Troutman Sanders LLP: Top Ten Changes to California Mechanic’s Lien Law

Troutman Sanders LLP: Top Ten Changes to California Mechanic’s Lien Law

The California Legislature's complete recodification of the California mechanic's lien laws takes effect on July 1, 2012.1 Here is a brief description of the top ten revisions to help those in the construction industry understand and comply with the new requirements.

  1. Definitions. Numerous definitions have been changed. This includes technical refinements such as "contractor" "subcontractor" or "direct contractor." However, one significant change is in the definition of a "work or improvement" has been made more expansive and includes demolition/removal.
  2. Notice Requirements. The contents of all notices required under the applicable mechanic's lien, stop payment notice and payment bond statutes has been standardized and must meet a minimum "substantially informed" standard of care.
  3. Preliminary Notice. Different forms of preliminary notices will now be used for private and public works. For private works, the direct contractor must now provide preliminary notices in addition to the requirement already imposed on the subcontractors and material providers.
  4. Waiver and Release Forms. New waiver and release forms are required for conditional and unconditional progress payments, as well as conditional and unconditional final payments.
  5. Reduced Lien Release Bond Amount. The amount of a mechanic's lien release bond has been reduced from 150% of the lien amount to 125%.
  6. Notice of Completion. The time for an owner to record a Notice of Completion has been increased from 10 days to 15 days, following actual completion of the project. In addition, an owner can record a Notice of Completion for a portion of a completed work if that portion relates to a particular direct contract.
  7. Enforcement of Rights and Remedies. A court order of judgment dismissing a lien (except dismissal of litigation without prejudice) is a recordable document and is the equivalent of a cancellation of the lien.
  8. Construction Lender Issues. A claimant who serves a stop payment notice on a construction lender now can request that the construction lender provide the claimant with notice of the lender's decision not to withhold funds pursuant to the stop payment notice.
  9. Dispute Resolution Update. First, the prevailing party on a mechanic's lien release dispute is now entitled to an award of "reasonable" attorneys' fees. Previously, these fees had been capped at $2,000 which will be removed effective July 1, 2012.  Second, the stop work notice dispute resolution process between a direct contractor and the owner now occurs on a more expedited basis.
  10. Requirement for Additional Security. New Civil Code section 8700 et seq. now requires real property owners to provide the direct contractor with additional security for fee improvements in excess of $5 million. Owners of less than a fee interest in the real property, for example certain leasehold improvements in excess of $1 million, must provide a form of security to include, a bond, irrevocable letter of credit or qualified escrow account.

1. The recodification includes the relocation of the mechanic's lien statutes from California Civil Code section 3082 et seq. to section 8000 et seq.

 © TROUTMAN SANDERS LLP. ADVERTISING MATERIAL. These materials are to inform you of developments that may affect your business and are not to be considered legal advice, nor do they create a lawyer-client relationship. Information on previous case results does not guarantee a similar future result. Follow Troutman Sanders on Twitter.



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