What Most Don’t Understand About California Lien Rights

What are the lesser known things about California lien rights that can help you get paid faster? Learn from a construction attorney today.

This webinar is led by California construction attorney Christopher Ng.

Things you will learn:

• The fundamentals of reserving California lien rights
• Understanding available statutory remedies to payment disputes
• Enforcing your protections to speed up payment

Full Webinar Transcript

Seth:
Hello everyone. This is a Seth Bloom from Levelset. I’m senior director of attorney services and I’m excited today to bring to you another one of our excellent webinars with our host Chris Ng, who’s here today and he’s going to talk about what most don’t understand about California lean wall. And then we have a lot of things going on with the state of the world and Chris will address that. He’s a, uh, the managing partner over at Gibbs Giden in the greater Los Angeles area. So Chris, I will turn it over to you right now.

Christopher:
Thanks Seth. Good morning everybody. My name is Christopher Ng. I am the managing partner. We are construction attorneys that are based in Los Angeles with three satellite offices including out in Las Vegas. And we represent contractors and suppliers in the industry with their construction issues, payment claims, and we sit on national groups and committees to help service our industry. I get primarily representing contractors and suppliers, although we do represent the entire chain of construction. So owners, developers, design professionals as well. So this morning this seminar was actually supposed to be a live seminar at the Beverly Hills Marriott. So a lot of you, I think we’re expecting to be right there. Beautiful Beverly Hills Marriott near rodeo drive. That obviously did not happen this morning. This would’ve been our room. And yes, we even paid for the wonderful floral arrangements to be set throughout the room and it would’ve been a beautiful breakfast.

Christopher:
Beautiful breakfast. Yeah. Beautiful breakfast. So in lieu of that, hopefully you are enjoying your own homemade omelets and lattes while we are here today talking about California mechanics lien law. And typically I always start with a graphic and a slide of the latest AIA forecast. And I do that for a few reasons. Usually it’s one to give the folks that are tuning in and idea of what the market looks like as far as growth and potential growth. And as we all know, when you look at architectural billings that are 18 months out, um, for projects or 18 months out, we kind of get a sense if those buildings are still growing, how healthy the construction market is. And so for the last several years we’ve been putting the graphic up and we’ve shown that Hey, construction is still growing, construction spending is still growing and we are forecasting with the AIS assistance and all of the consensus, uh, folks that they pull that we’re going to still have growth even if it’s going to slow down a little bit.

Christopher:
It’s still growing. And we were expecting at least a percent growth in 2021 and I say that of course with a little bit of hesitation in my voice because of the Corona virus pandemic. Um, and this has thrown everything out the window. And so when I would normally have started with about three weeks ago and on this slide about the market has been turned upside down. So no doubt that this has taken an impact on us. And I like to start with with what’s happening in California lien law updates, like what are the new statutes that are out there that they’re impacting us in the industry we walked through at a typical seminar, those that are important to us, those that we feel on a day to day basis, those that will change perhaps payment processes and slow down, uh, payments like 218.7 labor code, which was the statute which holds general contractors, liable, friend paid wages downstream.

Christopher:
And we know that what’s happening is some GCs and subs were getting disputes because the GCs would be asking subs to open their books. Let me see your payroll. We made sure you paid everybody. Some of the subs couldn’t do so and so because of that, we had painted conflicts at that level which were impacting lower tier subs and suppliers. And so we’d like to talk about some of the new statutes. We will get into some of these today as we walk through our presentation. We talked about new cases. We’ve had a few of them that have been pretty important, including precision framing, which was a subcontractor lien claim which was declared to be prematurely recorded. So finding that right balance and when you record your lien is very important to get. We’ll walk through is still today, even though we are talking about coronavirus a little bit in the beginning and then we’ll get into perhaps what a lot of you do not know about California mechanics lien law.

Christopher:
Meanwhile, what that means. So in the good times now as of a month ago, we would talk about, you know, Hey, even though times are good, even though it’s a healthy construction market, we want to be proactive. We want to anticipate what might be coming down the road. We still don’t want to wait on folks. We don’t want to be always in a pay when paid situation. If we have, if we’re a supplier and we have net 30 terms, we typically want to hold our customer, speak to the fire. They’re the ones that owe us the money. We want to expect payment within that timeframe. And of course if you have a job account, you may be more liberal than that and you may extend your terms out because you know, at the end of the day you’ve got a mechanics lien, right? So I have a few clips and this one, if those of you that are fans of Narcos, this, if you watch this first episode of this latest season of Narcos, Mexico, some of you and said, Oh my gosh, they’re talking about pay when paid. Of course, this isn’t the cocaine industry, but nonetheless, this may be a conversation that you’ve had with your customer at some point if you are a material supplier.

Christopher:
So first time I’ve ever used a Spanish clip, um, but there you go. When we get paid sort of conversation and we’ll talk a little bit about that. That is probably a less important in this climate. But, uh, we’ll talk a little bit about pay when paid as well as we move on. So before we get into the main substance of the material that we had planned for you today about California mechanics law, I do want to talk about the impact of the coronavirus on ongoing construction projects. For those of you that tuned into the webinar earlier this week or the ones Levelset have been putting on regarding Coronavirus, we talked a little bit about that as of last Monday, and of course the climate is changed so much between Monday and today. 350,000 cases of coronavirus diagnosed in the United States on Monday. Today we have almost a half million. We have the 3.3 million unemployment claims today, so the climate is changing on a daily basis.

Christopher:
Shutdown orders are becoming more rampant around the country. And here’s the, here’s the reason why that’s such a big elephant in the room is that as a few days ago, the AGC had done a poll in a survey and they had found that 30% or 28% of contractors say that their products have been halted or delayed. And I would bet to guess that that, that number is actually a lot higher in California especially, we are dealing with conflicting orders as we’re going to talk about in a second and make the analysis of whether you can even work on a project very complicated. So it is not just now supply chain delays and issues that are developing are that are threatening our projects. Uh, we are, we’re, we’re, we’re worried for the last few weeks about what’s going to happen when the child, when 30% of our materials that come from the far East when they are not coming on time, what do we do?

Christopher:
Let me get with our steel shipments that are not going to hold up maybe structural development of a project. So that was our main concern. It still is a major concern of a delay as we move forward. But it’s becoming bigger than that. It is construction firms that are, are themselves deciding to shut down. It may be that some of them want to work, but they’re having a problem because some workers refuse to work. They don’t want to go to work because of the threat to their families and bringing home coronavirus. And even if firms are moving forward with projects, they are almost always ordered to do. So using safe distancing or social distancing measures. So if you can imagine if you are a a construction worker, it’s pretty hard to stay at least six feet away from everybody on a project at all times.

Christopher:
It’s almost impossible. And if you can, you are going to have impacts of your social distancing measures in your efficiency of how you carry out a project. Even then, a lot of owners are shutting down projects because they’re interpreting some of the local municipality orders very strictly. And looking at the state order, which may be a little bit more liberal, may allow public works constructions. Uh, but then in a particular jurisdiction, it’s out. It’s saying that there is no construction allowed or maybe just housing construction. They may have different, different exceptions. And so let’s try to parse through that and figuring out what projects should be ongoing and what projects truly should be shut down under the, the, uh, the various orders that are out there. So, so this, all this, uh, this noise and all the ongoing change is causing a lot of confusion.

Christopher:
Um, and, and really it is impacting, um, I would say probably 30 to 50% of our projects right now, especially in California, we have on a daily basis, regardless of whether we represent an owner who’s being impacted or a contractor who’s just calling us to say, can we get back to work today? What do we do when the owner tells us to sit tight or demob, uh, what should we do? What notices do we give? That sort of discussion is what’s important, what’s taking place on a daily basis. So clearly as a level set has some wonderful graphics. They have a great survival toolkit for all of you that are out there on their website levelset.com. Um, but as they lay out clearly we’re going to be impacted in construction industry because of the supply chain impacts because of the core team and the shelter it held orders which will prevent or reduce our ability to do onsite work.

Christopher:
Clearly the, the larger financial issues, the ability to access lines of credit and funding is going to be impacted. And then just the legal disputes, uh, even though courts are quote unquote closed or, or they are not taking outside visitors doing stuff remotely, uh, things are still moving forward and liens are still being recorded and lawsuits are still being filed. They escalate as folks are trying to figure out the uncertainty of, of the climate right now. So I would say that I think that’s more important than ever that we understand our rights duties and obligations and then we’re not being the guy with the head, with our head in the sand, like this poor gentleman and that we are actually being proactive as much as we can. And it’s still an opportunity right now to be proactive in how you approach your, your projects and your job accounts, making sure that you are out front.

Christopher:
You’re doing this seminar this morning so that shows and you are out front and you are interested in figuring out how you move forward and protect yourself. Whether you’re a material supplier, you’re a subcontractor or general contractor. How do I protect myself and make sure that I don’t give up my security and my leverage? And that’s what it’s all about when we’re talking about mechanics, lien rights, it’s security. Making sure at the end of the day you get paid. But it’s also the leverage to say, I deserve to be paid and I and I want to be paid now before those that haven’t secured their job rights.

Seth:
Chris, I just wanted a, I saw, we got our first question and to get ahead of things. I was going to go ahead and let you ask it or let that person ask it. Once we’ve now finished the immediate Corona situation, uh, our pan, someone, uh, one of our attendees asks, when you have a mechanics lien on a tract, what does it mean when you receive a notice of completion on a certain, um, home lot?

