MECHANICS LIENS

In the construction industry, the mechanics lien has long been a familiar, legal remedy. Mechanics liens are liens on private property given to those who have furnished labor, services, equipment or materials benefiting property at the request of the owner of the property or someone acting by his authority or under him, as contractor or otherwise. A lien may not be asserted against the job of a public entity although the law allows suits on bonds and filing a Stop Notice (or Notice to Withhold). These remedies may also be available on a private job.

The Mechanics Lien Law is an area of the law among the most technical in California primarily because there are so many time limits that must be met. Generally speaking, a mechanics lien may be asserted by a person who performs labor or furnishes equipment or materials to be used in any work on the property. Generally, if a license is required, the contractor must have a license to collect. In any event, the labor, services, equipment, or materials must be used in the project or work.

If mechanics lien law procedures are followed, the real estate receiving the benefit of the labor, services, equipment, or materials may be foreclosed on to satisfy the debt. In addition to the real estate, there may be recourse to construction funds still held by the owner or lender and perhaps a payment bond where one is demanded by the owner.

Since the mechanics lien right and its remedy of enforcement is against the work of improvement itself, it imposes no personal liability on the property owner as such. The mechanics= lien right is additional to any other right a contractor may have against the person with whom he dealt, such as personal contractual remedies.

Some protection is given to the owner of real property upon which a work of improvement is begun without his knowledge, provided he posts and records a Notice of Non-Responsibility in the prescribed manner within 10 days after obtaining knowledge that a work of improvement has commenced upon his property.

There is not a statutory lien right against public works. The subcontractor, laborer, and material man, who is unpaid, must rely instead upon the stop notice, together with the payment bond which is required on most public works projects.

Every contractor, subcontractor, or owner should be generally informed as to the elementary time periods with respect to notices of completion, cessation and non-responsibility; preliminary notices, stop notices and lien claims. From the owner=s standpoint, it is essential that the contract be in writing and cover the important matters of time for completion, amount and manner of payment, extras and change orders, warranty against liens, and insurance. As in any contract, however, the efficacy of the agreement depends largely upon the integrity and financial responsibility of the parties, since the diversion of the funds and kiting of materials undoubtedly will result in liens and expensive litigation. The most complete protection for the owner is a performance and payment bond, but this, of course, increases the cost of the project. Strict personal policing of the job by the owner may be resented by the contractor; and, at best, is time consuming and difficult for all concerned. However, some personal interest and attention is recommended. At the very least, the last payment should be withheld until all liens are waived or lapsed.

From the standpoint of the contractor, subcontractors, and material men, it is essential to determine at the outset that the job is adequately financed and the property not over-encumbered. Each might ask himself this question:@Where is the money coming from to pay for this job?@ A check with the lender is recommended. Progress payments should be required to be made promptly as agreed. Upon completion of the job, the owner should be requested to record his Notice of Completion; and the unpaid subcontractor or material man must be sure that he does not allow his lien to lapse. If his work was completed in the early stages of construction, he must watch the job throughout to know when stoppage or actual completion takes place.

It is recommended that materials supplier and subcontractor get a signed A job sheet@ of some kind before the outset of each job, specifying names, addresses, and telephone numbers of the general contractor, owner, lender, and identifying the exact job location. On a job of any size, ownership and construction lenders name and branch should be checked against the building permit and public records as a basis for giving the all important preliminary notice to all required parties. Contractors should adopt a simple form for this purpose and use it as standard practice on all jobs.

Every contractor and supplier, who does not have a direct contract with the owner must, by law, give the preliminary notice. Owners who receive this notice should not feel that this somehow reflects on their general contractors financial status. Subcontractors are required by law to give the notice and failure to do so could result in discipline against their license.