Protecting your right to file a mechanics lien starts with the preliminary notice.
Filing a mechanics lien against a delinquent client account is part and parcel of a contractor’s Getting Paid Toolbox. As much as we would like for vetting and pre-screening clients to keep late payments at bay, there are so many factors that come into play when it comes to getting timely payments.
Contractors need to be proactive when it comes to protecting their ability to demand payment in case the client, for whatever reason, couldn’t make progress payments or retention payments on time and in full.
At the top of the list of tools in the box is the preliminary notice, also known in California as the 20-day Preliminary Notice. Any contractor would need to know the ins and outs of this document and make sure it’s included in their routine.
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- California Preliminary Notice for construction projects: What is it?
- How to serve a California 20-Day Preliminary Notice: 3 simple steps
- How to file a California Preliminary Notice online?
- Best practices when serving a California Preliminary 20-Day Notice
California Preliminary Notice for construction projects: What is it?
The California 20-Day Preliminary Notice is a legal document that contractors, subcontractors, and suppliers must serve to give them the ability to record a mechanics lien. In other words, not serving this preliminary notice stops the contractor from pursuing further solutions to demand outstanding payments.
Contractors are obliged to send the California 20-Day Preliminary Notice to the property owner prior to recording a mechanics lien. If and when a client neglects to settle payments for work already performed or when subcontractors are not compensated even after the direct contractor is paid, the preliminary notice kicks off the series of steps a contractor, supplier, or subcontractor can take to get paid.
The preliminary notice gives the property owner an opportunity and the time to do the right thing and pay what is owed.
Does the preliminary notice requirement apply to all construction projects in California?
Yes, but the type of California preliminary notice varies based on the nature of the project. There is a particular preliminary notice required for private contracts and another for public contracts. The language in the legal statement portion of the notice varies depending on the type. The first portion of the notice will contain the same information both for public and private works.
Who must serve a California 20-Day Preliminary Notice?
For private contracts, all subcontractors and suppliers can serve the preliminary notice. If the contract is financed through a lender, direct contractors serve the preliminary notice. For the latter, when the direct contractor is in contact with the owner, they may only need to serve a preliminary notice addressed to the lender.
For public contracts, subcontractors and materials suppliers second-tier and below serve the preliminary notice.
*Laborers are not required to send a preliminary notice, as well as entities that served work with a value under $400.00.
*It’s typical that General Contractors are the one getting served the preliminary notice from sub-tier parties like their subcontractors and material suppliers. However, California requires general contractors to send a Preliminary Notice to the property owner and the lender if any.
When should the Preliminary 20-Day Notice be served?
Per California Civil Code section 8204, “[a] preliminary notice shall be given not later than 20 days after the claimant has first furnished work on the work of improvement.”
While there is no hard deadline for the preliminary notice, it only covers work rendered within 20 days before it was served. This means that serving the preliminary notice right away once the project goes underway is good practice.
Here’s an example:
The project started on December 1st. The preliminary notice was served on December 28. It only covers the work from December 9 to December 28. To cover the work furnished from the start of the contract, the Preliminary Notice must be filed by December 20 at the latest.
Note that a preliminary notice in California is considered served on the day it is sent or deposited in the mail. This means that as long as you serve the preliminary notice within the appropriate 20-day period, you are considered to have complied with the requirement even if the recipient receives the preliminary notice at a much later date.
It may also help to keep in mind that serving a preliminary notice before commencing work on a project is acceptable in California. In some cases, contractors sign into a contract months before they actually begin providing services to a project. In these cases, you are allowed to serve your preliminary notice in advance to ensure that your lien rights are protected.
However, keep in mind that serving a preliminary notice closer to the start date might be beneficial, especially for informing the property owner about your participation in a project.
Serving a preliminary notice months in advance may be acceptable, but a property owner can potentially forget about your notice altogether. Just be aware of this risk when deciding when to serve your California preliminary notice.
Why serve a California 20-Day Preliminary Notice?
Serving a California 20-Day Preliminary Notice does not only protect your lien rights, but it also has other benefits that greatly improves business relationships in any construction project.
