Mechanics Liens and COVID-19: Protecting Your California Lien Rights During a Pandemic | Handle

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Mechanics Liens and COVID-19: Protecting Your California Lien Rights During a Pandemic

Mechanics Liens and COVID-19: Protecting Your California Lien Rights During a Pandemic

April 20, 2020

The COVID-19 pandemic has seriously affected the construction industry. Some states have required the closure of all construction sites, while others have declared construction work as “essential” and construction companies are, therefore, permitted to operate.

In California, certain types of construction work continue while a number of construction projects have ceased. It has been a tough period for the construction sector, which then begs the question: How does the COVID-19 pandemic affect the mechanics lien rights of construction parties in California?

This guide answers some of the basic questions that you might have as a construction party and a potential lien claimant in California.

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How does the COVID-19 pandemic affect construction parties in California?

The new policies imposed by both the federal government and the state of California are supposed to ensure the safety of construction professionals as well as the general public. However, they also have adverse effects that construction businesses must watch out for:

A. Premature project closure

Because of the new rules and regulations regarding which construction projects are allowed to continuously operate, some projects may be forced to close down early. Large-scale projects that were posed to last until 2022, for instance, may close prematurely in 2020.

Premature closures of projects may affect existing contracts with all the parties involved. Payment schedules will be affected, and the lack of projected income could increase tension among the parties and cause payment disputes.

B. Shortened mechanics lien deadlines

Sudden closures of construction projects will also have an effect on mechanics lien deadlines. In California, a mechanics lien must be recorded by the following dates, whichever is earlier:

  1. Within 90 days of a claimant’s last day of work
  2. Within 60 days (general contractor) or 30 days (subcontractor/supplier) of a property owner’s filing of the Notice of Completion/Cessation

If a project closes before its intended deadline, a property owner may file a Notice of Cessation, which could shorten your mechanics lien deadline.

C. Potential reopening of a worksite

If a project was ordered to close down due to the pandemic, it will most likely open again once quarantine policies are lifted. The economy must keep going, and owners are expected to hire the same parties who were working on their projects prior to their premature closure.

Note that a reopened work site may be considered a new project, especially if it has been formally considered completed via a Notice of Completion. When you work on a new project, even if it’s the same one you were on prior to the pandemic, you will have to serve another preliminary notice to ensure that your lien rights are protected with regards to this “new” project.

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What should you do if a project closes before its intended completion date?

If a project closes before its scheduled completion, you must watch out for the possibility of a shortened mechanics lien deadline. Remember that in California, there are two potential deadlines by which you must record a mechanics lien:

  1. Within 90 days of your last day of work, or
  2. Within 60 days (general contractor) or 30 days (subcontractor/supplier) of a property owner’s filing of a Notice of Completion/Cessation

You are expected to file a mechanics lien by the earlier date of those two deadlines. Untimely closure of a construction project can, therefore, shorten your mechanics lien, especially if you are one of the early-stage contractors or subcontractors on a large-scale project.

Say, for example, that you recently finished working on the trenching and grading of a project site and that project is meant to be finished in 2022. If you completed your work in March, you technically have until around June (~90 days or 3 months) to file your mechanics lien if you do not get paid. Between Deadline 1 and Deadline 2, the first deadline falls on an earlier date because the project still has two years to go before completion.

However, the pandemic could force your project to close before its intended completion in 2022. If your project closes in April and the property owner files a Notice of Cessation, Deadline 2 now becomes the earlier date.

So if you are a general contractor, you now have 60 days within the date the Notice of Cessation was filed to record a mechanics lien. If you are a subcontractor or a material supplier, the deadline is shortened further to 30 days within the date the Notice of Cessation was recorded.

This means you must verify if a Notice of Completion or a Notice of Cessation has been filed to know if your mechanics lien deadline is affected. If either of these notices have been recorded and you still have not received payment, you must be ready to file a mechanics lien.

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How do you know if an owner has filed a Notice of Completion or a Notice of Cessation?

In California, property owners are required to serve a copy of the Notice of Cessation or the Notice of Completion on general contractors and all lower-tier parties who have served them a valid 20-Day Preliminary Notice.

If you have done your part and have served a California preliminary notice on the owner, you should expect to be notified if a Notice of Completion or a Notice of Cessation has been filed. California state laws require property owners to serve a copy of these notices within 10 days of recording. If they fail to notify a construction party about the filing of a Notice of Completion or a Notice of Cessation within the said period, then the mechanics lien deadline will not be shortened.

It is, therefore, very important that you serve a valid preliminary notice in California, regardless of whether there is a pandemic or not.