Christopher:
Yeah, so, uh, owners often will do for track development and we’ll talk a little about this later. Um, but for, for track development, they’ll have separate projects. So if they have separate contracts upstream to construct either a, uh, a full track with several lots and several homes, or even on an individual basis, one by one, they can declare those as separate projects and record notices of completion for each one. So if you are a clearly, whenever you get to notice the completion, you are going to stop what you’re gonna, what you’re doing and make sure that you go ahead and protect yourself because you’re going to have a very, very short window in which to take action. So, uh, owners and contractors are free to do that as long as they have set it up correctly from the top. And they have set up separate contracts with the construction of these lots of these tracks. They can declare them as individual projects versus completion of the entire, you know, 36 hot home, three coldest development. Um, they can actually parse those out into separate projects and shorten the timing for folks to enforce their rights, uh, on a much faster basis.

Christopher:
So, so real quick just to finish up the covid19 things. Um, again, it’s really important to understand the conflicting state County local orders. Um, looking at what conflicts, what doesn’t conflict. I know, um, we in level-set are maintaining a database every single County in California, what the shelter in place orders are, what the latest information is. So then if you need to find out what do I do for a project…they’re recommended clients whether they can go on onsite or not. We’re probably more liberal as far as advising contractors that if you could keep your social distancing that you could probably move forward on projects. Um, it’s all about definition that’s parsing through the particular excerpts of the orders to figure out whether you fall in within the essential companies or essential infrastructure projects that are, that are allowed under these various orders. And we posted a few of the excerpts that are up there, which, um, which did, do differ.

Christopher:
So very important to figure out what the, the current orders are. One of the thing I’ll mention is that even if you can move forward on a project, and one of the elephants in the room right now is a lot of the building departments won’t inspect your project. So you’re going to have a problem if moving forward on a particular trade and they are not going to go get an inspection unless you are doing low income housing or something like that. There’s a lot of municipalities that are not letting inspectors go onsite. So even if you can work technically, if you don’t have an inspector to approve your work, you might be stuck in the mud anyways. You’re going to have impacts that you may not foresee. Uh, just because you, you think you fall with it, an exemption if you are a contractor or a supplier.

Christopher:
Um, right now it’s important to know what’s going on in your project. Is your project one of those that’s suspended again, chances are it very well might be. And so again, whether you’re a contractor supplier understanding what’s happening on your project is key. Picking up the phone, calling your customer, uh, calling the GC, calling folks to figure out if this product moving forward or is it suspended knowing the value of your labor and materials in place. Capturing that screenshot of, of where you are at today. Potentially you have insurance coverage, business interruption insurance. It’s a hot topic right now. There’s lots of lawsuits that have already been filed regarding coverage issues here. Uh, it’s important to talk to your broker and your attorney to see if you may have insurance coverage and it’s all about document, document, document, put things in writing. If folks are telling you certain things about the project, if they are making promises, it’s not, I know we’d like to do handshake deals in the construction industry.

Christopher:
Now’s not the time for handshake deals. It’s time to lock things in writing, put them in emails because six months from now when you if and when, God forbid you are litigation, you’re going to want evidence, something in writing and not just, well, we talked about this on March 25th and we said this or that on on site. That’s not going to fly. We need stuff in writing, so that’s very important as we’re going to spend a lot of times today. It’s protecting your project security rights and we’ll, we’ll walk through these and the mechanics lien, the stop payment notice in California payment bond rights and even if you are a general contractor in the state of California, most of you probably have never heard of civil code section 8,700 it is unique to California. In fact, I believe we’re still the only state in the union that requires owners to post a project security bond or letter of credit or some other equivalent for your benefit.

Christopher:
And if they don’t do that within 10 days of your demand, you can suspend work. And I know that when I, when I pull my contract to clients, even my very large contractor clients, most of them have never heard of the statute or when they have used it, it’s on a sparing, uh, occasion. This is the time where if you are worried and, and need assurance is about whether you’re going to have funding in place, whether the owner’s actually be able to pay for this thing to maybe perhaps consider demanding project security under civil code section 8,700 from an owner right now. Lots of things, exceptions, lots of minutia in whether and those products that are exempted, that were exempted. But typically any large project falls within that, a civil code section. So think about that if you are a general contractor out there.

Christopher:
Now, one other thing that we’ll talk about is, is the need to make sure you get your liens down. Time lady, especially because we are having County quarters offices around the city of California and around the country for that matter that are closing not to, not for business in perpetuity but just for purposes of accepting deliveries or in-person filings. And so all that’s doing is it’s slowing down the process. You’re going to have clerks that have socially distanced at the counter quarters offices to accept it, open mail, a mail copies. So that’s how things are being filed right now and it’s taking extra time. So you do not want to wait till the last day or the last couple of days to try to record liens or file lawsuits to protect your statutes of limitation because there’s a chance that it may not make it there on time. So very important that we get out ahead of these things and be proactive.

Christopher:
And the one thing that won’t spend really much time with today, but again, if you are interested in the forced mature issues that pop up, I encourage you to tune in or watch a rebroadcast of another level set webinar that talks about forced majeure and all the things that come along with that. But one thing I do want to point out for, especially for you contractors, is making sure you understand what your contract says. Can you walk off, can you get delay damages? Can you get an extension? It’s all about your contract. What is your contracts day? What is your force majeure provision say are you, are you using an AIA form contract or another industry forum contract, which typically is fairly favorable as far as recognizing forced, mature or not. And if you’re a supplier, what is your contract? If someone’s tried to cancel an order from you, which is going to happen if it hasn’t already happened to you, um, can your customer cancel with, with no repercussions?

Christopher:
Do they have to pay a restocking fee? Uh, are you able to cancel with your manufacturer or your distributor? It’s all gonna depend on your contract documents, so looking back on your credit agreement, looking at the purchase order, perhaps your sales order confirmation or invoice that’s going to help determine whether or not you have the contractual right to excuse performance or get out of a contract that you might be in. And a lot of it comes down to UCC section two six one five which is the statute that governs the sale of goods around the country and in California it’s, it’s commercial code 26 15 without the dash basically and it’s all about commercial and practicability and coronavirus and the impacts clearly would fall within UCC 26 15 if it applies to your situation. If you don’t know if it applies to your situation, that’s when you talked to your legal counsel to guide you with what your rights duties and responsibilities are.

Christopher:
All right, well that said, we move into the specific California mechanics lien law and I’m going to start a little bit broader. A lot of you that are here watching or listening. No, already you’ve heard about the mechanics and you know what that is, but a lot of you do not know or properly know how to use or consider other remedies like the stop payment notice. Stop payment notice like 50 other States in California is an essential remedy. It is one that you may not use on every single project, but it’s one that’s important that you consider and think about using. So this all falls within the umbrella of the mechanics lien statutes. Mechanics lien statutes in 2012 in California were moved to the civil code and the 8,000 section. It came from all different areas I believe in the 3000 section. And then we moved them, re reorganize them and the stop payment knowns in the mechanics lien come together and we call that all the California mechanics lien law.

Christopher:
And same thing with payment bonds. It also falls within the same civil code area. And so again, when we talk about California mechanics lien law, we’re talking about the lien itself, stop payment notices, payment bonds. And I like to throw in there, even though it’s not really part of the civil code, the contractors licensed bond plans for subs-subs and for suppliers. This can be a way for you to collect on some of your smaller accounts or it also gives you some leverage as we’re going to talk about down the road, we won’t talk about today are things that you can find a lot of information about on levelset’s website and other webinars like prompt payment penalties, making sure you consider that as a arrow in your quiver, your contract rights. We’re not going to spend any time today on that and then potentially rights against third parties. Those are all things that, that, um, again, we won’t talk about today, but things that you need to consider as you’re figuring out how am I going to get paid and who’s going to pay me? These are the things that we’re going to think about.

Christopher:
okay. And of course, uh, and know these things work. You always have a backup option perhaps.

video clip:
Do you want to recall? Yeah. You’re tougher to get than a president. Well, I’ve been busy. Yeah. At least she does return my phone calls now listen, thank you. We talked about this and I explained to you if there was a possibility you might have to take something at a loss.

Video clip:
I think I want my money back. What are you doing to strong? I think you got no impression about me. I think in all fairness, I should explain to you exactly what it is that I do. For instance, tomorrow morning I’ll get up nice and early, take a walk down over to the bank and walk in and see and uh, if you ever have my money for me, I’ll crack wide open in front of everybody in the back and just about the time that I’m coming back to jail. Hopefully you’ll be coming out of your coma and guess what? I’ll split hope again cause I’m stupid. I’ll give them no jail. That’s my business. That’s what I do. And we know what you do know, which are people that have money and get away. Go get my money or I’ll break asleep.

Christopher:
Of course most of us have wanted to do now from time to time with a particular customer that always is giving us the excuses. So one of the ways you get around that of course is making sure that you timely and effectively use your statutory payment remedies. Um, I won’t bore you with all the background details, but as most of you know, California, the lien lies liberally construed in favor of contractors and supplier that that poured their blood, sweat and tears into our projects. So we look after our contractors and suppliers want to make sure that they get paid. And the law hasn’t changed very much all the way from when the mechanics lien concept was first came about in the second century, all the way when we made it a constitutional remedy in California in 1879 we had one major change again in 2012 where we should be shuffled all the code sections.

