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20-day preliminary notices —
when is late ‘too’ late?
Question: We are a tiling contractor and
have never been in the habit of sending out preliminary
lien notices. In the past we have been fortunate to work
with people we have done business with before, but with
today’s shortage of projects, we are doing work with
some new customers. We started a project about a month ago,
but had not done a preliminary notice. Even though we were
paid out first progress payment, which was about 20 percent
of the value of our contract, we’ve heard through
the grapevine that some of the other contractors have not
been paid all of their progress payments.
So, I went ahead and had a preliminary lien notice sent
out through a lien service that charges a minimal amount
to prepare and serve the preliminary notice. That was the
easy part. I was at the jobsite yesterday to look over the
progress of our work and ran into an owner of a plumbing
company I know. We got to talking about the recent difficulties
of collecting payment on some projects and I told him that
I just sent out our preliminary notice and he said “you
shouldn’t have bothered, you’re too late. You
had to send a preliminary notice within 20 days of first
starting your work. Why do you think they call it a ‘20-day’
preliminary notice? Because you waited 30 days, you have
no mechanics’ lien rights.”
I am not familiar with preliminary notices and liens because
we’ve never had to use them to get paid, so that never
occurred to me. But, it seems pretty unfair that I lose
all my lien rights because I am a measly 10 days late. Is
the plumber right — did I really blow it?
Answer: As usual, there are several possible
answers to your question. The short answer is that the plumber
is right and wrong. He’s right about the name —
a 20-day preliminary notice means it should be served within
20 days of when you first provide materials, labor, equipment
or any other services to the jobsite. But, all is not lost
just because you waited 30 days. A late preliminary notice
does have some effect, but it only covers the work provided
in the previous 20 days and forward.
For example, let’s say you first provided some sort
of work on February 29 (Friday). Perhaps that is when you
had the first load of tile delivered to begin installation
the next Monday (March 3). Because you first provided materials
on Feb. 29, the 20-day clock starts to run on that day.
Then, you wait 30 days, until March 28, to serve the preliminary
notice. Because you were late, the notice only covers work
provided in the previous 20 days, plus anything after you
served the preliminary notice.
So, for our example, assume you have a contract worth $200,000.
Your first load of tile was worth $35,000, and you had four
tile setters working every day, five days a week for the
last four weeks at $37 per hour. So, counting backwards
from March 28, your lien rights only cover from March 8
forward. This means you lose lien rights for the $35,000
of tile and five days of labor costs for four tile setters,
eight hours a day, working March 3, 4, 5, 6 and 7 - or about
$5,920. So, out of a $200,000 contract, you would not have
lien rights for $40,920. But, you are in luck because you
said you were paid your first progress payment. So in my
example, and probably in your real-life situation, you have
already been paid for the materials and labor that you provided
in the first 10 days. Thus, the fact that you may not have
lien rights for what you provided in those first 10 days
it doesn’t matter because you’ve been paid for
that work.
I also noticed that you referred to yourself and other specialty
trades as“contractors” instead of “subcontractors.”
Does this mean that the property owner acted as an owner-builder
and hired each of the trades directly? If that is the case,
then a contractor who has entered into a contract directly
with an owner (called an “original contractor”
under the mechanics’ lien laws) does not have to serve
a preliminary notice at all in order to have lien rights.
This is because the purpose of the 20- day preliminary notice
is to alert the owner that you are out there providing a
certain value of work and if you don’t get paid, you
can lien the property. The theory is if the owner enters
into the contract directly, the owner already has notice
of the value of the work you are providing.
Another assumption
I made was that you are talking about a private works project.
For public works, a subcontractor with a direct contract
with the prime or general contractor generally does not
have to serve a preliminary notice in order to have “lien”
rights. But, the “lien” rights referred to involve
stop notices and payment bonds — which are better
left subjects of future articles. In order to not have to
worry about when you do or do not have to serve a preliminary
notice, it is much better to just serve a preliminary notice
for every project you work on. The lien service you mentioned
that you used is a perfect low-cost way to preserve your
lien rights.
If you have a construction question, submit it to: info@construction-laws.
com
• • •
Disclaimer The information in this article is based upon
California law and is for general information only. Any
information or analysis presented here is intended solely
to inform and educate the reader on general issues. Nothing
presented or referenced to, regarding facts, documents or
applicable laws, constitutes legal advice. Before acting
or relying on any information, including any information
presented here, consult with a qualified attorney for your
specific situation.
Scholefield holds an active PE license in Colorado, an undergraduate
engineering degree from the University of Florida, and received
her JD from the University of San Diego. Source Code: 20080328tca
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