and suppliers to protect their rights. Without it, you may have no lien rights when a job goes sour. Train staff to serve the Preliminary Notice right away, before you mobilize forces or deliver materials – and when you sign the contract. Have a double check system when invoices go out to customers that the preliminary notice is in the file, and the green registered mail receipts all back, and stapled with the corresponding white cards. Double check it is filled out correctly and a signed copy in the file.
Use Up to Date Forms. Use 2014 California based forms for your preliminary notices, lien releases, mechanics liens, and stop notices. Old forms have largely been superseded and replaced.
Is there a Construction Lender? Find out if there is a construction lender on the project, using a project information sheet, submitted for the owner to fill out, or review the County Recorder’s records of the Building permit. Even if a prime contractor or in direct contract with the owner, serve a preliminary notice on the lender to protect your rights to stop notice the lender if unpaid.
The Squeaky Wheel gets the Grease. Do not wait if a collection issue arises. Do not delay to protect your rights as the job approaches the “zone of near completion” – that is when lien rights can get lost if the owner records a notice of completion shortening your deadline to record a lien. Insist Owners pay timely, and if they do not, take steps to collect before it’s too late.
Mechanics Lien must be “served” on Owner before filed by registered or certified mail. In 2011, CSLB sponsored a part of the new lien law intended to give owner’s prompt notice if a lien was recorded. Now, the form requires you to sign three times – once, for the statement of the claim of lien; two, to verify that it is accurate under penalty of perjury; and a third time, as an affidavit that you have mailed the lien before recording to the owner either by registered or certified mail. The form now has on it, a warning to the owner about the lien. If you don’t do it right, and timely, you can be in trouble and may lose your lien rights. Get help if unsure.
The New Code Sections are like a Tax Code - Yuk. The old lien law came into being in 1873, and is based in the California Constitution. It used odd terms, but had become stable over 140 years of case law. As an example, former Civil Code Section 3097 – Preliminary 20 day notice, Private Work of Improvement – told you what the notice had to contain, who needed to get it, how it was served, and when to serve it. Not so under the new law. The new lien law is codified at Civil Code Sections 8200 forward. To figure out how to serve a Preliminary notice, you have to cross-reference 3 separate sections, one on the notice contents, another on who to serve, another, on how to serve or mail it. I take aspirin when I read it. Again, good current California forms are a must, and take the headache out of this part of the lien law.
When in doubt, call your lawyer. Not trying to drum up biz here, but from watching from the front row, a lot of liens fail like shooting stars because of errors – errors easily avoided by regular training of staff assigned to collection efforts. Some errors are forgiving, others, not so much (Most common: The pre-lien notice is not done or not done correctly, and found out too late. The lien is not done correctly or timely, and found out too late. Lien rights are accidentally released because of how conditional and unconditional lien releases on progress payments are filled out. And so on.) Attend a seminar, get an authoritative book, subscribe to a service that does this paperwork, or sit down with your counsel and go over your forms, your form contract, and lien procedures.
THINK LIKE A LENDER – YOU ARE ONE. Contractors invariably believe that their good work speaks for itself, and therefore, the customer will be happy to pay for the work. As an industry Contractors have been “handshake” folks who trust others to pay for the work, after the blood, sweat and tears of installing it. 50% of newly licensed contractors go out of business in 3 years – why? Because they accidentally work for free and do not get paid, real property values shrink, owners lose their jobs and cannot pay, change order or punchlist disputes arise, and a host of other bumps that grind payment to a halt. Do not let that be you. You are lending human capital, your business credit, and your payroll to the job on the promise of getting paid. Make sure you have investigated the owner, the project, the financing, the architect, before signing up for duty. The lender’s underwriting department always asks - if the primary source of repayment cannot pay, goes bankrupt or dies, who will pay me? Ask the same question, and build in those protections. You will be safer, sleep better, and no one will fault you for paying attention – least of all your staff, employees and family, who want you to get paid!
Mark J Rice can be reached, Silveira, Rice and Wiley,Professional Center Pkwy. Suite A,Rafael, CA 94903. Tel.: (415) 472-3434. Fax: (415) 472-1298.