Christopher:
So for those of you that are still looking at, for instance, waivers and releases that say 3262, you’re probably dealing with an unsophisticated customer that’s, that’s still living in 2012 or before. And so those obsolete old forms should be thrown away. Of course, if you’re the one that’s being presented, you’re gonna sign…and it may not be enforceable. But we ha- we didn’t undergo this major chain 2012 I don’t foresee another one soon. Our hope of course is that we’re going to move to sort of a Utah system or chronically than they are right now in California. But uh, but we’ll see where things go. So one of the things that I always hear from folks that are still getting their feet wet with mechanics lien law is making sure that they’re, they’re uncertain or insecure about whether they are a proper claimant under California law.

Christopher:
And so there’s really a few prerequisites here that I’ll talk about. One is, you know, did your labor or for your suppliers materials go to improve the project? And this is one that is is important, especially from the suppliers out there because sometimes you are doing will-call pickup, sometimes you are shipping to your customer’s warehouse. You’re not always delivering to the job site. It doesn’t mean that you can’t lien those amounts. It’s all about danger material ended up at the job and did it go to the job. If it did, regardless of how it got there, you have a proper claim for those materials. Now those materials are still sitting in your customer’s warehouse where you’re still holding them at your warehouse. Now because products are suspended, then you cannot include that amount in your mechanically, at least not in California. The only exception to that really would be a federal project under the Miller act on federal projects located within California or anywhere.

Christopher:
There is a good argument that you could include the value of specially manufactured goods into your lien claims. So that’s first and foremost is making sure that you understand the value of labor materials that went into the project. Making sure that you’re not willfully overstating your claim. Do not put lost profits or home office overhead in your claim amount. This is all about direct costs. Uh, and you are limited to the contract value or the reasonable value, whichever is less. So direct costs, not indirect costs. That’s what we want to focus on for you contractors, making sure that you are a licensed contractor is key. If you are unlicensed, you will not be able to use the mechanics lien law remedies unless you’re a laborer. Uh, so important to make sure your license is active and properly maintained at all times. Separate one hour webinar about contractors licensing and making sure that you dot your I’s, cross your T’s. Because as we all know, if your license becomes suspended for one day during the course of a project, you might be in trouble.

Seth:
Chris, we have a, sorry to interrupt. We have a question. It’s been a quiet crowd so far, but Zach asks, does a water damage mitigation qualify as an improvement?

Christopher:
Sure, it sure could. Absolutely. Yeah. So we have, um, we actually represent a lot of restoration companies so it won’t tell you all the names of the folks that we represent, but, uh, we do have a lot of disaster mitigation companies that are considered home improvement contractors. So as long as your’re properly licensed and you should have a mechanics lien. Right, good question. So as long as your materials went to the project, you haven’t willfully overstated. If you’re properly licensed. If you are a contractor, of course the suppliers would not have to be licensed. Um, and as long as you follow the statutory prerequisites that we’re going to talk about as far as time and form, then you are a proper claimant. Um, also make sure that you are giving proper waivers and releases. And we’re going to talk about, I know for, for most of you, you’re familiar with this process.

Christopher:
There’s four forms in California as there are with most States. You have conditional and unconditional. We originally, this is making sure that you’re doing that properly because one of the only ways that you can give up or release your rights is through those four forms. Okay. So, so super important that, that you’re following that process correctly. I have on the screen as well. I’d be wearing DBE fraud. This is a hot topic that, um, that we’ve about a lot of making sure that all of a sudden when a customer comes to you and says, Hey, we’ve been doing business for 20 years, but I’m working on a public project under the DBE requirement, so you can’t sell to me, you gotta sell through this DBE, so please sell to them. We’ll pay for it, don’t worry, we’ll take care of it. You just got to sell through them.

Christopher:
Be aware that fraud issues, this has been a hot topic, especially back East where a few companies got hit for several millions of dollars of damages. Innocent suppliers, quote unquote innocent suppliers that I got caught in the DBE fraud game. So be careful that you, if you’re doing DBE sales, that they’re legitimate sales. I get a separate one hour webinar on DBE fraud that uh, that you, that you all can jump in at some point where we explore all of these issues but, but very important there as well. So I was mentioning, let me come back to these dashboard releases because this is, these are the four ways, uh, that you can give up your rights. This insight, I can then passing it on to somebody else and they deposit that check. And that would also probably be a waiver of your rights. But this, this is the, the main four ways, right?

Christopher:
These four forms and you all are familiar with them. If you’re not familiar with them, it’s time to make sure you understand the ins and outs of these forms. If you haven’t been paid, you do not give an unconditional waiver and release. Never, ever, ever. We don’t like to give these own conditionals until your check has cleared the bank. And that is something important. I know, especially in this day and age. We talked a lot about it, uh, around 2011, 2012 with our last economic downturn. I know it’s contractors and even suppliers in this industry that we often will exchange and unconditional in exchange for a check. We’ll do that at the branch and do that, the customer’s job site, whatever it is, it’s not a good practice. And I probably have 30 stories. I can tell you that add up to, you know, seven or $8 million of, uh, bad stories where checks didn’t clear.

Christopher:
And, and now that nothing else that we can do as far as our, our, our rights. And that’s why there’s four forms that exist, conditional and unconditional. So it’s important if you have not yet been paid that you use a conditional payment, especially when it comes to your final payment. And that’s the one where contractors or owners are always hustling to get unconditional finals, right? They want to clear their project. The lender may require unconditional finals from everybody that’s given a prelim. So you’re going to get that pressure and you have to have enough, um, enough strength to say, well, wait a minute guys. Look, I can’t give you an unconditional upon file. I haven’t had my, my check hasn’t cleared yet. What I can do is give you what the California law tells you that I can give you, which is the civil code 8136 form. This form is designed exactly for the purpose of this situation where I’m giving the conditional waiver release upon final payment.

Christopher:
Plus the cancel check isn’t unconditional and I promise that within 72 hours and when your check clears, I will give you an unconditional. But for now I can only give you a conditional upon final super that you add. You hold to your own policy in there and don’t do an exchange for an unconditional. Some of you will still do it because you’ve worked with somebody for a long time and I get that it’s a business decision in some sense, but know that you’re always taking a risk and the legislature has tried to help you by giving you this form to use. And sometimes to be honest, it’s a common, it’s an administration person that may be working for an owner or a lender or a GC that all they know is I need an unconditional, unconditional, unconditional. And they’re not even really aware that this 8136 form exists. So it’s our job to hopefully educate them and say, this is the form to use when a check has not yet cleared the bank.

Seth:
Chris, just a while, you have a pause. Do we have another question from someone in the audience? It’s from Janell. If you’re a metal fabricator with a business, with a business license, but have a contractor’s license, can you still utilize a mechanics lien?

Christopher:
So you will get a 50 50 answer on that. I bet you if you ask a hundred construction lawyers in a room, half men will say absolutely. And half of them will say, I think you got a problem. I am more liberal with the way that I look at it. I think a fab, a metal fabricator, um, although technically probably should be licensed if it’s the right thing to do, to take out any arguments that, that your, your rule requires a license. I mean there are specialty licenses that are described on the CSLB website. You can pull it up a whole list of all the sea, the sea special classifications that exist. And I would say that that clearly you could find one or maybe even two where metals fabrication falls within some of those license classifications. But you could still take a more liberal view that as a fabricator you are really a supplier.

Christopher:
And as a supplier you don’t have to have a license. So we do that dance from time to time. Um, I’ve argued that dance on, uh, in litigation and in court. So again, I think if you ask construction lawyers, we’ll probably diverged and go different ways. So it really depends on, on, on who’s asking me and uh, and the argument that I have to make to be, to be quite frank. So we talked about the waivers and releases and as I mentioned before, it’s all about following the guidelines of our statutes, making sure that you’re timely doing a prelim, your timely doing your claim. You are timely initiating your lawsuit if and when necessary. That’s the foundation of how we move forward with all of these wonderful remedies that you have afforded to you under the California constitution. And the California civil code level set does a great job with their graphics and, and their, um, their images.

Christopher:
Here’s a, a perfect example of the way they lay out the preliminary notice requirement. And as you can tell in California, like a lot of other States, we have a preliminary notice requirement on the West coast. It’s, it’s not just a West coast phenomenon, but clearly on the Western United States, it is one that that is typically required. In California, it’s 20 days, 20 days before you furnish labor materials is when you want to, um, uh, give your preliminary notice. In other words, once you serve that culinary notice, it only goes back the prior 20 days and captures everything forward. So you want to do it as soon as possible. If you wait, gosh, I got to do a preliminary notice now. Again, it will only capture the value of the labor and materials that you had furnished in a 20 day period prior to when you mail it out and then capture everything forward.

Christopher:
So we’d like to do it right away. Maybe when we sign our contract, our first invoices going out, uh, we’re going to order special manufactured goods right away. That’s when we want to do the preliminary notice. No reason to wait and the forms, there’s lots of different forms. Level-set again, has a fantastic way, a portal to get your information in there and get the appointment notice issued. The one thing that you will always have to give to your provider, including levelset, is your estimated total price. So that’s something that levelset can’t guess about, and you’re going to have to give all the basic information, but also what is the estimated total price? And there’s a lot of questions that arise about when you have to do an amended preliminary notice. So let’s say initially your customer comes to you and says, I have a $5,000 order.

Christopher:
Go ahead and do pre on the job. Here’s the job information sheet for the job. What happens when all of a sudden your customer comes back to you for the seventh time and says, Hey, I need another order of fabricated steel. So we’re at $120,000. Do you have an obligation to amend your preliminary notice? And, and if you haven’t seen this yacht before, that is in somewhere in Northern California is a contractors boat and you can see the name of the boat. If you, uh, if you probably squint down there in the bottom right hand corner of your screen, the name is the change order, right? So clearly a contractor’s vote that is very savvy because if I zoom in here, the little D attached to the big yacht is called the original contract. And that’s, that’s probably the reality for many of you on this webinar is that a lot of times what you start with is not what you end with.

