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ACT Contractors Forms... From The Paper Side of Contracting.

Contractor Form: The California Preliminary Notice or 20 Day Notice

Posted by Bill Baird on Tue, Nov 17, 2009 @ 16:11 PM

One of the most commonly requested forms for California is the California Preliminary Notice, sometimes called the CPN Form, California 20 Day Notice or California Pre-Lien or California Pre-Lim. Five different names for the same form. The CPN or California Preliminary Notice, is often the first step in the California Mechanics Lien process so it is no wonder these forms are popular!

NOTE: CALIFORNIA PRELIMINARY NOTICE LAW CHANGED AND THOSE CHANGES WENT INTO EFFECT JULY 1, 2012. THE FORM USED HAS BEEN CHANGED FOR BOTH PUBLIC AND PRIVATE WORKS.  THIS BLOG POST STILL APPLIES AS NONE OF THE 2012 CHANGES CONFLICT WITH WHAT IS SAID HERE!  

What is the California Preliminary Notice?

The California preliminary notice or 20 Day Notice as some people call it, is a notice intended to inform a property owner, lender and/or project contractor (NOW CALLED THE DIRECT CONTRACTOR AS OF JULY 1, 2012) or other interested party, that someone is working on the project who has a right to file and enforce a Mechanic's Lien or Stop Notice against the property.

Why is the California Preliminary Notice necessary?

Think about it from the property owner's position. The property owner typically has a contract with a general contractor to do all the work on the project. The General then hires speciality contractors to do those parts of the project covered under their speciality. Plumbers do the plumbing, electricians run wires and do the electrical and so on. The property owner may see many different people working but really doesn't know where these workers are from! They might be employees of the General Contractor or someone else. Some property owners may not see the job until it is finished so how could they know who was working on or supplying materials for their project unless you NOTIFY them with a California Preliminary Notice!

It is unreasonable to hold the property owner accountable, to make sure everyone is paid for their contributions to the work, unless the property owner KNOWS who needs to be paid from every check they cut! If the General bills for the completed roof, and the roofing contractor on the job has not notified the property owner of their existence through a CPN, then the property owner can reasonably assume the roof was done by the General's own men and can pay the invoice without further condition. Likewise, if the roofing material supplier did not notify the property owner through a California Preliminary Notice, why would the property owner question if the materials have been paid for?

If the property owner pays the general for the roof, and the general does not pay the roofing contractor who because of this does not pay the roofing material supplier, the owner has acted properly given the information that they have! If both the roofer and the roofing material supplier had each properly notified the owner through the California Preliminary Notice, the property owner would be legally bound to make sure these parties have been paid or face a mechanic's lien from both.... See! How can anyone be expected to act on information they don't have? You can't make sure someone is paid unless you know they NEED TO BE PAID!

Who needs to give the California Preliminary Notice?

If you have a "direct contractual relationship" (for definitions be sure to read Part 1 of this blog series) with the property owner (i.e., the owner or the owners agent signed a contract directly with you) you are then classified as a Prime Contractor or Original Contractor (now defined as the "direct contractor" which is part of the new July 1, 2012 law changes) and you do not need to give a Preliminary Notice to the property owner to protect your lien rights. In this case, the property owner obviously knows of your existence since he has signed a contract with you and has probably been informed of your lien rights in this same contract. IMPORTANT: If there is a construction lender on the project, even a Prime (NOW CALLED A DIRECT CONTRACTOR AS OF JULY 1, 2012) Contractor should give this lender a preliminary notice to inform them of the Prime Contractors existence, contact information, and right to lien. (THIS IS NOW REQUIRED BY THE NEW 2012 LAWS... BUT AREN'T YOU GLAD WE TOLD YOU THIS WAS A GOOD IDEA SINCE WE STARTED SELLING CONTRACTOR FORMS OVER 17 YEARS AGO!)

