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Sweeping Changes to the Mechanics Lien Law in California © 2012 by The Regents of the University of California

Introduction to SB 189 The California Law Revision Commission initiated revisions to the statutes that govern mechanics liens, stop payment notices, payment bond claims, progress payments, and related remedies for both private and public construction projects. The legislature passed SB 1691 in 2008, but the Governor vetoed it. It was reintroduced in 2009 as SB 189, and in 2010 it passed both houses and was signed by the Governor. A few changes in related provisions of the Business and Professions Code were operative on January 1, 2011; the remaining changes were operative on July 1, 2012. See full text of SB 189 (Stats 2010, ch 697) and bill summary. Although the bill made some substantive amendments, it primarily renumbered and reordered all relevant Civil Code provisions. See CC §§8000–9566 (former CC §§3082–3272.9). See Disposition Table (concordance table) in California Mechanics Liens and Related Construction Remedies (4th ed Cal CEB 2012) §1.1 (hereinafter “Mechanics Liens”) for a guide to the affected provisions. There are some areas that SB 189 did not clarify or that became more murky after July 1; these are noted throughout our new 4th edition of Mechanics Liens. The courts or the legislature will have to resolve those in the future. See, e.g., Mechanics Liens §4.11.

Frequently Asked Questions What is the Mechanics Lien Law? How Do The Effective Dates for SB 189 Actually Work? What Is a Public Work Under SB 189? Is a “Public Improvement” the Same as a “Work of Improvement”? What Are Some Other New Definitions? What Substantive Changes Apply Only to Private Works? What Substantive Changes Apply Only to Public Works? What Substantive Changes Apply to Both Private & Public Works? Did SB 189 Resolve Any Uncertainty in the Law? What is the Best Way to Ensure That Clients Comply?

NOTE TO READERS: This wiki represents an alternative way for CEB to present content to our customers, and is intended to facilitate an exchange of comments, questions, and ideas for a community of California attorneys. Please feel free to ask questions or make comments on the discussion page, both about the substantive content in this article and about how we at CEB can encourage the exchange of knowledge among California attorneys. However, please understand that CEB does not render any legal advice. CEB has published a new edition of its book, Mechanics Liens and Related Construction Remedies (4th ed Cal CEB), which discusses in depth SB 189's changes to the mechanics lien law in California. For more information on this print and online book, go to its page at ceb.com.

What is the Mechanics Lien Law?
The mechanics lien law is a complex set of remedies for construction participants who were not paid for work they provided to a construction project. There are 3 main remedies: One is a mechanics lien (which applies only to private works); it allows an unpaid claimant to record a lien claim on the improved property; the second is a stop payment notice (which is essentially a type of garnishment of construction funds held by owners, lenders, or public entities, who will then withhold from the prime contractor certain payments due under the prime contract until these entities are assured the stop notice claimants have been fully paid. The third remedy involves various types of construction bonds, which (if the bonds were procured) will guaranty payment to claimants on the default of the bond principal. The last two remedies, stop notices & bonds, apply to both public and private works; all these remedies collectively represent one of the most balanced pieces of legislative engineering in California law. SB 189 renumbered all the statutes governing mechanics liens & related remedies, rephrased and revised them, and made numerous substantive changes as well.

How Do The Effective Dates for SB 189 Actually Work?
Understanding the effective dates is the key to avoiding malpractice in applying the new law. Under CC §8052(a), all re-enacted sections in SB 189 are operative on July 1, 2012. Some practitioners mistakenly believe that SB 189 applies only to construction contracts entered into on or after July 1, 2012. Others think that commencement of construction is the trigger. Neither is accurate. If a claimant, for example, gives a preliminary notice in August 2012 for work provided under a contract signed in May 2012, the notice (and all subsequent actions) must comply with SB 189. But under CC §8052(b), “the effectiveness of a notice given or other action taken” before July 1 to establish (or defend against) a remedy for work done on a construction project “is governed by the applicable law” in effect at the time. EXAMPLE: The recordation of a mechanics lien or service of a stop payment notice in June 2012 triggers the application of former statutory law in effect before July 1, 2012, for determining the validity of that lien or notice, as well as the validity of the preliminary notice given beforehand, even if a court action to enforce the stop notice is not filed until August 2012.