1. Serving a California 20-Day Notice opens communication lines among construction parties
A California 20-Day Preliminary Notice is a document served in good faith and is meant to benefit everyone involved in the project. It is, in a way, a reminder to the owner and/or the lender that the contractor, subcontractor, or supplier has the right to file a mechanics lien against the property in case of a delay of payment or non-payment. It is not a threat.
No matter how the payment scheduling in your contract is structured, waiting to send the preliminary notice until an invoice is triggered will not be effective in securing a contractor’s lien rights. The preliminary notice only secures lien coverage for services and supplies furnished 20 days preceding the date the preliminary notice was served. Send the notice within 20 days of furnishing materials or rendering work on a project.
2. Serving a California 20-Day Notice allows construction participants to discuss and settle payment issues early on
Preliminary notices give the property owner the chance to make things right and settle any payment disputes before the claimant resorts to filing a mechanics lien against their property. It is not a document meant to be a threat—rather, it’s one that facilitates clear communication between parties in a project, keeping small payment disputes that could just be a clerical error from developing into more significant issues requiring more aggressive action like filing liens.
Additionally, California passed a law in October 2017 that makes general contractors liable for the payment of all subcontractors and lower-tier participants on a project. Serving a preliminary notice, therefore, allows general contractors to track which parties they are responsible for paying and potentially avoid further payment issues.
3. Serving a California 20-Day Notice allows construction participants to develop an efficient business workflow
A preliminary notice is one of the most essential documents in the whole cycle of getting timely payments as a contractor. Serving the preliminary notice is a crucial step for California contractors, subcontractors, and suppliers to secure their earnings and their right to file a lien against the property in case the owner fails to settle their progress payments and retention.
Construction businesses are, therefore, expected to have a smooth and error-free workflow that allows them to serve preliminary notices for all their contracts. Establishing an organized and efficient workflow makes for good business, and it also reduces the risk of having to deal with larger financial and legal troubles in the future.
What happens when a preliminary notice is not filed?
Failure to file a preliminary notice denies contractors, subcontractors, and suppliers the right to file a mechanics lien. It also denies them the right to pursue other payment remedies like giving stop notices or claiming against a bond. This is the reason why preliminary notices are required in California.
Also note that failing to serve the required preliminary notice could subject a construction participant to disciplinary action, according to California Code 8216:
“If the contract of any subcontractor on a particular work of improvement provides for payment to the subcontractor of more than four hundred dollars ($400), the failure of that subcontractor, licensed under the Contractors’ State License Law (Chapter 9 (commencing with Section 7000) of Division 3 of the Business and Professions Code), to give the notice provided for in this chapter, constitutes grounds for disciplinary action under the Contractors’ State License Law.”
This means that if you are a subcontractor whose subcontract is worth over $400, you may be subjected to penalties and fines if you fail to provide a valid California preliminary notice.
Aside from being a tool for timely payments, it is also a way to promote a transparent working relationship within the project as it makes sure all entities involved are aware of who’s working for whom, which can get complicated especially for larger projects.
How to serve a California 20-Day Preliminary Notice: 3 simple steps
1. Prepare your California 20-Day Preliminary Notice form
2. Serve the preliminary notice on the required parties
3. Keep a record of your compliance to the notice requirements
1. Prepare your California 20-Day Preliminary Notice form
The first step in serving your 20-Day Preliminary Notice is to ensure that you have all the information that you need in order to build your preliminary notice document.
What information must be included in the California preliminary notice?
Notices and documents involved in the process of getting paid in construction must be as close to perfect as possible. Any missed piece of information or a lapse in the schedule can lead to invalidating the document and losing the ability to claim the rights granted by said document.