If you are a contractor, subcontractor or if you are a material supplier and you do not have a direct contractual relationship with the owner but are dealing through an original contractor (NOW CALLED A DIRECT CONTRACTOR AS OF JULY 1, 2012)or another subcontractor, you MUST SERVE the preliminary notice in order to later enforce a mechanic's lien. No California Preliminary Notice, then No Lien, it's as simple as that.

Who do I give the California Preliminary Notice to?

California law requires that you serve the Preliminary Notice to the property owner, the original or prime contractor (DIRECT CONTRACTOR), and the construction lender. If you believe or even suspect that someone has an interest in the property or if you are not sure whether you need to give a California Preliminary Notice, be safe and give this Notice. It is cheap insurance against a property owner later saying they did not have notice of your existence and of your lien rights and therefore, any mechanics lien you might place is not enforceable against them.

What is the 20 Days all about?

To be covered for ALL your work, you must serve the Preliminary Notice within 20 days from first furnishing labor or materials. If you are late serving this notice, then your lien rights are limited and will not cover labor or materials furnished anytime prior to the 20 days before service of the notice. Huh???

Let me explain with a real life situation.

Joe is the painting contractor on a project consisting of building a new home. Joe was hired by and is under contract with the General Contractor on the job. This means Joe does not have a direct contractual relationship with the property owner. Joe is a subcontractor on this project. The General on the job wants the exterior "buttoned up" and has Joe paint the exterior. The Job starts Monday, September 1 and the exterior is finished by Thursday September 4. As per his contract with the General, Joe submits an invoice for the exterior painting at the end of the week on September 5. Joe waits for his check and after two weeks, gets worried and decides to protect his lien rights by giving a California Preliminary Notice to the Property Owner, to the General, and to the lender. Joe also tells his paint supplier to file a CPN for the materials. The CPN from Joe and his paint supplier are given to the interested parties on September 22, 21 days AFTER Joe started work on the project. Had Joe given the CPN a day earlier, within 20 days, ALL the work and ALL the materials supplied would be lienable. Since Joe and his supplier gave notice 21 DAYS after starting, only that work and those materials used 20 Days prior are lienable. That means, as far as the California mechanics lien process is concerned, Joe worked the first day for nothing and the materials used were free. Keep in mind that this is a simple illustration following the exact letter of CA mechanics lien laws and that there might be other considerations that could change the situation....but don't count on it...

GET IN THE HABIT OF SENDING A CALIFORNIA PRELIMINARY NOTICE JUST AS SOON AS YOU HAVE A SIGNED CONTRACT! SEND THE DARN THING EVEN BEFORE THE WORK STARTS! REGARDLESS, BE SURE TO SERVE THE CPN AS SOON AS YOU CAN, EVEN IF YOU HAVE ALREADY STARTED WORK! All future work and all work done 20 days prior to the date you give notice with a CPN can be included in a mechanic's lien.

How do I "Serve" the California Preliminary Notice?

The CA Preliminary Notice must be served by registered or certified mail or personal service. You must be able to show proof that the CA Preliminary Notice was served by a proof of delivery in the case of service by mail or by an affidavit of the person making the service showing the time, place and manner of service. If you file a copy of the CA Preliminary Notice with the County Recorder, they will make a "good faith" effort to notify you when and/or if a Notice of Completion or Notice of Cessation is recorded. This is an important triggering event in the timeline of procedures for getting paid through a mechanic's lien so be sure to take the time to file the California Preliminary Notice with the county recorder!

In the next installment in this series about the California Mechanic's Lien Process the topic of how a mechanics lien might best be used as well as the CRITICAL TIMELINE that must be followed if you want to protect your lien rights.

 

Any questions or comments you might like to make regarding the California Preliminary Notice??? Please post these below.

Topics: California Mechanics Lien, CA mechanics lien form, California 20 Day Notice, California Pre Lien, CA Pre Lim, California Preliminary Notice

Contractor Form: The California Mechanics Lien II... What is Required

Posted by Bill Baird on Tue, Nov 3, 2009 @ 18:11 PM

    Putting the pieces together... Putting the pieces together, California Mechanics lien.In the first part of this series on the California Mechanics Lien, we defined some legal terms that are important to know if you want to understand the California Mechanics Lien Process. In this, part 2, the concept and requirements for a mechanics lien in California, are the topic.