What Is a Public Work Under SB 189?
Recent amendments made by SB 189 to the law regarding stop payment notices and payment bonds raise a question about what types of public works are intended to be covered. The new title “Public Work of Improvement” (CC §§9000–9566) states that it applies to a work of improvement contracted for by a public entity. CC §§9000. This is the same definition used in CC §3100 to define a public work. The definition of a “public entity” also remains the same; the term means “the state, Regents of the University of California, a county, city, district, public authority, public agency, and any other political subdivision or public corporation in the state.” CC §8036 (former CC §3099). See Mechanics Liens §9.2. The amendments operative July 1, 2012, however, present a new definition for the term “public works contract,” which incorporates the definition in Pub Cont C §1101, as “an agreement for the erection, construction, alteration, repair, or improvement of any public structure, building, road, or other public improvement of any kind.” See CC §8038 (former CC §3100). The definition appears to change the focus from the contracting party to the agreements affecting or creating public improvements. This is one of many ambiguities in the recent amendments. The intent of incorporating the definition from the Public Contract Code is unclear and presents an opportunity to argue for broader application of public work remedies to public-private partnerships and other nonstandard means of structuring work associated with public improvements. See Mechanics Liens §4.2.

Is a “Public Improvement” the Same as a “Work of Improvement”?
The new definition of a “public works contract” in CC §8038 introduces some confusion about whether a “public improvement” is intended to be the same as a “work of improvement” under CC §8050. The term “work of improvement” is used extensively in the part of the law devoted to public works of improvement (CC §§9000–9566) and is used somewhat interchangeably with the term “public works contract.” The conflicting definitions are likely to become an issue only on construction projects when there is some degree of private sector involvement on a public work. On hybrid projects, see Mechanics Liens §§1.13–1.18, 4.2. It is unlikely that the new definition will affect the basic rule that public property is not subject to mechanics lien remedies under principles of sovereign immunity, even when there is private development on property owned by the public. See Mechanics Liens §4.5. Construction of public streets, sewers, buildings, airports, monuments, schools, and other public structures are typical types of public works. For discussion of the meaning of “work of improvement” in private projects, see Mechanics Liens §§2.35, 2.60–2.66.

What Are Some Other New Definitions?
Under SB 189, the term “stop notice” became “stop payment notice,” and the term “original contractor” became “direct contractor.” See Mechanics Liens §§2.82, 3.34, 3.38, 4.11, 7.1. The definition of “design professional” was expanded in CC §8014 to now include a licensed landscape architect. See Mechanics Liens §§2.73, 2.86. Civil Code §8180 has omitted “acceptance by the owner” from the definition of “completion” for a private work. See Mechanics Liens §§3.46, 8.62. Civil Code §8122 added a subcontractor to the class of those who may not waive any other claimant’s rights unless the claimant executes and delivers a statutory prescribed waiver and release. See Mechanics Liens §3.10. Civil Code §8066 clarifies that an agent’s authority is limited to the scope of the agency defined by contract. See Mechanics Liens §§2.7, 2.11, 2.15, 2.67.

Summary of Changes Applicable Only to Private Works
Civil Code §8604 clarifies that a lender that requires a payment bond on a private work of improvement may not object to the bond if it is given by an admitted surety insurer. See Mechanics Liens §11.5. Resolving an ambiguity in former law, CC §8200 makes clear that a direct contractor on a private work of improvement must give preliminary notice to the construction lender before serving a stop payment notice. See Mechanics Liens §3.25. Under CC §8190, an owner that records a notice of completion or cessation to shorten periods for claimants serving lien claims or stop notices is now required to give to claimants a copy of the recorded notice rather than simply a notice of recordation required by former law. See Mechanics Liens §8.67. Civil Code §8460 clarifies that the 90-day period for commencement of a lien action does not apply if the owner and claimant agree in writing to extend the period. See Mechanics Liens §3.66. The required amount of a mechanics lien release bond was reduced from 150 percent of the lien claim amount to 125 percent. See Mechanics Liens §2.128. Under new CC §§8482 and 8484(f), an owner may not petition for a release of a mechanics lien unless the owner first gives the claimant a demand notice at least 10 days before filing the petition. Civil Code §8486 increases the time for serving a copy of the lien release order petition and notice of hearing to 15 days, and it adds a requirement that the court rule no later than 60 days after the petition is filed. Civil Code §8488 clarifies the burdens of production and of proof on a petition for a lien release order. A court order releasing property from a lien after the lien claimant failed to file a timely action to enforce the lien does not bar any other claim or cause of action except an action to enforce the expired claim of lien. CC §8480(a)–(b). See Mechanics Liens, chap 8. Civil Code §8128, governing the reduction or release of a stop payment notice, generalizes former law to apply to a stop payment notice given to a construction lender as well as to one given to an owner. Section 8128 also adds certain content requirements for the reduction or release. See Mechanics Liens §3.62. Under CC §8844, an owner is added to those who may, in an expedited proceeding, seek a judicial determination of liability for the amount due in a stop work notice given by a contractor. See Mechanics Liens §8.73. On remedies for private works, see Mechanics Liens chaps 2–3.

