Even for the most seasoned construction industry veteran, filing a mechanics lien can get complicated quickly. The most basic claim will still have notice requirements, deadlines, and strict specifications for the lien itself. On top of that, everything about the mechanics lien process varies from state-to-state, and also changes depending upon the role of the claimant, the project type, and other factors. When some of these other variables come into play, the process can turn into a real mess. One of the trickiest mechanics lien situations to deal with is a claim against a condominium or similar residential structure where a Common-Interest Development (CID) is present. Please read on for a brief discussion of this complicated topic as it exists in the state of California.
What Is a CID?
A “CID” is an acronym that stands for “Common-Interest Development.” This refers to self-governing groups of common property owners, such as condominiums or apartments that have an undivided interest in common areas or other amenities (such as a swimming pool or workout facility) that are shared by the residents. When the ownership of units within one physical property are broken up, a CID will typically be present. Even some neighborhoods of detached, single-family residences may have CIDs (for example, when there’s a community pool for a planned community or subdivision).
When filing a lien against a condominium, there are a few specific variables that can completely change how the claim must proceed. Let’s look at a few of the most important factors that may affect California liens. After, we’ll take a look at how California deals with those situations.
Who owns the property?
That seems like an easy enough question, but even on regular old construction projects, finding an owner can create headaches. On condominium projects, there’s even more that can go wrong. When a project is for the new construction of a condominium complex, the property will likely all belong to the same owner (or a developer) to start with, until the units are sold off to the buyers.
Once the property is divided up into individual ownership units, each owner owns their unit just as your neighbor owns their house. Of course, there are exceptions – sometimes, the property will be actually be owned by one party and the unit “owners” will actually only own the right to use an individual unit. It sounds like semantics, but this could have a huge impact on required notices and a lien filing.
Where Was The Work Performed?
We know that lien laws will vary by state. We also know that when work spans multiple parcels of property, more complexities arise. Where work was performed — for example, within the condo, apartment, or other common interest development — will affect a claimant’s ability to lien. Whether work was performed on an owner’s balcony or the community pool will affect lien rights, too. Not only that, but whether work was performed on one unit, multiple separate units, common areas, or some combination will affect your lien rights.
We’ll get more into the “Why?” in a second, but it will make life easier if separate contracts are executed when performing work on multiple, individual units. It will make life a lot easier, too, if separate contracts are used when work will be provided on both common areas and individual units.
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Why It Matters
Knowing who owns the property and whether work was provided to common areas, individual unit(s), or both, can dramatically affect the notice required prior to filing a mechanics lien. That information will also affect whether one lien or multiple liens must be filed, and will determine who must receive notice of the lien filing(s). Let’s break it down one more time.
Who Must Receive Preliminary Notice?
Typically, parties other than a GC or a laborer will have to send notice to an owner (as well as the GC and lender) in the state of California. But when a number of owners are in play, does preliminary notice have to go to each one?
First, it’s important to be sure that you really know who owns the property. If the whole improvement is actually owned by one party, then only one owner will need to receive notice, regardless of whether work was done on a common area, individual units, or a combination of the two.
If the ownership of the CID has already been divided up to different owners, notice may still remain relatively simple! After the passage of California’s AB 534, for work done on common areas of a CID, notice must only go to the CID association. In the past, this posed a huge mess: depending on how the particular property was set up, work on a common area like the lobby of a condo might have required notice to over 100 different owners. However, if any work is done on an individual unit as well as a common area, notice will have to go to any owner who’s unit was worked on.
How Many Liens?
In California, one mechanics lien may be filed on multiple properties when certain conditions apply. The first condition is that the works of improvement must have the same owner, or that the work was contracted for by the same person (regardless of whether or not they have the same owner). Next, the claimant claiming a lien against multiple properties must designate amounts due for each work of improvement. If payment for work on multiple properties is coming via lump sum or if the contract does not separate amounts due for each unit, the claimant can estimate an equitable distribution based on the proportion of work provided for each unit.
If the above applies, one lien against multiple separate properties will be available. However, if there were multiple contracts, or if the above does not apply for some other reason, separate liens must be filed.
Who Needs Notice That The Lien Was Filed?
When a mechanics lien is filed in California, the property owner must receive notice. At this point in the article, I’m sure you understand the importance of finding out who owns the underlying property. When there’s one owner, life is peachy. When there are a number of separate owners, notice will depend on where the work was performed.
So, if a lien is only being filed for work done on common areas, notice will fall under AB 534 again — notice of a lien filing for work done on common areas must only go to the CID association. Of course, if any of the work was for one or more individual units, notice must also go to those owners. At the end of the day, playing it safe and sending extra notice won’t be that much more trouble, and could pay dividends.