Christopher:
And in fact, your change order amount swallow up your original contract. Now for you contractors, that could be a bigger deal, uh, that, that can lead us into a different area of the law if you’re not getting paid, if your change orders are 10 times what your original contract amount is, that that could be lots of different other legal issues that we need to explore. But for most of us, yes. Let me ask you a question. I have quite a few questions coming in. Do you want me to save those for afterwards or do you want to handle them as we go? I would say you’d have ones that that pertained to sort of the information we’re talking about bring in and if there are things that are sort of not on top, like let’s save them and we’ll, we’ll say 15 minutes at the end and we’ll rifle through as many is as needed.

Seth:
Okay. They’re going to, you know, we’re going quick so some of them I didn’t get to, but I’ll go ahead and give you one or two now. Just uh, so we can keep the audience engaged. Um, this is from Shamyra. Uh, if the contract is broken down into payments, do you still give them a signed unconditional release or not until the final payment for the project we’ve gotten, well we need the form to process the next payment. What do you do?

Christopher:
So I would hope that this is familiar to um, to most of you. And I’ll go back to this graphic here. This is how the system should work, right? Where you’re giving a conditional waiver and release to elicit your next payment and then the following pay period, you’re giving an unconditional release for the payment that you just got plus a new conditional for the next billing period and so forth until you get to the end. So that’s the way it should work. You should only again be giving me a conditional waiver release. If you have been paid and that check has cleared the bank, you should not be giving an unconditional unless that happens. So you’re typically doing it and most folks are doing on a monthly basis, usually near the end of the month. It doesn’t have to be, it could be a mid month deal. And you’re going to use the through dates on your waiver releases forms to indicate the date through which you are releasing your job rights in exchange for potential payment. So use conditionals, but use unconditional is when required. And when a call for by your customers usually again one to procure the next payment and then one to show that, Oh yes, I have been paid. That check is cleared. So let me give you an unconditional to to make me feel comfortable that’s happened and that’s the way it should progress.

Seth:
And one more. That’s pretty straightforward. Um, someone had asked Ken material costs be included in the mechanics lien?

Christopher:
Yes, yes. Uh, of course. And, and so one of the questions that we get from time to time is, well, wait a minute, I’m the contractor. So you’re telling me I can include my suppliers claims the value of their, their materials in my lien, and then they can go ahead and do a lien for the value of their materials as well. So it wasn’t that double counting. And the answer is yes it is, but that’s the way it works is that you as the contractor want to make sure you protect yourself. You’re throwing in the entire value of labor materials into your mechanics lien and your suppliers are free to do just that, to record separately liens for the value of their materials in addition. So it does put an additional obligation and burden upon, uh, owners and general contractors. But, but that’s the way it works

Seth:
and timid as the materials. Since we’re on this material supplier, when requesting a preliminary info, can the information be filed by the supplier? A form to use service to use.

Christopher:
So we’re going to talk about job information in a minute. So hang with me. that’s the next couple of slides here. Um, very important question and a, and if I don’t answer please ask it again, but we’ll get through job information in the next three, four minutes. Okay, great. So yeah, feel free to interrupt me anytime. I mean, this is, uh, if we were doing this live with the Beverly Hills Marriott as we had planned to do, then that’s how it would be. I would always, uh, I take questions throughout. So happy to do so. So the question is, as I was describing, is if you have a situation where you have done a prelim and it’s of $5,000, but now you’re at $100,000 in total value, what do you do? Do you have to do an amended preliminary notice? I would say most construction practitioners in California would tell you no and they might be right.

Christopher:
However, I think, and I think our firm is a different mindset. We believe the whole purpose of the preliminary notice is to make sure that you’re protecting lenders and owners and general contractors from secret liens. We want to know who’s on the project. And so because of that, if your amount is way off, what good is your preliminary notice if you’ve estimated $5,000 but really you’ve got $200,000 of value in a project, then what good is that prelim? So I like the idea of falling called the Arizona rule in Arizona. They actually require you that if you had 120% of your original estimated value, you must do an amended preliminary notice, otherwise you lose your right. Now that doesn’t happen in California. And I would um, uh, vigorously protect a supplier client of mine or a subcontractor client of mine if they’d gotten to that argument because I don’t think there is a requirement that exists today in the law.

Christopher:
But I could certainly see a case being made upstream and one day an appellate case coming out and maybe legislature changing its mind because of exactly what I just described and what Arizona is doing, for instance. So in the, in the rental equipment versus McDaniel case, and I’ll briefly describe the case because I think it’s pretty instructive. It was, I’m in a, I’m gonna play loose and fast with the facts here, but it was a rental equipment provider that was, was renting out lots of heavy equipment on a particular project. And by the time they got around to doing the preliminary notice, they already had something like $20,000 in equipment out in a project. They did a prelim for $10,000 and when you fast forward, when they did it, an amended preliminary notice, they did another amended prelim for another $10,000 even though there was now $150,000 of rental equipment out in the project.

Christopher:
And when the mechanics lien was recorded, you pretty much know what happened is we had a very unhappy owner who was looking down going, well, wait a minute. How did you come up with a $10,000 prelim when you already had $20,000 of value out in the project? And then you did another one and you had $160,000 on the project. How is that possible? And the credit manager in her deposition testified, well, I think it was a $10,000 kind of day. Um, and that’s just what all the prelims that I sent out that day were $10,000. Um, and so that was their practice was just you. $10,000 is a number and the courts have clarified for us that in California you cannot just make up a number. It can’t be made up out of whole cloth. As the appellate court said, you have to have a rational basis for that number, something.

Christopher:
Usually it’s your customer telling you how much, uh, in value they’re going to need for a particular project. Maybe it’s the contract amount, whatever it is. And if, and if your customer’s not sure, put the burden on your customer to give you something in writing in an email you do your best estimate so that I can rely upon it. That’s what I want to see upstream is I want to get something in writing from my customer that tells me what the estimated total prices. If you don’t already have a contract price or some other basis to calculate it, you don’t want to just guess because that’s what gets you in trouble. And that’s what potentially can invalidate your preliminary notice. So let me come to a very touchy issue for, for many of you, whether you’re a subcontractor or you are a supplier, is I know a lot of you have had the same issue pop up of, well, if I do a preliminary notice, it’s sort of an attack on my customer.

Christopher:
My customer looks at me like, when you don’t trust me, you don’t think I’m gonna pay you. I’ve always paid you what? Like what do you, why are you going to prelim? And so there’s not really any good reasons not, not to do a prelim. In other words, if a customer asks you not to do one, there’s not usually a justified basis. It’s either your customer’s not sophisticated, your customer’s lazy because they don’t want to process additional paperwork like the waivers and releases or your customer maybe is afraid of showing a large markup on, you know, when it’s doing its work and you’ve got a prelim. But remember the prelim, uh, a dollar value is what is an estimated value. There’s just not a good reason. And one of the ways you can push back, especially if you are a subcontractor and a lot of you probably do not know this, is that subcontractors must do a preliminary notice on every job, over $500 no ifs, ands or buts.

Christopher:
And the law is very clear about this. This is civil code section 8216 it’s one sentence long and I got to paraphrasing it, but every subcontractor and state of California must serve a preliminary notice every job over $500 and if you don’t do that, it’s an attack potentially on your license. It’s a warning from the CSLB. The second time is a fine, and I believe it’s the third time where you can lose your license and the fines aren’t small by the way. There are 5,000 bucks. So there they are pretty significant fines. And of course you have a threat of one year in jail. I never heard of a story where a contractor’s been thrown in jail for not doing a preliminary notice, but it does exist in the statutes, the penalty statutes that talk about what the penalties are for violation of 8126. So it’s a very good excuse for you subcontractors to a preliminary notice.

Christopher:
And to be honest, there are sting operations that will at least that were going on before the coronavirus pandemic. There were sting operations where you’d have CSLB folks come to projects, do a walk around, look at whose trucks are on the project, look at the uniforms, and then do a audit of the preliminary notices that the general contractor had at it’s home office. And then they would compare notes and go, okay, wait a minute. Why do I have ABC plumbing and X, Y,Z mechanical on this job site? And you guys don’t have a prelim from them. Well, let me call them and find out. And Oh well we didn’t do one of this project. We’ve worked for this guy for a long time. So we’re worried about getting payment. And the CSLB will say, well, that’s not your choice. The law requires you to do a prelim.

Christopher:
So this is your first warning. You do it again, I’m going to find you $5,000 and that’s, that’s how we started learning about this statute because it really wasn’t enforced until recently where Sacramento had a lot of money, uh, at the CSLB and we’re sending out folks that do audits. So it’s a great excuse for you subs to do prelims on all of your jobs. And it’s not that difficult of a process, especially when you’ve used a service like levelset didn’t make it so, so easy and efficient and inexpensive. There’s just really no excuse not to do a preliminary notice. Everybody does them on any major job, any commercial strip mall job, any tenant improvement and owner. And a general contractor is going to expect several dozens of preliminary notices. So if you’re not doing one, you’re probably one of the those few that aren’t doing it.