What is a California Mechanics Lien?

     The Mechanic's Lien is a NOTICE of a charge, hold, claim, or encumbrance upon property. The term implies the right which California law gives to have a debt satisfied out of the property. The California State Constitution provides Mechanic's Lien law to help assure that a mechanic gets paid for labor and/or materials supplied to erect, repair or otherwise improve the property of another. A mechanic, for contractors purposes, is anyone (individual, company or corporation), other than the property owner themselves, who supplies materials or who furnishes labor to improve real property.

 

     A mechanics lien is recorded with the county recorder and is public information. Anyone who does a property title search at the county recorders office will "see" the mechanic's lien. The mechanic's lien gives notice to any interested party that the lien claimant (the person or company that claims the mechanic's lien) has reserved right to pursue a lawsuit to have their debt satisfied "out of the property."

 

     Mechanic's liens are valid even after the property is sold so most potential buyers of the property would insist that the property be "free and clear" before making a purchase. Also, lenders will not want to lend money on any property that has a mechanic's lien against it since the lien claimant would have a higher "priority" position on the property title than the lender. Having a higher "priority" determines who gets paid first, next, and so on. The lien claimant might win a judgement and foreclose on the property to get paid out of the proceeds. Depending on the situation, this could mean the proceeds from a foreclosure might not be enough to pay the lien claimant AND the lender in which case the lower priority lender would lose out!

 

     When a mechanic's lien is "perfected", the lien claimant has taken his case to court and received a judgment. The lien claimant then has the right to foreclose on the property and to use the proceeds to satisfy the judgment... taking into account that "others" with a higher position on the property title, like the first or second mortgage holders (if any), must be paid first.

 

     Realistically, mechanic's lien judgements rarely result in foreclosure. The judgement creditor is usually very enthusiastic about paying the judgement long before it goes that far.

 

Note: Mechanic's Lien Law varies significantly between projects on private property & projects on public works. The information contained in this document refers to labor & materials supplied on privately owned projects.

Requirements you MUST meet BEFORE you can place or File a California Mechanics Lien.

  • You must be a California Licensed Contractor with a license that was current and in good standing during the period starting when the contract was signed through when the labor or materials were furnished. California DOES NOT allow an illegally operating, un-licensed contractor to lien! If your license has expired because you forgot to pay your renewal fees, before California Law, you are un-licensed and have no lien rights!

  • You must have a valid contract that is both legal and enforceable between you and the property owner. This is critical. Your contract form must comply with ALL laws in effect at the time it was signed (like these California Construction Forms)! Be extremely careful with whom you purchase your contract forms. Be extremely careful that all required notices are given. Make sure you have complied with ALL the requirements of the consumers right to cancel any home improvement contract. A mistake here can cost you ALL THE MONEY rightfully due you!

  • You must have actually furnished labor or materials to erect, repair or otherwise improve the owner's property. You cannot file a lien for intangibles such as "lost profit." You can only lien for the value of ACTUAL furnished labor or materials at the time the job was completed or work ceased.

  • Unless you have a direct contractual relationship with the property owner, you must timely give notice to the property owner of your right to lien by providing the owner with a proper, statutory California Preliminary Notice (aka 20-Day notice, CPN, Pre-Lien, Preliminary Notice).

  • You must follow and comply with the timeline set forth in California Law. This is the real key to the entire process. Timing is everything! If you miss any single deadline, your lien rights will be lost or at least greatly impaired!

Questions about California Mechanics Liens?In the next part of this series of articles on the California Mechanics Lien Process we will discuss the all important California Preliminary Notice IN DEPTH!

 

Do you have questions or can you share your own experiences with the California Mechanics Lien process? Please comment below.

