Mechanics' Liens, Designers' Liens, and Stop Notices in a Nutshell
The Preliminary 20-Day Notice
In discussing lien rights, many design professionals have traditionally been reluctant to serve a preliminary notice at the inception of the relationship. However, a preliminary notice must be filed at the beginning of the job or else it will only relate back 20 days from the date of the service. A preliminary notice is the only way to protect an design professional or subcontractor when they have been hired by somebody other than the owner of the property. If there is a direct contractual relationship with the owner, a preliminary notice need not be filed. Similarly, if one is originally hired as a subcontractor, but then establishes an independent relationship with the project owner, a preliminary notice may be unnecessary. The use of the preliminary notice is a business decision and must be weighed against the public relations consequences.
The mechanic's lien area is a very complicated area with very strict formal requirements. For example, the preliminary notice must be sent by certified-mail, return receipt requested, or personally served on the owner, general contractor, and any known bank. The green return receipt must be kept. It is very common for these notices to be sent by ordinary mail, or for someone to lose the return receipt. It is equally common for the preliminary notice to be served at the end of the project when it is too late.
Lien Time Tables
In California, prior to the initiation of construction, only a design professional lien is available. Once construction has been commenced, the mechanics' lien is the only mechanism for the subcontractor to create a relationship with the owner of the property. Similarly, the stop notice is the only mechanism to create a relationship with the lending institution which may be financing the construction.
It should be kept in mind that unless one is a general contractor (i.e., one has a direct relationship with the property's owner) it is necessary to send the 20-day preliminary notice to the general contractor, owner and financial institution. The 20-day preliminary notice is required before a mechanics' lien or stop notice can be filed on a private job.
It should be kept in mind that in California after completion, the commencement of the lien period occurs 60 days after cessation of the job, 30 days after notice of completion has been filed or upon acceptance of the work or occupation of the project by the owner. A cessation is a cessation of work on the project, not necessarily a cessation of work that has been performed by your company.
From that time period, one has 90 days to record a mechanic's lien. Accordingly, there may be a 150-day period to record the lien, consisting of 60 days after cessation of labor, followed by 90 days after the end of the cessation.
After the mechanic's lien has been recorded, if the job has been completed, one must file a lawsuit within 90 days to perfect lien rights. If a lawsuit is not filed, and the project has been completed, the lien should be released because it is no longer in effect and merely serves as an illegal cloud on title. In such a situation, the wrongful lien claimant may be subject to monetary damages.