Christopher:
You should be doing all of your projects, especially if they exceed $500, which I imagine for most of you is every single job. And even for you suppliers out there, the 8216 this, this requirement that your subs do, prelims gives you a nice excuse. If people know your sub is out there, there’s no reason for people not to know that you’re out there. And again, owners and contractors like to know who are my suppliers, who’s doing it, who’s supplying the concrete or the electrical or the plumbing or the steel on this job. They want to know that. So you’re not helping by not doing your prelim. In fact, you’re probably frustrating folks upstream because they want to know who is on their project. So again, your job as a credit manager or as a project admin is to maybe educate the folks that you’re working with, that you’re doing a preliminary notice, but you’re not doing so on a spike or on a mistrust.

Christopher:
You’re doing it at a good business practices. And there’s no reason why you can’t toss on a nice, um, letter, a little memo on your letterhead under stationary that says, you know, we are serving this preliminary notice. This is, this is a formality. We do this at all our projects. You can dress it up, you can make it pretty, a little cover note or something. If you are worried, you can send your customer separate emails and let them know and let them know that you’re, you’re not doing so out of the, again, mistrust but doing so because the law tells us that we should be doing it.

Christopher:
Okay, so a couple of of um, slides here regarding, I think the previous question is we get into job information is I know a lot of the comments that we get as well. It’s just not easy to get project information and it’s easier perhaps than you think on most jobs. And it is something that is important, especially when you communicate with your sales folks, with your branch managers, with the president of your company that may be more focused on sales and they are credit is making sure that they were all on the same team. And it’s vital that we get product information up front so that we can protect ourselves and do the preliminary notice correctly. Now California, the general contractor who we refer to as the direct contractor as of July 1st, 2012 they are required to provide preliminary notice information for anybody that’s seeking it.

Christopher:
That’s in the civil code, so a GC is not allowed to say, well I’m not going to give it to you. They must give it to you. If you identify yourself as somebody that’s going to be supplying or working on a project, they must give you preliminary notice information. Again, that’s still a code section 82 Oh eight you will find the lender information. Typically on the construction contract documents you can ask the contractor, Hey, I need a copy of your contract. That shows the project and all the project players. You can redact pricing and all the other information. I just need to see that particular portion so I know how to do my prelim. The building department has records for lender information. The permits will show who the lender is, if there is one on a job. County quarters offices are all different as far as sophistication and whether you can get information online or you have to go through a title company or an attorney’s office to get job info.

Christopher:
I know levelset can often dig up job information for you, so all important stuff in different ways that you can get product information. Now, one of the nice things in California, and this does not exist in a lot of States, but we actually have law. We have an appellate case called force framing versus China trust bank, which allows us to rely upon a job information sheet. And clearly this is a fantastic thing for most of us that are used to this form. We may get this job information form on a general contractors letterhead or stationary. Uh, maybe it’s a job information form that comes from our customer directly if they’re a subcontractor. But regardless, this California case stands for the proposition that if you rely upon the information and the information is trustworthy, even if it’s wrong, the law still going to probably protect you.

Christopher:
The claim. the quote unquote innocent claimant. And so while there’s lots of case law out there and that requires, and it’s still a good idea, especially for high dollar projects to do your own research, that your, your projects know who the players are, spend some time and money, especially if it’s a significant order, you’re going to want to go ahead and check County recorder’s offices and check with the GC. You’re going to want to take those extra measures. But the good news is that job information sheet that you’d get could be um, uh, an important and vital source of information that can protect you. So if you fax in the fourth spraying case just to illustrate how important it was to vet, to force framing, but also to many of you that now benefit from the result of this case. And this is a subcontractor who had a job information sheet which showed that East West bank was the construction lender for a particular project.

Christopher:
So based upon and relying upon an information force framing sent out its preliminary notice to East West bank as well as the owner and the general contractor. Well, project didn’t go so well and now the lender was looking to take over the project and basically get rid of all of the lien claims…. And one of the ways that it was going to do so with force framing was to say, you got the wrong guy. We’re China trust fake. We’re the actual lender on the, on the project. You got the wrong guy. When you did your preliminary notice because we never got the preliminary notice, your mechanics lien is invalid. Sorry, force framing and the California appellate court said, not so fast. I a trust bank. The law is liberally construed in favor and for the benefit of contractors and suppliers in California, we want to protect them, but even though the information went to the, to an incorrect party, we’re going to put the burden on you trying to trust me.

Christopher:
We feel bad for you, but sorry, you’re going to bear the burden on this and we’re going to still hold on. The lien claim is valid. If the information that was provided was quote unquote trustworthy. Okay, whatever that means, but it would, that means to 12 people in a jury box or Tory, a judge in a black robe. Whatever trustworthy means is what the lies in the city of California. So I would say when you get a job information sheet and they are not created equal by any stretch of the imagination, it’s important to look at it is, is it on a, the letterhead of the top 10 in our contractor? Uh, is it from your customer? That may not be so, so, uh, so large or so distinguished, but still does the information look accurate? If the lender information is blank, I think you got a problem. I think defacto it’s untrustworthy, right? You have a duty to follow up and inquire and ask your customer and the GC, Hey, the lender information here is blank. Does that mean there is no lender or are you guys just not sure? So following up to, to get that information is key.

Christopher:
A couple of common mistakes that come with job info sheets is in addition to having blanks, right? And again with those, it’s important that you follow up, especially when it says unknown. If you have something that says unknown, you want to follow up to make sure that uh, that you do identify the proper lender or, or the TBDs. But you’ll often a section on job information sheets that will save surety and they’ll list a, you know, ABC insurance services, Mary Jane, I shouldn’t use that as an example. Married or Jane DOE an insurance company. Okay. That is not going to be the surety of the payment bond surety for a construction project. That’s probably the broker and the law tells us that service on a broker is not going to be proper service upon a surety. So later on when we talk about doing notices of bond claims, we’re going to talk about how you have to send them to [inaudible] and you’d have to send them to the general contractor and the principles of that, of those bonds, you have to make sure that it’s not going to the broker, but it’s actually going through the surety.

Christopher:
And most of us know who those sureties are. It’s the same ones over and over again. It’s your continental casualty companies. It’s your Liberty Mutual’s, it’s your Zurich’s, it’s your fidelity. It’s the same ones that you’re going to see over and over again about 10 of them that pop up almost in every project. So those are the sureties that we’re looking for, not ABC insurance services or something like that. Okay. So job information sheets can’t over emphasize that those are super important to California and the think, thankfully the forest framing case gives us a lot of ammunition to use when the job information is incorrect. And again, it’s not an excuse to put your head in the sand if you have a bad job information sheet, you should follow up on the larger jobs. But it’s a nice piece of law that exists to protect subcontractors and suppliers.

Christopher:
Right. I will rifle through some of these fairly quickly cause I know most of you already know the basic timing on preliminary notices. Again, doing it within the first 20 days. Very important. Um, talking about the mechanics lead itself, again, most of you are familiar with the form. It’s a three page form as of 2012. It’s not just the mechanics lien itself, it’s the proof of service affidavit and the mandatory language. Uh, if you’re using Levelset, one thing you always will know is that they are using the latest and greatest updated forms and you’re doing them on your own. One of the biggest worries is that you’re using old form and I see this a lot from some of my smaller contractor clients that come to me and say, I haven’t done a lien in 10 years but I need to do one. Um, and so I did, I hear, I didn’t want, I need you to file the lawsuit and I look back and perform and it’s an old form that doesn’t comply with current law.

Christopher:
Most likely if you use an old form, it’s not going to be good. So I strongly suggest that you are using the new forms or you use a service like levelset that will help expedite your, uh, your mechanics lane and they’ll do it right. Okay. Couple of prerequisites that some of you may or may not know is that you always need a serve a copy of the mechanics lien before you record it. That is something that’s required. It doesn’t mean that you can’t do it the same day. You could drop it in the mail by certified mail and then run to the County recorder’s office and get it recorded. At least when they’re open. That’s how you could do it. But that is a two step process that now exists and you have to file your lawsuit to protect that mechanics lien within 90 days.

Christopher:
If you do not do so, your mechanics lien is stale and now you’ve turned your security and leverage into a liability because there was a civil code section that exists, which allows owners to use it against you to say, Hey, your mechanics lien was recorded 92 days ago and now it’s stale. You haven’t filed a lawsuit. So now I want you to remove it. If you don’t do so within 10 days, you’re going to pay my attorney’s fees when I found my petition to have your lien expunged. So I see this a lot amongst suppliers and some unsophisticated contractors. I go, well, I’m going to lien my lien out there for as long as I need to until I get paid. It doesn’t work that way and unfortunately if you leave your lead on too long without falling your lawsuit, that’s when you get in trouble and now the tables have turned and the owner and the GC have leverage over you.

Christopher:
Other things that you may not know about the mechanics lane is that you have to be done with your work in order to to record your mechanics lane, you got the cease performing your labor materials. Now, this is very important in this day and age of coronavirus because if your project is being suspended or terminated, you need to make sure that you have an understanding in writing with whoever your customer is and that is the case because you don’t want to be in a situation where you are prematurely recording your lien. Like what happened to precision framing systems last year where their lien was thrown out because they still had a few thousand dollars of work to do when they recorded their mechanics lien. So yet again, excuse me, the lesson is you must be done with your furnishing of labor and materials to record your mechanics. Now that may mean for your projects that are suspended for you to issue some sort of notice.