For the preliminary notice, here’s a checklist of the information that must be included:
A – Name of the owner (or reputed owner*)
B – Name of the contractor director and their address
C – Name of the lender and their address, if any
D – A general statement of the work provided
E – A financial estimate of the price of total work provided
F – The name and address of the person or entity who provided the work or materials
G – The name and address of the person or entity to or for whom the work or materials is provided
H -Description of the site for identification, including street address if possible
I- A legal notice statement (in boldface type). The specific wording is as follows:
NOTICE TO PROPERTY OWNER
EVEN THOUGH YOU HAVE PAID YOUR CONTRACTOR IN FULL, if the person or firm that has given you this notice is not paid in full for labor, service, equipment, or material provided or to be provided to your construction project, a lien may be placed on your property. Foreclosure of the lien may lead to loss of all or part of your property. You may wish to protect yourself against this by (1) requiring your contractor to provide a signed release by the person or firm that has given you this notice before making payment to your contractor, or (2) any other method that is appropriate under the circumstances. This notice is required by law to be served by the undersigned as a statement of your legal rights. This notice is not intended to reflect upon the financial condition of the contractor or the person employed by you on the construction project. If you record a notice of cessation or completion of your construction project, you must within 10 days after recording, send a copy of the notice of completion to your contractor and the person or firm that has given you this notice. The notice must be sent by registered or certified mail. Failure to send the notice will extend the deadline to record a claim of lien. You are not required to send the notice if you are a residential homeowner of a dwelling containing four or fewer units.
¹In some cases, the property owner’s name may not be the same as the reputed owner, as in the case of projects initiated by tenants.
² Use the contract amount as your estimate. Do not add to the amount as a cushion because it can lead to the invalidation of your preliminary notice
How do I make sure that the information on the owner and the lender is correct?
Obtaining the names and addresses of the owner and the lender, if any, shouldn’t be challenging as it’s required for direct contractors to provide the names and addresses of the owner and the lender to all entities working on the project. The project owner must also provide the name and information of the construction lender.
Per the California Civil Code:
8208. A direct contractor shall make available to any person seeking to give preliminary notice the following information: (a) The name and address of the owner. (b) The name and address of the construction lender, if any.
8210. If one or more construction loans are obtained after commencement of a work of improvement, the owner shall give notice of the name and address of the construction lender or lenders to each person that has given the owner preliminary notice.
Even so, there is little consequence for the owner in case they make an error in the information they share with the other parties in the project. However, for the contractor, subcontractor, or material supplier who serves the preliminary notice, a small error in the information included can invalidate the whole notice, removing their lien rights. The information will not be validated by the parties who receive the notice, nor will the county recorder. This means that the erroneous information, if any, can and will come back to bite you at the moment when the preliminary notice was meant to protect your lien rights.
Verifying this information yourself can be done but it is a tedious task that takes away your focus from business operations, especially for a routine document like preliminary notice, which must be sent for every contract. You would need to scan public records for lender information, which you could only readily access with a trip to the county office. This involves both time and expense that you would need to incur for every contract. Of course, having correct information is crucial to making sure the preliminary notice is valid but it’s a huge inefficiency to make the trip for each contract. Using a software solution like Handle to prepare and serve your preliminary notices saves you time and secures your lien rights.
2. Serve the 20-Day Preliminary Notice on the required parties
Once you have your California 20 Day Preliminary Notice form all set and done, you may now serve it on the appropriate parties.
Who should the preliminary notice be served on?
The preliminary notice must be served on the property owner, the general contractor, and the construction lender, if any.
For public works where there is a bond on the projects, the preliminary notice must be served on the bonding company.
If a public project is constructed by the Department of Public Works in California, deliver the notice to the disbursing officer of the department involved in the project.
What is the correct way to serve the preliminary notice?
There are a couple of options when it comes to delivering the notice.
1. In person, leaving the notice at the place of residence of the intended recipient with a person in charge
2. Sending via registered or certified mail
For both cases, it’s crucial that you keep a record of the date of delivery, the method of delivery, the person who received the delivery, and any other details that corroborate the fact that the notice was delivered.
Service of the notice is complete upon mailing, and a tracking record is enough proof that delivery has been attempted.
How many times can you file a California preliminary notice?
It’s best to file the preliminary notice once when the project starts, but some material suppliers may have multiple contracts in the project. This requires them to send separate preliminary notices for each contract to cover their claim for each one.
3. Keep a record of your compliance with the 20-Day Notice requirement
Given that not keeping a record can be fatal to your lien rights, this step is very crucial in the process of ensuring payments in construction.
How do I keep my record that I served a California preliminary notice?
There is no protocol but here are some documents that you can secure:
- a copy of the return receipt card
- a copy of any record of U.S. postage delivery
- an affidavit of delivery
Keeping these allows the claimant to prove that they indeed served the preliminary notice, which will come in handy in the event their case escalates and they’re required to prove that they acted in pursuance of statutory requirements to secure their right to make a mechanics lien claim.