Summary of Changes Applicable Only to Public Works
Civil Code §9362 increases from $2 to $10 the fee a claimant must pay a public entity at the time of filing a stop payment notice to receive notice of the deadline for filing its action to enforce payment of the stop notice claim. See Mechanics Liens §4.55. With respect to a public works contract, under CC §8802, the time within which the direct contractor must make a progress payment to a subcontractor is changed from “15 working days” to “21 days” after receipt of payment from a utility. See Mechanics Liens §4.153. Under CC §9200(b), the period of continuous cessation of labor necessary to constitute completion of a public work of improvement is extended from 30 days to 60 days. See Mechanics Liens §§4.52, 9.26. For more changes to public works statutes, see What Is a Public Work Under SB 189?.

Summary of Changes Common to Both Private & Public Works
Civil Code §§8100–8118 are new and partially standardize service requirements for various types of notices, including the addition of delivery by express service carrier and an expansion of methods of proof of delivery, such as documentation of the mailing provided by the U.S. Postal Service or an express service carrier. After July 1, some notices may no longer be served by first class mail; after July 1, they must be personally served or served by a type of mail or delivery service that is capable of tracking both the sending & receipt, making the validity of the notice & service of it easier to prove in a contested case. Other sections in Division 4,Part 6 of the Civil Code (Works of Improvement) (CC §§8000-9566) may prescribe a different or more limited manner of giving a particular notice. See, e.g., Mechanics Liens, chaps 3–4. In CC §§8132–8138, changes were made to content and language requirements for the statutory release forms signed by claimants to confirm receipt of payments made to them; there are four different types of forms, and now the parties on both sides have a better understanding of what is released and what is not released by the form. See Mechanics Liens §§8.56–8.58, 8.75. The 10-day period under former law for recordation of a notice of completion is extended to 15 days under CC §8182(a) (for a private work of improvement) and §9204 (for a public work of improvement). See Mechanics Liens §§3.54, 4.49, 4.52, 8.63, 9.26. Payment bonds and release bonds for both private and public works must be issued by an admitted surety insurer. See Mechanics Liens §§2.114, 2.128, 4.116. Under CC §8104, the notice required of a contractor or subcontractor that fails to pay full compensation to a laborer must now also be given to the owner and must include the name and address of the laborer. See Mechanics Liens §§3.6, 11.46.

Did SB 189 Resolve Any Uncertainty in the Law?
Although California courts of appeal had disagreed about whether a prevailing party could recover attorney fees in litigation over progress payments owing to the contractor on a private work of improvement, CC §8800(c) resolved that question; the prevailing party on claims for wrongful withholding of progress payments is now clearly entitled to costs and reasonable attorney fees. See Mechanics Liens §§7.47, 8.25. Assuming the time within which a mechanics lien may be recorded has not expired, an unpaid claimant may record a new lien claim and file an action to enforce it, even if its prior lien claim expired. CC §8480(b). Reported court of appeal decisions adopting the contrary view that an order releasing real property from an expired lien had the broader consequence of preventing the same claimant from asserting future liens against the same property for the same unpaid amount appear to have been superseded by CC §8480(b). See Mechanics Liens §§3.64, 8.80. Many reported cases in the 1990s had held that the Employee Retirement Income Security Act of 1974 (ERISA) (see 29 USC §§1132(a)(1)(B), 1132(e)(1), 1144) preempted the use of mechanics lien and stop payment notice procedures by a trust fund established under a collective bargaining agreement. As clarified by SB 189, it is currently the law’s express intent to “give effect to the longstanding public policy of this state to protect the entire compensation of a laborer on a work of improvement, regardless of the form in which that compensation is to be paid.” CC §8024(c). See Mechanics Liens §§2.8–2.9.

What is the Best Way to Ensure That Clients Comply?
One, be very familiar with the effective dates for SB 189 & how they are applied; CEB has many examples in its Mechanics Liens book. Review "How Do The Effective Dates for SB 189 Actually Work?". Two, use CEB’s handy calendaring tools and checklists. In the new 4th edition of Mechanics Liens, there are 6 types of scheduling tables, which assist the claimant (or attorney advising the claimant) in tracking notices they must give and actions they must take and include deadlines for each action---these are all in the forms CD that can be purchased separately with the book. The CD also has many pleading & discovery forms for litigation and the new statutory release forms.

By Bonnie C. Maly, CEB Publications Attorney Posted June 22, 2012