Of course, it is also possible that the owner’s notifications may get lost in the mail, so another way to verify the project status is to speak directly with the general contractor or the property owners themselves. If you still have not received your payment and the 60-day period (general contractor) or 30-day period (subcontractor/supplier) is fast approaching, it is best to contact a higher-tier party and directly inquire if a Notice of Completion or Cessation has been recorded.

Do you lose your California lien rights if a project gets cancelled or abandoned due to the pandemic?
Another concern among construction parties is the closure of a project that occurs outside the 60-day or 90-day deadline window. Note that your mechanics lien rights do not get revoked regardless of the date of the project closure.

So the short answer to the question is no, you do not lose your lien rights just because a project closes.
The long answer of course is more complex, because your lien rights in California must be protected by following the state’s mechanics lien rules and regulations. If you served a preliminary notice within 20 days of your first day of work, then your lien rights remain intact even if the project stops all of its operations.

However, you must watch out for the filing of a Notice of Completion or a Notice of Cessation. As explained in previous questions, these notices could shorten the deadline for filing a mechanics lien in California.

Can you still serve a preliminary notice after a worksite has closed?

A diligent construction professional must serve a California preliminary notice within 20 days of their first day of work. Luckily, failing to serve a California preliminary notice within the first 20 days does not mean your lien rights are revoked.

You can still serve a preliminary notice at any time later in the project, but your potential mechanics lien will only cover the work that you have done starting from the 20th day prior to the date when you served your preliminary notice.

You can also still serve a preliminary notice after a worksite has closed. However, the coverage of your mechanics lien will be severely limited.

If you are currently working on a construction project and you have not served a preliminary notice yet, make sure to serve one right away. Do not wait until a project closure prompts you to protect your lien rights.

How are mechanics lien deadlines affected during the COVID-19 pandemic?

As of the writing of this guide, there are no special modifications to the existing deadlines for filing a California mechanics lien. The mechanics lien deadline still falls on the earlier date between these two periods:

  1. Within 90 days of your last day of work, or
  2. Within 60 days (general contractor) or 30 days (subcontractor/supplier) of a property owner’s filing of the Notice of Completion/Cessation

All construction parties must, therefore, verify if a Notice of Completion or Cessation has been filed within the period leading up to their respective deadlines. This is so they know whether their mechanics lien deadline is shortened.

What to do to ensure you get paid for your work despite the pandemic

There are two important steps that you must take to ensure that your lien rights are intact and that you will still be able to file an enforceable mechanics lien despite the pandemic:

1. Serve a preliminary notice.

Make sure that you serve a 20-day preliminary notice on the property owner and the general contractor, if applicable. Familiarize yourself with the rules on serving a California 20-day preliminary notice as these rules remain the same, regardless of whether your project gets affected by the pandemic or not.
You will not be allowed to file and enforce a mechanics lien if you have not served a 20-day preliminary notice. So if you have not done so yet, make sure that you serve a preliminary notice as soon as possible.

2. Verify the status of your project after your last day on the job site.

After your work on the project, you must inquire about its status with the property owner or the general contractor. If you are a lower-tier contractor, you may begin by talking to the party who hired you.

If you are not paid within the first few weeks of your last day of work, it is best to initiate the conversation and ask about the factors that could affect your mechanics lien deadlines.

You are encouraged to ask a higher-tier party about the status of the project and whether a Notice of Completion or a Notice of Cessation has been recorded in the county clerk’s office. If such a notice has been filed, the deadline for filing a mechanics lien is shortened to 60 days after the filing date (for general contractors) or to 30 days after the filing date (for subcontractors and material suppliers).

What can you expect in the future? What potential risks must you watch out for?

Projects may reopen after quarantine policies are lifted, and it is reasonable to expect that you will be rehired to work on the projects for which you did not complete your deliverables. When this happens, you must verify if the project has been considered “completed” during its closure.

A project is considered completed in California if a Notice of Completion has been filed or if all construction work on the site has stopped for a continuous period of 60 days. Some property owners do not record a Notice of Completion even when a project gets completed or abandoned. Most of the time a project is legally marked as complete as long as labor and other related work has stopped for 60 days straight, even if the owner did not record a Notice of Completion.

You must watch out for this “involuntary” project completion as it could affect your future work in a project. If a project has been completed in the eyes of the law, then its reopening will be considered a new project altogether.

Working on a reopened project will require you to serve a new preliminary notice that covers your remaining deliverables. Eventually you may have to claim multiple liens on the same property, especially if you did not get compensated for prior work. When this happens, you must consider your multiple liens as separate documents, and you must track important deadlines (e.g. for enforcement/foreclosure) for each mechanics lien separately.

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