Construction Payments And Preliminary Notices: Why Am I Getting This?

CATEGORY: Private Education Matters
CLIENT TYPE: Private Education
DATE: Oct 30, 2023

If you receive a “preliminary notice” from a contractor working on a construction project for your school – Do Not Panic!  But hold on to it, because you may need it later.

In California, a party who provides work related to an authorized improvement to real property has the right to place a mechanic’s lien on the property if the party is not paid for the work or materials provided.  As long as specific procedural requirements are satisfied, the mechanics lien will attach to the property and is a means for the party to recoup payment.  Foreclosure of the lien can lead to loss of all or part of the property.  Parties entitled to a mechanics lien include, but are not limited to, direct contractors, subcontractors, material suppliers, equipment lessors and laborers. (Cal. Civ. Code Section 8400.)

Protecting the right to file a mechanics lien typically begins with sending a “preliminary notice.”  This notice is a legal document typically sent by subcontractors and suppliers to the property owner, direct contractor, and construction lender, if any, as a notification that the sender is participating in the project, has a right to be paid for their work, and will have a mechanics lien right on the property in the event they are not paid.

Preliminary notices must meet certain statutory requirements in order to be effective.  In California, the content of the notice must reference the name and address of the owner or reputed owner, and include a general description of the work to be provided, an estimate of the total price of the work to be provided, and the required statutory language for the notice to inform the property owner of the mechanics lien right and its potential effect, among other things. (Cal. Civ Code Section 8102; 8202.)  In addition, a preliminary notice must be sent not later than 20 days after the sender first furnished its work or services. (Cal. Civ. Code Section 8204.)  Failure to do so will limit the scope of the mechanics lien, which will only be effective for work performed within 20 days prior to the service of the preliminary notice, and at any time thereafter. (Id.)

Property owners who receive preliminary notices should understand that the notice itself does not require any action on the part of the property owner: it is simply a notice of the sender’s participation in the project and mechanics lien right.  The notice does not mean that a mechanics lien will be filed against the property.

However, owners should review the notice and ensure that the details align with the nature of the construction project.  Owners of real property who receive a notice, but did not contract for work to be performed on the property, may issue a notice of non-responsibility to avoid the attachment of a mechanics lien to its interest in the property.

Property owners should also retain these notices, and keep details regarding the date of receipt and any related correspondence, which could be useful if a later payment dispute arises.

In the event that a property owner has questions about the content or effect of preliminary notices, owners should have legal counsel review the notices to ensure compliance with applicable statutory requirements, and potential next steps.  For example, if details are inaccurate, communication with the general contractor and/or sender may be appropriate.

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