An example of this is a case where a claim on a property was not granted even when all steps and notices were served and recorded because the preliminary notice was sent through ordinary first-class mail as opposed to what the code spelled out, which is registered mail, certified mail, or in person.
Follow the law to a T because any error will be used against you in case the dispute escalates to litigation.
Using a professional service to serve the preliminary notice eliminates the possibility of losing out on a lien claim because of minor errors.
How to file a California Preliminary Notice online?
You may file a California 20-Day Preliminary Notice online using the Handle app. Filing a preliminary notice using Handle is an easy way to ensure that your 20-Day Preliminary notice is prepared properly and is filed on time.
Handle makes sure that your form meets the state requirements and that the information you include is accurate. Handle also takes care of serving your 20-Day Preliminary notice on time so you are assured that you meet the deadlines and that you keep the mailing receipts to prove that you have complied with California preliminary notice rules.
What should you do if the contract amount changes after the preliminary notice is sent?
If the amount of the contract changes due to an addendum to work performed or added materials, there is no need to serve a new preliminary notice.
The estimate in the preliminary notice doesn’t restrict you to only claiming that amount in case the situation escalates, but you are opening your lien rights to question if the estimate is done in bad faith or “made out of whole cloth.”
Per the California Civil Code § 8206(g):
(a) Except as provided in subdivision (b), a claimant need give only one preliminary notice to each person to which notice must be given under this chapter with respect to all work provided by the claimant for a work of improvement.
(b) If a claimant provides work pursuant to contracts with more than one subcontractor, the claimant shall give a separate preliminary notice with respect to work provided pursuant to each contract.
(c) A preliminary notice that contains a general description of work provided by the claimant through the date of the notice also covers work provided by the claimant after the date of the notice whether or not they are within the scope of the general description contained in the notice.
Sending a revised or additional preliminary notice in California is unnecessary. Only one preliminary notice is required unless there is a separate contract with a separate entity.
Best practices when serving a California Preliminary 20-Day Notice
1. Serve the preliminary notice as early as you can.
It’s best to serve the preliminary notice as soon as a project starts. Waiting until the last minute before serving your notice only increases the risk of your missing the 20-day mark, so you are highly encouraged to get your notice delivered right away.
You can also consider serving a preliminary notice before starting your work on a project. Doing so is acceptable based on California laws.
Note that some material suppliers may have multiple contracts in the project. This requires them to send separate preliminary notices for each contract to cover their claim for each one.
2. Record your California 20-Day Prelim Notice in the local county recorder’s office.
Recording a California Preliminary 20-Day Notice in your local county recorder’s office is not a requirement but it is ideal. Once a preliminary notice is recorded with the county where the project is situated, the recorder is obliged to inform the entity that filed a notice that the owner recorded a Notice of Cessation or a Notice of Completion.
When a property owner files either of these notices, the time a contractor, subcontractor, or supplier has to record a mechanics lien is reduced. There are some contractors, subcontractors, and suppliers who think this step is not essential since the owner is required to send everybody who served a preliminary Notice a copy of a Notice of Completion or a Notice of Cessation within 10 days of recording either notice with the county.
3. Ensure that the amount you are claiming is a reasonable estimate of your work’s worth.
It is critical that preliminary notices are sent with the correct language and information, on time, and according to California’s statutory requirements. It’s also important to include a good-faith estimate that is based on your expertise and rational projection of what the total project amount will be.
A bad estimate is perfectly described in the case of Rental Equipment, Inc. v. McDaniel Builders, Inc. (2001) as one ”that was not derived by any rational process, that it had no bearing whatsoever on the actual work done and to be done on the project and that it was, in truth and in fact, made out of whole cloth.” In the case, the preliminary notice was deemed defective as the estimate in the notice was $10,000.00 but the ensuing mechanic’s lien was for $159,000.00.
The 20 Day Preliminary Notice in California is a very important document that ensures your lien rights are protected. Failing to file a 20-Day Preliminary Notice invalidates you right to file a mechanics lien, so it is in your best interest to fulfill California’s notice requirements. Using an online service like Handle can make this task easier. Handle can take care of your 20-Day Preliminary Notice so you can devote all your energy to doing a great job on your project.