Christopher:
It could be a deductive change order for the balance of your contract to say, Hey, because of the suspension and because of the need for me to protect myself, I’m going to declare that I am done at this point. However, if you want me to resume and finish up the rest of the work, I will do so pursuant to a separate, a separate contract or change where you could do something like that with your attorney’s assistance. But it’s important that you don’t just record your mechanics and if you still have work to do without thinking about that. Okay? Very important because of these projects, suspensions, that you go about recording your lien the right way and don’t do so prematurely.

Christopher:
Now notice it’s a completion or are usually a topic that we spend a lot of time on because if you get a notice of completion, even though they are still somewhat rare, they’re more common on public projects, it shortens your timeframe. So by the time you get a note on the copy of the notice of completion, you may only have 20 days to, uh, to record your mechanics lien or else it’s too late. Direct contractors have 60 days. So whenever you get a notice of completion, you pretty much want to stop what you’re doing and say, Oh, I got a notice completion. I’m still owed X number of dollars. It’s time for me to go ahead and record my mechanics lien. And you have to be given a proper notice of the recording of the notice of completion in order for it to be effective.

Christopher:
If it’s not sent to you, then it’s invalid. Okay? And you have 90 days to record your mechanics. So it only can shorten that window if it’s properly done and timely sent to you. And there’s lots of rules about noticing completion and whether they’re effective or not. I will tell you my experience more than half of the notices of completions that I see are invalid. So just because somebody tells you, well, here’s the notice of completion. Your lien’s too late. You’ve got to take it with a great assault. Most likely they haven’t followed every, uh, every I and every, crossed every T in the process to take it with a grain of salt. But when you do get it, it’s important to, to act quickly. All right? Yeah. There’s no notice of completion then. Typically all claims have 90 days from actual completion to record their mechanics lien.

Christopher:
Okay. California is one of the few States that does follow the, the lien calculation from when the project is complete. This is very different in most States and different and under federal law where we follow, you have to do your bond claim within 90 days of when you last furnish. That’s not the way it works in California. For better or for worse. We have more time. And so with some of our customers expect that you’re going to be more patient on your end to record a record your lien. So your lien deadlines, again, run from when the project is complete, not just from when you’re done with your scope. Now one important thing that we’re going to talk about is what is completion. Um, and we could spend an hour on this topic alone. I’m going to just dive into it really quick. Completion is an amorphous concept and nobody can tell you any different no lawyer, no construction lawyer can uh, can perfectly identify when completion is, especially with this new precision framing case that came out last August, it’s really muddied the waters for us to try to figure out when completion takes place.

Christopher:
Typically we consider completion when the actual work is done and the building is occupied. Um, that’s, that’s typically what we think about when, when we hear completion. But it doesn’t mean punch list work and call back and warranty work extends that, that trigger in perpetuity. There is a cutoff. And so we’d like to differentiate what is work that still needs to be complete. In other words, work that’s required by the plans and specifications of a particular job, but that still is not done yet versus all the orders in place and now we’re just doing callback pickup sort of work, punch work that’s really remedial in nature. Okay. When we’re at that stage, the project is already done, so when already in that punchless phase, not because there’s work that’s missing but work, it just needs to be repaired. You already have a completion most likely under California law, so that finding that balance is important.

Christopher:
Sometimes it is, to be honest, if you’re a an early trade contractor or you are a supplier is contacting your customer or the GC and saying, Hey, I know we’re waiting on on 10% of our money still, it’s been a year. We’re not really sure what’s happening on the project, and somebody upstream says, Oh, well don’t worry be patient. The project is still, there’s still punchless work going on the project. That’s a concern because you know that punchless work may indicate that the product is already done. Okay. You want to know what type of punch lists work is still to be done. Is there missing work? Is there still the, some of the finishes that need to be installed in the project that haven’t been done? Is it stolen? Do you have a second coat of paint? Okay. Are there things that are required by the plans that haven’t been done?

Christopher:
In that case you may still have time, but at the punch list again is all remedial in nature. Then your completion has already occurred. So what I like to do is ask for a couple of documents. Usually it’s the punchlist itself that should be readily bubbled. All trade contractors that are working on the project towards the [inaudible]. They also like to ask you to look ahead, schedules, you know, give me your latest three week look ahead, schedule because those sorts of documents. Give you an idea of where the project status is and give you some comfort or discomfort in identifying. Oh wow. We are at that time where I’ve got to go ahead and move forward. My mechanics lien rights. And the final thing that I really want to emphasize here again with the coronavirus impacts are chances are with 30 to 50% of projects getting suspended that you’re going to run into a statute that we really haven’t seen for quite a while.

Christopher:
This, this statute takes greater significance when we have economic downturns. I’ve been around, I’ve been practicing for 20 years, so I’ve seen three, two to three economic downturns including of course about eight, nine years ago where we have products that were being mothballed or suspended, contractors being kicked off of jobs. And this is the last time we saw cessation of labor issues. So understand this one takeaway. For those of you that are, that are okay, I’m sophisticated. I know this mechanics lean stuff. This isn’t really new information for me. Um, a lot of you do not know that if there’s a cessation of labor for 30 days, 30 straight days, and no work on a job, which is quite likely the state of California right now, if that happens and an owner sends out a notice, a sensation of labor, then you have now your clock ticking for you to record your mechanics lien or serve your stop notice.

Christopher:
You can’t just wait, okay, your clock, your trigger is going, even though there’s no roof on the project yet, there’s no windows. It doesn’t matter. We have a completion. And when the project resumed, you’ve got brand new project. So it’s either 30 continuous days plus the recreation of a notice, the sensation of labor or 60 continuous days of cessation of labor. And it’s a trick that a lot of, uh, take over sureties will, you will use, they kick off the contractor. It’s been 30 days, they’re trying to find a new contractor. It’s been 45 days. And they go, well, wait a minute. New contractor, just hang on a second. Let’s wait another 15 days. Because once we have 60 continuous days of no work, I can now use my Elmos and try to kick off all of those claimants that are trying to assert their rights against the project because they’re going to be too late if they don’t record their mechanics lien timely. So super important that you understand this, the station of labor statutes that again have not really kicked in for many years, but now they’re going to be of importance if you are on a suspended, suspended.

Christopher:
All right, how am I going to secure myself? And it may be going ahead and, and, or with mechanics cleaner, stop payment. Notice remedy. Okay, let me move quickly.

Christopher:
I’m good. Skip through a couple of my, my wonderful video clips here, uh, for, for benefit of trying to get some more information in here. Again, things that you do not know about because I do a lot of these seminars and webinars. And what I realize is when I talk about some of these topics I get, I, I’m, I’m getting the impression that maybe I’m not doing a better job in the construction industry on, uh, pushing ways that you could protect yourself. It’s not just a mechanics lien. The stop payment notice is key. And a stop notices is key because it is a complimentary remedy. So on public and private jobs, you can use a stop payment notice remedy. And I know a lot of you know that if you do public works, go, Oh yeah, I know I can do a stop payment notice and that’s what I do.

Christopher:
But you also can do them on private works that have improvement. So very important to think about it. It’s a different remedy. The lien is passive, right? You all know that the lien is like a mortgage. It sits on title. You may have an owner that really cares or you may have an owner that’s out all work itself out, uh Oh, next year. And they’re not going to really take much action. When you do a stop payment notice, it’s really an attack on the construction funds of the project. Meaning they’re going to have to deal with you. So if you want that sort of attention, then you’re going to do a stop payment notice. And so for public or private, it’s going to go to the person who’s holding the construction funds, whether that’s known or funded job, it’s a construction lender or an a public project.

Christopher:
Whoever the dispersant officers, that’s who you’re going to send the stop payment notice too. And it acts as a lien on the construction funds. Right? So I think very important to consider, and you may not use it on every one of your jobs, but at least consider whether it’s an appropriate thing to do. Now, what important difference between the lean and the stop payment notice is that you can serve it at any time. You don’t have to wait until you’re done, like the mechanics lien so you can serve it even though you still have another a hundred thousand dollars a work to do. But you can only on the amount do include the value furnished to that date of when you’re sending the stop payment notice. You can’t send it for the entire work. That’s not yet been done.

Seth:
Okay. This is an important distinction here between the mechanics lien and a stop payment notice. I don’t want to interrupt an important point, but we do have a ton of questions which I will get through as many as you can, but just you let me know when you’re ready to wrap up. So because I know the audience wants to participate cause after all this was supposed to be a live event where we could have answered some more questions. But uh, whenever you’re done wrapping up I’ll kind of do some rapid fire questions at you. They’re all over the place. I don’t know a better method to go, but you can give them, you know, 30 seconds a piece if appropriate. Some are quick, some are not. But uh, go ahead and start, interrupt and just let me know when you’d like to start the Q and a period.

Christopher:
No worries. I know I’m talking fast. I apologize. I have tried to get as much information as I can in uh, uh, for, for folks to, to hear him and hopefully help. So, um, I’ll wrap up in about how about six or seven minutes. So we’ll be done. Um, we’ll be done by nine 47 or so. I get, I’ll stay as late as long as people want and to ask questions. I’m here to help in any way. So a couple of other issues about the stop payment notice and it will go into great detail about it cause it can get super complicated. So again, public and private projects on public jobs and an owner funded private jobs. All you have to do is fill out a one page piece of paper and serve it with a proof of service. That’s your stop payment notice. Okay. You just use the provided forms of course. Now levelset, fantastic resource, fantastic way to easily move forward.