Topics: california contractor law, CSLB laws, California Mechanics Lien, CA mechanics lien form, california construction forms, california contractor form

Contractor Forms: California Mechanics Lien, Construction Definitions

Posted by Bill Baird on Mon, Oct 26, 2009 @ 17:10 PM

     Questions about California Mechanics Lien FormsIn this series of blog posts I will explain, or at least TRY to, the California Mechanics Lien Process in a way that us mere contractors can understand. I will explain the specific forms that are required like the California 20 Day Notice Form, the California Mechanics Lien Form, and the California Release of Mechanics Lien Form. With the right CA contractors forms and the right guidance, it should be a DIY project for any California Contractor to protect their lien rights and to perform many of the steps necessary in the CA mechanics lien process. Often, just filing the mechanics lien itself is all it takes to get a stubborn customer that won't pay, "negotiating", and bringing the situation to an end. However, should it go that far, filing the lawsuit and bringing the lawsuit before the court is, without question, the job for a construction attorney.

Here are the topics of the blogs in this series about the California Mechanics Lien Process:

  • Part 1 Definitions needed to understand CA Mechanics Lien Law!
  • Part 2 What is required to file a mechanics lien in California? Deadlines are important!
  • Part 3 The California Preliminary Notice, 20 Day Notice or Pre-Lien
  • Part 4 Mechanics Lien Strategy for Dummies
  • Part 5 The Mechanics Lien Form, Filling and Filing
  • Part 6 The Lawsuit and The Lis Pendens not DIY
  • Part 7 The Release of Mechanics Lien Form, Filling and Filing

California Mechanics lien laws are full of confusing terms. What is a "general, prime, sub or original" contractor for instance. Before we start, some definitions are necessary:

PRIME CONTRACTOR: The contractor who has a contract directly with the project owner to do and be responsible for that entire contract is sometimes called a Prime Contractor. ANY contractor can be a PRIME CONTRACTOR if they have a "direct contractual relationship" with the property owner. Bear in mind that even small projects can be broken down into smaller parts. An owner of a commercial warehouse, for example, could contract directly with a general contractor to do most of the remodeling project while also contracting directly with a painting contractor to be responsible for the painting. Since both the general contractor AND the painting contractor have a contract directly with the property owner or have a "direct contractual relationship" with the property owner, both the general contractor and the painting contractor are PRIME CONTRACTORS! Being a Prime Contractor is not necessarily exclusive since there can be many Prime Contractors on any project. This is an important concept for California Mechanics Lien Laws. A general contractor, or any other contractor, is a prime contractor if they have a contract directly with the property owner. A general contractor is not automatically a prime contractor. If a general contractor has a contract with another contractor to do the framing and carpentry work on a project, for example, then this general contractor is not a prime contractor. Why? Because this general contractor does not have a contract directly with the property owner and because of this, there is no direct contractual relationship between the property owner and this general contractor!

ORIGINAL CONTRACTOR: Another name for a Prime Contractor.

DIRECT CONTRACTOR:  This is a New TERM DEFINED in the new laws that went into effect July 1, 2012.  Direct Contractor is also another name for a Prime  or Original Contractor.

GENERAL CONTRACTOR: A California Licensed Construction Contractor holding a CSLB classification (B1) License, whose primary contracting business is in connection with any structure built, being built, or to be built requiring at least two unrelated building trades to complete the project. The general contractor is usually hired by the project owner to oversee the entire job, to coordinate and direct the activities of all other contractors, and to assume full responsibility for the delivery of the finished project within the time frame agreed upon. The general contractor might also be responsible for only part of the overall project. In California, a (B1) license only allows the general contractor to specifically do framing and carpentry work. To complete a project which involves other trades such as plumbers, electricians, HVAC etc, the general contractor must hire a licensed specialty contractor, in that trade, to do that portion of the project. Just because the general contractor has a contract for the "entire job" does not give the general the right to do any part of the project other than framing and carpentry work, unless the general contractor holds additional license classifications covering the other work on the project.

