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How to Serve a Stop Notice in California for Private Projects

How to Serve a Stop Notice in California for Private Projects

December 23, 2020

There are multiple remedies available to construction participants who are dealing with payment disputes. The most effective method, arguably, is filing a mechanics lien, and another option is to serve a higher-tier party with a stop payment notice.

A stop payment notice is served to interrupt the payment flow between a higher-tier stakeholder and your client. If, for example, you are a general contractor and you want to recover payment from a property owner, you may serve a stop notice on the construction lender so the lender withholds money from the owner. If you perfect your stop notice by enforcing it, you will be able to get paid by recovering the withheld amount.

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California is one of the few states where serving a stop notice is allowed and enforceable, both in public and private projects. This guide walks you through the process of serving a valid stop payment notice in privately owned projects in the state.

What is a California stop payment notice for private projects?

As mentioned, a stop notice is a payment recovery method that allows you to recover your money by intercepting the payment flow between higher-tier stakeholders. Once the payment is withheld, you will be able to enforce your stop notice and recover that payment directly from the property owner or the construction lender.

What is the difference between a bonded stop notice and an unbonded stop notice?

In California, you may serve a bonded stop notice or an unbonded stop notice in private projects.

An unbonded stop notice is a regular stop payment notice that will mandate a property owner to withhold payment from a general contractor. A bonded notice, on the other hand, comes with a bond that amounts to 125% of the unreleased payment. It must also come with a condition that a defendant, usually a general contractor, may recover attorney costs in case they win the enforcement action.

Note that if you are serving a stop payment notice on a construction lender, use a bonded stop notice. A construction lender may choose not to withhold payment to the owner if the stop notice that they receive is unbonded.

Who can serve a stop payment notice for private projects in California?

General contractors, subcontractors, and material suppliers have the right to serve a stop payment in California.

Note, however, that general contractors are required to serve a stop notice only on a construction lender. All other parties may serve a stop notice on both the property owner and the lender.

Also note that in order to preserve your stop notice rights, you must serve a valid 20-day preliminary notice. General contractors are typically not required to serve a preliminary notice in California unless there’s a construction lender. The same rules apply when serving a stop notice. Be sure that you serve a valid preliminary 20-day notice to protect your right to serve a stop notice.

How to serve a California stop payment notice

How to serve a California stop notice (1)

1. Prepare your California stop payment notice form

What information should be written on a California stop payment notice form for private projects?

According to California laws, these pieces of information are critical to making your stop payment notice valid:

  • A general description of the work to be provided
  • An estimate of the total amount in value of the work to be provided
  • The unpaid amount being claimed

The claimed amount must not be more than the value of what has been performed through the date of the stop notice. This means that you should not claim an amount for services that you have not yet provided to a project.

You may also include the following details to provide more context to your California stop notice:

  • Your name and address
  • The name and address of the party to whom the labor or services were provided
  • A description of the jobsite location

Be sure to also sign and date your stop payment notice.

2. Serve your California stop payment notice on the intended recipient

On whom must you serve the California stop payment notice for private projects?

General contractors serve a stop notice on a construction lender, while other lower-tier participants may serve a stop notice on both the construction lender and the property owner.

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More specifically, you may serve your stop notice on the manager or another responsible officer of the construction lending company, or on the property owner or the owner’s architect.

How do you serve a California stop payment notice for private projects?

The California stop payment notice must be served via certified mail with return receipt requested.

When is the deadline for serving a California stop payment notice for private projects?

For general contractors, the deadline for serving a California stop payment notice for private projects falls on the earlier date between the two:

  • Within 60 days of the date the Notice of Completion was recorded
  • Within 90 days of project completion or cessation, if no Notice of Completion was recorded

For other participants such as subcontractors and materialmen, the deadline falls on the earlier date between the two:

  • Within 30 days of the date the Notice of Completion was recorded
  • Within 90 days of project completion or cessation, if not Notice of Completion was recorded

What happens after you serve a California stop payment notice?

The party who receives your notice will be mandated to withhold the amount that you are claiming for your client. A construction lender may, for example, withhold funding from the property owner, or a property owner may withhold payment from the general contractor.

Note that if your stop notice is served properly, you will receive the withheld amount directly by perfecting your stop payment notice.

3. Enforce your California stop payment notice

In California, you cannot enforce a stop notice until after 10 days following your sending of it. You also cannot start an enforcement action beyond the 90-day period after the deadline for serving a stop notice. This means you should enforce your California stop notice as soon as you are allowed to.

Five days after commencing action, you must hand another notice to the party on whom you served the stop notice. This second notice informs the receiving party that you have filed a suit and that you are perfecting your stop notice.

If you win the lawsuit, you will recover your payment and also recover your attorney costs. If you lose the suit, the amount will be duly released to the aggrieved party, which is either the property owner or the general contractor.

Best practices for serving a California stop payment notice for private projects

1. Be sure to serve a valid 20-day preliminary notice

Just like a mechanics lien, a stop notice in California will hold no power unless the claimant has served a valid 20-day preliminary notice. Be sure to fulfill the preliminary notice requirement as failing to do so can be fatal not only to your lien rights, but also to your right to serve and enforce a California stop payment notice.

2. Do not forget to enforce your stop notice

If you want to recover your payment, you need to enforce your stop notice. Getting an owner or a lender to withhold a specific amount of money is one thing, but it is a completely different step to make sure that the money gets released to you instead.

3. File a California mechanics lien if needed

For private projects, the most effective method to recover payment is still the mechanics lien. A stop payment notice may work, but a mechanics lien encumbers a property. Filing a mechanics lien can drive investors away, so property owners are more willing to settle outstanding debts if a mechanics lien gets recorded.

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