Getting paid in the construction industry is never an absolute certainty. Projects can run out of money, relationships between contractors can deteriorate, and funds can be misspent due to mistake or oversight. In these cases, contractors, subcontractors, and suppliers may all face dwindling prospects of being compensated for their work. The probability of being paid increases dramatically, however, with the sending of a preliminary notice, also known as a “pre-lien” notice.
Particularly for subcontractors and suppliers, the notice acts to increase the awareness of the owner and contractor that a certain person or entity is working on a project and will need to be paid. It signals a high level of sophistication and awareness of legal rights, and tells owners and contractors that further legal action will be taken if payment is not made. The preliminary notice helps people down the contractual chain get noticed and paid faster.
Most importantly, in California (and many other states) it preserves critical legal rights, including the ability to file payment bond claims, stop payment notices, and mechanics liens. In order to pursue any of these remedies, sending a preliminary notice is legally required first.
Subcontractors, moreover, are actually required to send a preliminary notice on any job totaling more than $400.
The notice gives the name and address of the owner, direct contractor, lender if there is one, and the person giving notice. The person giving notice states the nature of their relationship to the receiving parties. The notice also contains a description of the site, including the street address, and includes a statement or estimate of the value of the work performed. Estimates must be reasonable and based on rational criteria. If the project is private, it will include an additional notice to the owner that a mechanic’s lien may be recorded in the event of nonpayment.
Who Sends and Who Receives the Notice?
In California, a general contractor is only required to file a preliminary notice with a lender if one exists. Any subcontractor or supplier (anyone without a direct contract with the owner) is required to send notice to the general contractor, owner, and lender if one exists. In some cases, a subcontractor may find the necessary information included in a contract. In other cases, the subcontractor may have to contact either the owner or contractor to get the necessary information. A general contractor is legally required to provide the name and address of the owner and/or lender to anyone trying to send a preliminary notice. Owners, on the other hand, may be easier to identify, but have no affirmative duty to give out information. Either way, a preliminary notice will still have to be sent to the party contacted for information.
Timing
Notice should be sent no later than twenty days after beginning work at a particular site. The good news is that notice is effective as of the date of mailing, not receipt by an owner or contractor. California is also a ‘better late than never’ state, which means that a preliminary notice can be filed even if more than twenty days have elapsed since work began. The notice will be only be effective, however, as to past work performed in the twenty days leading up to and including the day of notice. For example, if a contractor sent notice on day 21 of a job, the notice would support a claim for payment for work performed on day 2 and all days after. He or she would be out of luck for work performed on day 1 in the event that a mechanics lien becomes necessary. Any and all problems of this nature can be avoided, though, simply by filing a preliminary notice before work even begins.
Mailing
A preliminary notice can be delivered in person, though this is not recommended. Notice can be mailed by certified, registered, or overnight express mail through the USPS, or through an express carrier via overnight delivery. First class mail cannot be used for a preliminary notice, however. The best practice is to use certified mail with a return receipt. With any method of delivery, the sender then fills out an affidavit describing how notice was sent, and keeps it with the proof of mailing. At this point, the preliminary notice is considered to be sent for all legal purposes.
Because missing details or an inaccurate address can defeat the legal standing of a preliminary notice, many contractors use a professional construction notices company like Easy Law Construction Notices.
Sending a preliminary notice is easy. The consequences of not sending a preliminary notice can be severe. Avoid lost profits by making the preliminary notice part of your routine on every project.
If you have any questions or comments regarding this article, please do not hesitate to contact Kirk Rodby at The Green Law Group, LLP.
Please note that this article is only intended to provide some general educational information. For your particular legal questions, be sure and consult with an attorney.
Kirk Rodby
Phone: (805) 306-1100, Ext. 118
Email: kirk@thegreenlawgroup.com