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.
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Putting the pieces together... 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!
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.
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