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Not Paid for Construction Work? The Evolution of Mechanics’ Lien Laws and the Importance of Complying with Procedure

Construction has been a high-risk industry for millenniums, requiring the enactment of construction laws that date back to the Code of Hammurabi of 1754 BC.  With regards to compensation for construction work, Law 228 of Hammurabi’s Code provided that “if a builder build a house for someone and complete it, he shall give him a fee of two shekels in money for each sar of surface.”  In the event the builder did not receive their “shekels,” the debtor may “assign a field, garden, or house which he has bought, and holds as property, to…give it for debt.” (Code of Hammurabi § 39.)  “If anyone fail[ed] to meet a claim for debt” he may “sell himself, his wife, his son, and daughter for money or give them away to forced labor.” (Code of Hammurabi § 117.)

Fortunately, times have changed since the Babylonian Empire and construction laws have progressed, though some aggrieved builders may be in favor of the draconian form of punishment.  When bringing a claim for nonpayment today, it is important to understand the fundamentals of mechanics’ lien law, particularly notice and timing requirements.  Further, it is imperative to follow the latest legal developments; as in the recent case of Picerne Construction Corp. v. Castellino Villas et al. (2016) 244 Cal.App.4th 1201 discussed below, where the California Court of Appeals clarified the timing to record a claim for mechanics’ lien and reinforced public policy of deferring to the lien claimant’s interest.

In California, persons furnishing labor and materials have been accorded the constitutional right to file a mechanics’ lien as a security interest against the property of another until the debt owed is discharged. (Cal. Const., Art. XIV, § 3.)  This legal mechanism is fundamentally the same as it was 3,700 years ago, but where the debtor fails to make the full payment, the lienholder may foreclose on the property by selling it in order to obtain the balance due.  (See Cal. Civ. Code, §§ 8460–8470.)

California imposes strict notice requirements and time limits on mechanics’ liens, which often requires the immediate retention of legal counsel when seeking to recover or defend against nonpayment claims.  For instance, subcontractors and suppliers are required to serve a 20-day preliminary notice to the owner, general contractor, and construction lender, from the date they started work on the property; nonetheless, if the subcontractor or supplier fail to do so, they may file a notice within 20 days from the date they last performed work on the property, but the mechanics’ lien will only cover the work performed within 20 days prior to the service and thereafter.  (See Cal. Civ. Code §§ 8200-8216, 8410.)  Generally, the lien must be recorded within 90 days after completion of the work, unless the owner records a notice of completion or there is a cessation of work, which reduces the deadline to 60 days for the general contractor and 30 days for subcontractors and suppliers. (See Cal. Civ. Code §§ 8412-8414, 8182.)

A mechanics’ lien may expire afterwards, unless a suit is filed within 90 days after the recordation of the claim to foreclose on the mechanics’ lien. (See Cal. Civ. Code §§ 8460-8470.)  The mechanics’ lien procedure is subject to various exceptions and additional requirements which are contingent on the contractual relationship, the party filing or defending against the mechanics’ lien claim, whether the project is private or public, the applicable statutes based on when the mechanics’ lien was filed, and other circumstances that require in-depth legal analysis.

Further, there is extensive case law interpreting mechanics’ lien statutes, the legislature’s intent, and public policy.  In the recent case of Picerne Construction, supra, 244 Cal.App.4th 1201, a contractor who had built an apartment complex and claimed money due, brought action against the owner and owner’s lender to foreclose on its mechanics’ lien.  The owner contended that the mechanics’ lien was invalid because the contractor did not record its claim within 90 days after substantial completion of the project, and did not timely record the lien as to the 9 distinct buildings within the apartment complex.  The trial court ruled in favor of the contractor, and upon appeal the decision was affirmed.  The Court of Appeals held that the 90-day period to record a lien is triggered upon “completion of the work of improvement,” and the Legislature has defined the term of completion as “actual completion,” not the issuance of a certificate of occupancy or “substantial completion.”  Here, the owner’s acceptance of the project was equivalent to the completion of the work, and the contractor timely recorded its claim of mechanics’ lien within the prescribed period of time after that date.  The Court further held that each of the buildings in the apartment complex are not “separate residential units” subject to different deadlines for recording a lien, as prescribed by former Cal. Civ. Code § 3131 and current Civ. Code § 8448.  Rather, the apartment complex constitutes one residential unit for purposes of mechanics’ liens.

The above decision supports public policy that Courts liberally construe mechanics’ lien statutes for the protection of persons who perform labor or furnish materials.  (See Connolly Development, Inc. v. Superior Court of Merced County (1976) 17 Cal.3d 803, 826; Betancourt v. Storke Housing Investors (2003) 31 Cal.4th 1157, 1166.)  Where timing may be at issue, parties must consider that a lien may be recorded within 90 days of actual completion of the project, not substantial completion, giving the lien claimant the maximum amount of time to assert their rights.  Also, when a project involves multiple buildings under one title, the 90-day period is triggered upon actual completion of the entire project, not each building.

As set forth above, mechanics’ lien laws prove to be intricate, requiring strict compliance with, and knowledge of, the established legal procedures.  As the law continues to progress, there are many aspects you will need to consider with regards to nonpayment claims.

Blog by: Dilan Hosseinpour, Associate, San Diego

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