SPECIALTY CONTRACTOR: A California Licensed Construction Contractor holding one or more CSLB specialty classification license(s) (C) or limited specialty classification license(s) (D), whose primary contracting business is in connection with any structure built, being built, or to be built requiring a specific building trade, or "specialty", to complete the project. The specialty contractor is a PRIME OR ORIGINAL CONTRACTOR only if hired directly by the property owner to do specific projects involving the work the specialty contractor is licensed for.

SUBCONTRACTOR: The term "subcontractor" is often misused. Any contractor can be a PRIME or ORIGINAL Contractor and any contractor can be a SUBCONTRACTOR. I have heard specialty contractors referring to themselves as "subcontractors" when they really should say that on this particular project, I am a subcontractor. Simply put, any contractor who signs a contract with another contractor to do part of or all of the other contractors work on a particular contract for a job the other contractor has, is a subcontractor on that project. In California, a subcontractor can be ANY licensed California contractor that signs a contract with another licensed contractor. Construction Subcontractors are usually specialty contractors hired by the General or Prime Contractor to perform certain tasks required to complete the entire project and may include, for example, trades such as plumbing (C36) , electrical (C10), roofing (C39), cement work (C8), and drywall (C9). A subcontractor can be hired by a Prime or Original Contractor, by a general contractor, or by ANY OTHER Contractor on the project including another subcontractor.

SUBCONTRACT TIERS: Subcontractors may, in turn, hire their own subcontractors to do part of the work they have contracted to perform. The "level" any subcontractor has in the Prime or Original contract is called their "tier." To illustrate this, take Joe, a masonry contractor (C29), who signs a contract with a homeowner to re-do the outside walls of a house. Joe is the Prime Contractor on the job because he has a contract directly with the property owner. The front and the bottom of the house is to receive brick veneer over the existing stucco while the remainder of the house will receive paint. To prepare the surface, the old paint needs to be removed from the existing stucco. Joe, who is the prime contractor on the job, hires Phil, who holds a Painting Contractor (C33) license, to do the sandblasting and painting. Phil is a subcontractor on this job because Phil has a contract with another contractor and not with the property owner. Phil does not have a "direct contractual relationship" with the property owner. Phil, after sandblasting and seeing the condition of the stucco surface, gets a change order to re-float and texture the stucco, which must be done before paint can be applied. Phil, in order to execute the change order, in turn hires Eddie, who is a Plastering Contractor (C35), to re-float and texture the walls for painting. Eddie does not have a direct contractual relationship with the property owner and instead, has a contract directly with a subcontractor on the job who, in this case, is Phil. That makes Eddie a subcontractor or more accurately, a sub-subcontractor, on this project. So the contract tier goes like this: The first tier, the highest tier, belongs to the prime contractor on the project... Joe. The next, lower tier belongs to Phil who has a subcontract with Joe to do the sandblasting and painting. The next lower tier, the lowest on this particular job, belongs to Eddie who has a sub-subcontract with Phil to do the stucco work necessary to prepare the stucco walls for painting. Both Phil and Eddie are subcontractors on the job and you would say that Phil is a subcontractor on a higher "tier" than Eddie. Now you can see that on more complicated projects, there can be subcontractors, sub-subcontractors, sub-sub-subcontractors and so on... and that each of these are on a different tier, higher or lower, than the other!

 Whew!  Glad that part is over aren't you. In the next post I'll discuss what you absolutely MUST have to be able to file a mechanics lien in California and the critical timeline you must follow! I'll also give you a link to download a California timeline reference card to help keep you out of trouble in your quest to get paid through the California Mechanics Lien Process!

Oh, and by the way, please sign up for our newletter and emailContractor confused about California Contractor Forms notifications of new posts from ACT Contractors Forms using the form above to the right.  

Please post any comments you may have on the topic of mechanics liens in California.  Do you have a question you would like answered? Do you have a mechanics lien experience you wish to share? Post it below. Oh, and by the way, please sign up for our newletter and email notifications of new posts from ACT Contractors Forms using the form above to the right. 

Topics: California Mechanics Lien, CA mechanics lien form, california construction forms, california contractor form

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