General Contractors: Serve a Preliminary Notice or Lose Your Rights
A preliminary notice is essential to preserve the rights and remedies afforded to California contractors in disputes with owners for unpaid amounts. Without a preliminary notice, contractors lose their statutory mechanic’s lien and stop notice rights, precluding any foreclosure on that lien to satisfy payment. Losing these powerful rights forces contractors to pursue unsecured breach of contract claims against an owner, which could languish in court for years with little chance of success.
This is a notable issue because, although the law changed in 2012, some general contractors may still be unaware that California law requires them to serve a preliminary notice on the construction lender in order to preserve their mechanic’s lien and stop notice rights. Prior to 2012, it was clear that subcontractors were required to serve preliminary notices on owners, general contractors, and construction lenders in order to assert valid mechanic’s lien and stop notice claims, and subcontractors became accustomed to doing so. It was unclear, however, whether the rule also applied to general contractors, because they were expressly exempted from serving preliminary notices by Civil Code section 3097(a), even though Civil Code section 3097(b) appeared to qualify that exemption. Despite the ambiguity, general contractors, for the most part, concluded that they did not need to serve preliminary notices in order to assert valid mechanic’s lien and stop notice claims.
This is no longer the case. In 2012, the California Legislature amended the preliminary notice statutes, in part to address the ambiguity found in Civil Code section 3097. The Legislature removed the ambiguous language which appeared to exempt general contractors and clarified that a general contractor is, in fact, required to give preliminary notice to a construction lender on a private work. (See Sen. Com. On Judiciary, Analysis of Sen. Bill No. 189 (2009-2010 Reg. Sess.), p. 4, as amended Dec. 15, 2009.)
The current law, therefore, requires any contractor in a direct contractual relationship with an owner to serve a preliminary notice on the construction lender as a necessary prerequisite to a valid mechanic’s lien or stop-payment notice claim. As such, all general contractors should prioritize service of a preliminary notice to the construction lender at the outset of each project to preserve their rights and remedies under California law.
If you have any issue related to a mechanic’s lien or stop notice, contact us to schedule a free case evaluation.
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