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Do you have mechanics lien rights? This is a very complex question in any state as all lien legislation is riddled with gray areas and legal rule exceptions. The California legislature just finished two years of amendments to the state’s mechanics lien laws in an effort to stamp out confusion, yet there are still ambiguities and gray areas that may leave claimants scratching their heads.
This post discusses 4 “gray areas” or misconceptions within California’s mechanics lien laws that may leave you with mechanics lien rights when you least expect it.
1) What If You Send Preliminary Notice To The Wrong Property Owner?
California Civil Code § 8200 provides that a lien claimant must sent preliminary notice to the “owner or reputed owner.” This begs the question: what in the world is the “reputed owner?”
We discussed the relevancy of the “reputed owner” language in a post about what to do when work is commissioned by a tenant on a construction project: California Preliminary Notice Requirements When Work Commissioned By A Tenant. As it turns out, while the term “reputed owner” is used repeatedly through the civil code, it’s an undefined term.
The court in Brown Co. v. Appellate Department had this to say about the term:
The term “reputed owner” … is a person or entity reasonably and in good faith believed to be the owner by those involved with the work of improvement including the general contractor and those furnishing labor, service, equipement or material to be used int he work of improvement.
In other words, if a claimant made an actual inquiry into the owner’s identity and sent preliminary notice to the party who turned up in that search, the claimant may have complied with the requirement.
2) How Close Does Your Estimated Contract Amount Need To Be On A Preliminary Notice?
California’s preliminary notice requires that the claimant identify the contract amount or “estimated contract amount” on the notice itself. Unlike the law in Arizona that has a 20% rule requiring the estimated amount to be within 20% of the final total, California doesn’t have any restrictions or guidance as to when this disclosed amount will be unsatisfactory.
This is a frequently asked question about California’s preliminary notice requirements because contract amounts are frequently changed by change order or directive. We’ve addressed the issue in a previous blog post titled, “Should I Send Multiple Preliminary Notices in California If the Amount of Work Changes?”
The answer appears to be no, but it is certainly a gray area and eyebrows will eventually be raised when an estimated contract amount is significantly different than a final lien claim.
3) The Amount Of Your Mechanics Lien Claim
I’m convinced that we’ll one day see a big California appellate or supreme court case targeting the value of mechanics lien claims. A very common misunderstanding about California’s mechanics lien law is that a claimant may file a claim equal to the contract balance owed to the claimant. This is not necessarily correct.
While the value of a mechanics lien claim is very often equal to the contract balance due to the claimant, the law is very clear that a mechanics lien may be filed for a value equal to the lesser of (1) The value of the furnishing to the project; or (2) the contract price of the furnishing to the project.
What does this mean? It means that technically the value of your contract is irrelevant to the value of your work. A court will look to the underlying value of the work and materials to determine the amount of your lien claim, and that value may not include profits, overhead, markups, etc. etc.
Honestly, we don’t know what in the world this means. If a light switch costs $5 to make, sold for $7 wholesale, sold for $10 to the subcontractor and billed to the customer $15 – which of those figures is the actual “value” of the light switch?
The good news here is that if you miss the mark in setting the mechanics lien claim amount the entire claim will not likely be invalidated. That penalty is reserved only for those claimants who willfully overstate the mechanics lien amount.
4) Can You File A Second California Mechanics Lien To Extend Your First Lien?
Unlike most states, California counts its mechanics lien deadline from the completion of the entire project as opposed to the claimant’s individual last furnishing. This results in a potential confounding situation whereby a lien claimant could file a mechanics lien, have the mechanics lien expire and still – technically – have time to file another timely mechanics lien.
Consider this scenario: A material supplier finishes work on March 1st, and files its lien on April 1st. The project is not completed until November 1st. The lien filed on April 1st would expire 90 days after filing (approximately July 1st), but there would still be time to re-file the lien according to the deadline (until 90 days after November 1st).
Could the material supplier re-file its mechanics lien claim after the first one expires, or has the expiration of the first lien claim resulted in a waiver of those lien rights? California law is unclear, but there is certainly an argument that re-filing the mechanics lien claim would be effective.