Christopher:
Like bank of the West bank, Wells Fargo, you can still do a stop payment notice and the bank may. However, unless you go out and get a bond, the bank or the lender, I had to ignore your stop payment notice. So this is an important little clarification here for lender private jobs. So when there’s a third party construction lender, you want to make sure that the lender on you were stopped payment notice and takes your money and sets it aside for your benefit. You may have to go get a bond. And that bond, as most of you that are sophisticated in the industry know bonds are usually about a percent percent and a half premium. It can be significant. So if you have $100,000 claim, you might be spending $1,500 to go get a bond from a, from a surety. And you go through a broker and there’s lots of great brokers out there.

Christopher:
The lockedins, the marshes out there, there’s lots of smaller brokers that know how to do this. You can get an issue, typically 48 hours or so you, you attach the bond to your stop payment. Notice now the lender has no choice but to set your money. And the Oh huge benefits of doing it that way is one. You’re now must set aside your money or face person liability for your claim. I don’t have a choice. And even if, and this happened a lot 10 years ago, even if they say, well sorry, we’re going to wipe it out. There’s no money left in the construction fund, but we only have $50,000 left. There’s claims that are like $1 million on this project. Sorry, you’re the lender will have to reach into its own pockets under, I think it’s 1985 case called the million pipe and supply.

Christopher:
Um, they have to go into their own pockets and put back on the table. Construction administration fees, points and other things that it’s paid itself during the course of the loan. Those become subject to your stop payment. Notice claim lenders hate when you do a bond and stop payment notice. And the second thing is if you win, if you’re the prevailing party, you get to recover your attorney’s fees. You don’t get to recover your attorney’s fees on a straight mechanics lien claim, but you do so on a bonded stop payment notice claim. So a couple of really important points about that stop payment notice. Always consider it. Always consider using it as a complimentary remedy when you’re doing your mechanics lien.

Christopher:
Make urge you to do it. They don’t want to be the bad guys. They want you enforcing your claim upstream and you throwing your around both to help you and also them get paid on public projects, right? Everything over $25,000 has to have a payment bond behind it on a public working improvement. There’s a couple of exceptions, but that’s pretty much the way we look at this. So any public job over 25 grand, you know there’s a payment bond there for your protection typically issued by the prime contractor and its surety. Sometimes we’ll have subcontractor bonds that are out there. So it’s not just limited to to the general contractor, but increasingly, especially in California, you have payment bonds on private projects and if you don’t ask, you might never know that there’s a payment plan on private jobs. The larger the job, the more likely there is that there’s a payment bond.

Christopher:
Again, even on a private work of improvement. So it’s important to to know if there is a payment bond available for you. Um, and if you, if there is one that you use a notice of claim to surety and principle forms. So it’s a one page form, it looks like the mechanics and it looks like the stop payment notice. It goes to the principal. The bond, again, it’s almost always general contractor doesn’t have to be but almost always is. Plus the public entity. When they get this form, you’ve now made your claim and the surety will respond to you within 15 days. Under the California insurance code regs, they will be responsive. They’ll ask you to fill out a form to provide the supporting documents and you’ll wash through the claim with them and hopefully establish your, your place in your security. Now one beautiful thing about the payment bond claim is that even if you did not do a preliminary notice, you still may be able to do a payment bond claim, private or public.

Christopher:
There’s a couple exceptions with a preliminary notice requirement. One of them is for payment bonds. You can still do a notice of claim after the fact up to 75 days after the product has been complete and still do a notice of him, a bond claim, even though he never did a preliminary notice. If there’s a notice of completion that time window strikes the 15 days, but still at the end of the job you can do a notice to pay with bond claim even though you never did a prelim. And the other exception that we did talk about earlier is on public works. If you’re in direct contract with the general contractor, there is an exception for you. You may not have to do a preliminary notice. I always tell my clients, you always do it, but that may be a loophole. If you aren’t a sub, a direct sub, or even a supplier to a GC and you didn’t do a prelim, you still might be able to move forward [inaudible] or a payment bond claim even though you didn’t have that prelim.

Christopher:
Okay. So very important to make sure that you know that the payment bond claim exists on, again, all public jobs and many private jobs and know that if you can’t get the information from your, from the GC or from your customer, it, especially if it’s on a public work of improvement, the public entities want to give you their information. They don’t want stop payment notices on their job. So almost always you can do it by email, give them a call, ask for a copy of the payment bond, and they’re pretty responsive. Usually within a few hours or within a few days, you’ll get a copy of the payment bond issue for a project, even though the GC or your customer may not have it or maybe a reticent about giving it to you. All right. And with that said, I want to leave some time for questions here, but I want to emphasize that even if you’ve done it all right, that you at the very end of the day, you have a short window or it’s your claims and it could be as little as 90 days from when you record your mechanics lien.

Christopher:
If you haven’t filed your lawsuit to protect your right, you may have lost your mechanics clean, right? So it’s not just setting the table, doing the prelim and doing your claims timely, but then enforcing your claim down the road with your counsel is making sure you do that quickly. Not waiting till the very last day. Because again, with court closures, it may be difficult to get things filed same day, especially in those counties that don’t do e-recording. All right. Let’s, yeah, let me ask, are you able to see the Q&A questions that have been typed, it may be easier for you to read them than for me to read them to you. Uh, wow. Yeah, we have a ton.

Christopher:
All right. So let me rifle through as many as I can quickly if that’s okay. And again, I’ll stay as long as people are interested. So let me go through, I’ve got probably way more than we can pick out a few. First of all, it is what can a GC do when a sub liens a job without a preliminary notice? I know it’s legally not valid, but it has stopped our payments from the owner in the past. Well that’s a situation where you send a nice nasty letter to that subcontractor demanding a release immediately or else. And there are cases, there are procedures that we didn’t really explore today that you can use. There are some, most of them since the petitions that you can file, especially if it’s a lien that’s done in bad faith, uh, where you might be able to get your attorney’s fees back from that subcontractor.

Christopher:
And so I would suggest going to a construction lawyer to have them draft you a one page nasty letter. Typically that’ll do the job. Um, so that, that’s my suggestion. But you’re right, if your son had to do a prelim and didn’t do a prelim, that might be an Avenue that you want to pursue and uh, and scare them off of their claim. And again, one of the exceptions though is on a public job, if you’re the GC, your sub may not have had to do a preliminary notice. Uh, second question is California 20 days from the start of the project as a whole or 20 days from the sub, the subcontractor start date. Good question is from the start of uh, uh, when you furnished your labor materials, not from when the, when the project has committed. So you may be the roofer that doesn’t get involved until a year into the project. Within the first 20 days of when you walk on site. You should have your preliminary notice down.

Christopher:
I also wanted to ask if there, the 20 days has passed from the start of the job, can we still go ahead and put a lien on the project? Um, so again that will depend on if you are in the middle of a job and you go, man, I just, I didn’t do a prelim and I had to do a prelim, we’ll do a prelim now because it will still capture the value of your work 20 days in the past and everything forward. But if you, if you were required to do a preliminary notice and now you’re facing that situation where you’re done and you haven’t done any work in the last 20 days and there’s nothing to capture by doing a prelim, you still may want to consider doing a mechanics lien but you have to do so with some basis. I wouldn’t just do it. I would never recommend somebody doing a mechanics lien if you’ve got no basis to do it. There are some ways and creative ways with your legal counsel to try to get a claim down, but you may be stuck with your old fashioned contract rights and pursuing your claim and there’s lots of little exceptions that that you might fall within to excuse your lap, your preliminary notice. But I wouldn’t do it if there is absolutely no basis to do it.

Christopher:
I got a question about Washington law. We actually have some, uh, some slides in another presentation about Washington lien law, a similar but, but very different as far as timing goes. So I would suggest I wait until level set does a Washington, I mean last seminar, um, or, or give a Washington expert that you find a call because they can quickly answer your questions there. A retention, yes, no for purposes of conditionals and unconditional. So, um, you’ll notice that in your, your conditional waiver release forms, one of the built in exceptions is for retention. So they’ll, they’ll say include the value that you’re owed, but retentions are not waived. So look at that for and make sure that you’re using the right form that has a carve out for retention. And if so, you can safely give the amount due for your next progress payment, but still preserve your right to retention payments.

Christopher:
But then as you move forward, when you get to the end of the project, you don’t give an unconditional upon final. Every dollar has been paid, including retention. So those final releases contemplate full payment. Every dollar including retention and progress payments, however, are the ones that usually carve out retention as an exception. Next question. Do you have to send a preliminary notice when contracting directly with the property owner? Fantastic question. Um, so the law was clarified in 2012 and we actually represented a contractor in that situation, uh, in the appellate system and it was that prior to 2012 that you probably had a good argument that you did not ever have to do a preliminary notice when you were privity of contract with an owner. And that still could be the case. However, the law is very clear that if there is a construction lender and you don’t serve a preliminary notice, your mechanics lien is not valid, at least against the construction lender.

Christopher:
So, so yeah, you’d have to do a preliminary notice even if you are in direct contract with the owner. If there’s a construction lender, we always suggest you do a prelim on every job no matter what. You never know. Sometimes if there’s a lender behind the scenes that you’re, that you weren’t made aware of. So we always suggest doing a preliminary, we said earlier, every job over 500 bucks, we suggest you do it and the law requires you to do it. So, uh, but yeah, you may have it out if there is no lender and you are in privity of contract directly with the owner. Our prelims required on public works projects as well. Well, as I mentioned, they are required on public works jobs. There is an exception. If you are in privity with the general contractor, you may not have to do a preliminary notice. When do suppliers have to send prelims? Are they required? Like subs? Absolutely. Prelims are required for material suppliers and again they should be sent within the first 20 days of when you furnish the materials right away. Don’t wait on your preliminary notice.

