Understanding And Addressing Mechanic’s Liens On California Projects

Mechanic’s liens remain one of the most powerful remedies available to contractors, subcontractors, and suppliers, and a significant challenge and disruption to owners and developers of construction projects.

A mechanic’s lien is a claim recorded against real property by a party asserting it has not been fully paid for labor, services, or materials it provided to improve that property. A recorded mechanic’s lien can cloud title, trigger defaults under loan agreements, and impede financing or the sale of the property. As a result, owners and developers are often forced to address liens even when they had no part in the payment dispute and no contract with the lien claimant.

Mechanic’s liens often come in waves as projects near completion and can act as a catalyst to a broader dispute. Accordingly, it is important to deal with them promptly and thoughtfully. California law imposes strict timing and procedural requirements on lien claimants, and owners and developers who understand those requirements are better positioned to evaluate and resolve lien claims efficiently.

This alert highlights several areas that owners and developers of private construction projects should understand in protecting their project from improper lien claims and addressing liens should they arise.

Preliminary Notice

A party providing labor, services, or materials generally must serve a 20-day preliminary notice on the owner, general contractor, and construction lender. The notice alerts those parties that the sender is performing work on the project and may later assert a mechanic’s lien if not paid. If the sender has a direct contractual relationship with the owner (i.e., the general contractor), it need only provide notice to the lender.

Timing matters. A preliminary notice should be served within 20 days after a party first furnishes labor, services, or materials for a project. If served late, it preserves lien rights only for work and materials provided after service and during the 20 days before service. Thus, a party’s failure to timely serve a preliminary notice may reduce or eliminate its lien rights.

For owners and developers, these notices are more than just perfunctory paperwork. They create a roadmap of potential lien claimants. Keeping organized records of all preliminary notices received at the beginning of a project can pay dividends years later when a project is concluding, and lien claims begin to surface.

Recording Mechanic’s Liens

Lien claimants must follow strict timelines, and missing those deadlines can render an otherwise valid lien unenforceable. For owners and developers, understanding these deadlines and how they may be shortened is important.

Generally, a mechanic’s lien must be recorded within 90 days after “completion” of the project. California law defines “completion” broadly, and it may include actual completion, cessation of labor for a specific period of time, or use of the project by the owner. What counts as “completion” of a project under California law is not always intuitive, so determining and documenting that date can be one of the more complicated but important steps in understanding lien rights.

Owners can also significantly shorten the period by properly recording and serving a notice of completion. When done correctly, the deadline to record a lien is reduced to 60 days for direct contractors and 30 days for subcontractors, suppliers, and others. Although the process can be cumbersome, particularly on large projects, it can narrow the lien recordation window and bring more certainty to project closeout.

Foreclosure of Mechanic’s Liens

Recording a mechanic’s lien is only one step in the enforcement process. A lien claimant must then file a lawsuit to foreclose the mechanic’s lien within 90 days after recording its lien. Failure to do so generally renders the lien unenforceable.

Removal of Mechanic’s Liens

Owners and developers confronted with a mechanic’s lien have many options for addressing and removing the lien, and the right approach depends on the lien's validity and amount, the project’s needs, and the terms of the prime contract.

Often, the first place to look is the prime contract. Many construction contracts require the general contractor to remove or bond around liens asserted by its subcontractors and suppliers. If the contractor fails or refuses to do so, the owner may have the right to pay off or bond around the lien and seek recovery from the contractor.

If the lien is legitimate, resolving it may be the most practical and expedient path forward. Any payment should be conditioned on receipt of proper documentation, including an executed lien release. Owners paying subcontractors directly should confirm they have the contractual right or the general contractor’s permission to do so. If, however, the lien is untimely, overstated, procedurally defective, or otherwise invalid, an owner may seek judicial relief to remove the lien from title.

Owners and developers should not assume they must pay off every recorded lien. Evaluating the lien early and understanding the available contractual and statutory remedies can often save significant time, expense, and lead to an efficient resolution.

Practical Takeaways

California’s mechanic’s lien laws reflect a legislative policy to protect those who provide labor, services, and materials on construction projects, even when doing so places significant burdens on owners and developers who had no role in the underlying payment dispute. Consider a common example: an owner timely pays its general contractor, but the contractor fails to pay one or more of its subcontractors. Despite having paid in full, the owner may still be forced to deal with a mechanic’s lien and all of its resulting consequences.

For that reason, owners and developers should take a proactive approach from the outset of every project, including implementing effective contract administration procedures and ensuring the general contractor is doing the same; maintaining records, including preliminary notices; and consistently obtaining conditional and unconditional lien waivers and releases with each payment application.

When a mechanic’s lien is recorded, early legal review is equally important. Promptly evaluating the lien can identify available defenses, preserve statutory rights, and often reduce the time and cost required to resolve the dispute.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.