Christopher:
Can I think we’ve addressed some of this stuff. Let’s see. If you are working with the federal government, how am I to include the lender on my prelim? So federal jobs are a little different. We didn’t talk about federal jobs today. I’m Seth. I know, I’m sure you, levelset does webinars for federal Miller act a bond claim projects and and we’ll, we’ll clearly do one in the future if one is requested of us. Uh, we represent uh, contractors and suppliers to federal products all the time. So there is not really a preliminary notice requirement for you on federal jobs. It’s all about the Miller acts bond and making sure that within 90 days of when you last furnish to a job that you send out your Miller act notice to the contractor by FedEx or certified mail. We also like to send it also to the surety. It’s a good idea to send it to both. So it’s all about Miller act. No preliminary notice a requirement unless the contract docs require you to do a preliminary notice.

Christopher:
All right. Now another good question here from a GC, what can I tell subs that threatened mechanics liens prematurely? Also what happens when they file a lien prematurely. So, uh, it’s a, it’s a tough question. It really depends on your project. Cause we talked about folks should not be doing mechanics liens until they’re done with their scope. However, if they’re not getting paid, one of the arguments you’re clearly gonna hear is, well look, we haven’t been paid so you have breached the contract by not paying me on time pursuant to the contract pay schedule. So therefore now I am within my rights to suspend my work and do my mechanics. Like you’re, you’re going to hear lots of, um, of, uh, things like that depending on the specific factual nature of, of the issue of the dispute. But, but that’s really the, the requirement is that you are done with your scope or at least you have declared that you are done or the other party has breached the contract before you record mechanics liens. Um, there, there is a way to challenge premature mechanics, things as, as precision framing learned in the appellate system.

Christopher:
can stop payment notices apply to insurance proceeds. Great question. I’ve gotten this question for many years, but absolutely. Uh, whoever is holding construction funds and oftentimes you’re right, especially during the fires that we had in Northern California and down here in Southern California, it’s a big source of, of construction funds. You can do a stop payment notice for funds in the hands of insurance carriers.

Christopher:
Right. I think a little bit more questions on the preliminary notice. What happens if we send it too early? There really is no such thing as sending a preliminary notice too early and you can send it as soon as you want to to be quite honest. As long as you can rationally estimate value that you’re going to first to the job and you’ve got the proper job information, no such thing as a, as a two premature job information sheet. Will the slides be available offline? Um, awesome content but we are rushing through. Yes, we are rushing through. Uh, we, we like to do three hour seminars, uh, at times with, with lots of jokes and, and video clips. We didn’t have a chance to do that today cause I wanted to make sure that we hit some of the coronavirus stuff too that I know is impacting folks and emphasize on that. But yes, the slides are going to be available, uh, online and I think a, a video rebroadcast of this webinar will also be posted on YouTube. Uh, if you want to see the one that we did on Monday that’s also on YouTube right now, posted through level set where we really emphasize more the contract and coronavirus impacts how force majeure works and all that. So for UGCs and for you subs and suppliers, uh, important seminar perhaps for you to, to get into where we really focus more on from an a virus.

Christopher:
All right. Let’s see. A couple more questions here. We still have a little bit time. A couple more minutes.

Christopher:
Got it. So question is on the stop payment notices. You said it only covers up to the date on the notice. So are we to stop working when we issue a stop payment? It depends. You don’t have to, you can still work. And that’s the beauty of the stop payment notice. You can, do your stop payment notices while still working on the project again, only including the value through the date of your stop payment notice. But it doesn’t mean that you have to stop work unlike the mechanics lien. So it’s a great clarification for purposes of the stop payment notice

Christopher:
well, let’s see. Let me try to find one more here. A lot. A lot of good preliminary notice questions there. There’s one or two questions in the webinar chat if you want to check that too, Chris. Oh wow. Yeah. Okay. Let’s see here. question’s everywhere.

Christopher:
So our GC is required to provide a bond company and bond information for public works projects. Yes. Uh, it depends what you’re asking, but, but yeah, certainly, um, I think that’s a requirement that’s implied in the California civil code. And if you’re not going to give it to you, there’s an easy place to get it. It’s calling the public entity or sending them an email. And again, they’re really responsive in my experience. I’m never in the last five, six, seven years, uh, had a situation where a public entities says, Oh, we can’t find it. It can’t get it to you. They want to give it to you cause they don’t want to stop payment notices on the project. And they usually email it to you. So that’s the good news. If you’re having problems, you can do a public records act request. It’s a one page letter basically offering to pay the public entity. It’s reasonable costs of copying the, the bond information that you’re requesting and they get it to you within 10 to 15 days max. So that’s the worst case situation.

Christopher:
Can you file a mechanics lien on change orders due? If the owner has fired you at 95% completion of the job absolutely is if you’ve performed the work, you have the right to the mechanics lien. It doesn’t matter if it is in dispute, does it matter if it’s a pending change order? You know, it’s a PCO or a change order that hasn’t yet been built. You’re going to include your mechanics lien, all of the value of the labor materials you furnished to the project, regardless of whether it’s been built or not. Okay, that’s so, so don’t, don’t be afraid of not including change orders in your mechanics. And you absolutely should do change orders include change order value into your mechanics lien claims. Again, another insurance question. If the insurance company is providing funds as the stop payment notice gets sent to them or the owner to be.

Christopher:
To be quite Frank, I do both. If I’m at the point where I’m doing a stop payment notice, I want to serve everybody that, that has a potential ability to get me paid. So I’m going to serve both. The, the important target of course is the person that’s holding the funds. So in this case would be the insurance carrier. But I definitely want the owner also to be subject to the stop payment notice because if they’re folks that are holding funds, I want them to, to, uh, to, to have, to hold construction funds for my benefit. So you as the contractor may not exactly know how the money’s going to be paid downstream. It may get cut from insurance carrier to owner to contractor and may not go direct from carrier to you and the owner may have some funds you may want to have both of them as proper targets.

Christopher:
Um, another question, and I hope I touched on this clearly not when can I file a stop payment? Notice anytime, anytime you want again, for the value of your labor materials furnished through that date. Now if you’re asking on the, on the late end, like how long do I have to file a stop payment? Notice the good news for you is that it dovetails with the mechanics lien law. So you have basically the, at least the same amount of time to serve a stop payment notice as you do to record a mechanics lien. And on public jobs you may have longer, it gets a little bit complicated. Um, you may add another 30 days to the mechanics lien timing that you would have in a private job, but you’ve gotta at least as not, uh, the same amount of time if not more to do a stop him and notice and you may have several more months to do a payment bond claim up to six months after a job is, is complete, um, to do a T sorry to file your lawsuit on a payment bond claim. You still want to get that notice out that 1575 day notice that we call it the one that I showed you. It says notice of claim on payment, bond to surety and principle that when you want to get done as soon as possible and usually no later than 15 days of when a notice of completion is recorded or 75 days after actual completion.

Christopher:
When can I get a copy of the program? Well, I’ll let Seth, when can I get a copy of the PowerPoint? I’ll let Seth the answer to those questions about when this webinar will be posted.

Seth:
We’ll be following up with everyone that was a participant today. And I guess we’re almost a little bit over five minutes over now, Chris, so I know you’ve got to most of the questions, so it’s probably time to wind down and I’ll give you another minute or so. And then, uh, you know, if, if

Christopher:
I think it’s frozen,

Seth:
ask the question to Chris and to any other person in your area. I froze up.

Christopher:
Oh, there you are.

Seth:
I’m here. You can hear me now if you have, if you have other questions, go ahead and post them on the experts center in your particular area. Chris can get to him or another lawyer can get to him or another expert if it’s in a, you know, an accounting person or an engineer, uh, but mostly lawyers. So go ahead and go to the expert center posts and questions if you haven’t heard the answer, uh, that you posted today or if anything else comes up, that would be great. And Chris, we really want to thank you again for doing an excellent webinar, two in one week and we’re sorry, we’re unable to see you and meet all these nice people live in Beverly Hills soon as, um, our epidemic or pandemic. Uh, subsists a bit. We’ll be back in Southern California doing one live. So Chris,

Christopher:
yeah, it’d be exciting to see you all in person. I always like to do seminars in person. It’s great to answer questions live and we will give you an extra rubber chicken lunch. Um, and lemonade. Let me see you at the hotel. So I just want to think, um, levelset really, I want to make sure that folks know that level sets doing something extraordinary. Uh, AGC is doing a really good job too and helping contractors no doubt with their, their updates, but a level set has a survival kit on its website to survive the coronavirus pandemic. They’ve got great resources for a lot of you that don’t already know when you Google construction help in California, and it usually level sets going to be your first or second result that pops up. They are on top of things. They are using a database of experts like ourselves around the country to help folks in particular jurisdictions.

Christopher:
Um, so there’s, there’s just no, there’s no replacement for good information and you’re getting a lot of that through level-set. So thanks to the folks level-set. Thank you guys for joining today. Any questions? Comments? Always around we are working remotely, even though we, um, we don’t have our physical offices. We are up and running. My wife would say that we’re working too much. And back she goes, you know, you were working less than you were working in the office and now that you have your, or you’re working too much. So we are here to help you navigate coronavirus and the impacts and answer any followup questions. So would that be safe, stay healthy and we’ll talk again soon.

Seth:
Everyone stay healthy. Thank you Chris. So we really appreciate it. You have a nice day. Bye bye.