Short Answer: Substantial completion is a legal determination ultimately left up to California courts, but takes into account a variety of factors. Typically, the most controlling or popular factor is when the property is ready for occupancy.
Long Answer: This is the hardest question to answer in California’s mechanics lien law. Unlike the majority of states, a mechanics lien must be filed in California within a certain period of time from the completion of the entire project and not simply the conclusion of the claimant’s work. Accordingly, a party that furnishes at the very beginning of a job (i.e. the foundation or site work folks) may have a ton of time to file their lien, while the finishing contractors may have a tiny window.
When The Substantial Completion Date Matters
Determining the exact window of time available, however, is a tough question, and that’s because it boils down to the claimant knowing two milestones in the project that they have no way of knowing: (i) When the project was substantially completed; and (ii) If a Notice of Completion was filed.
This article is not about the Notice of Completion or Cessation of work, which can reduce the claim period in California from 90 days to just 60 days. As below explained, the regular filing period in California is 90 days from “completion” of the work. However, if the prime contractor or property owner records a “Notice of Completion” or “Notice of Cessation” at the conclusion of the project, the period is reduced to just 60 days from the recording of that Notice. It’s very, very difficult for a contractor or supplier to know whether this notice was ever recorded, however, as we’ve discussed in this previous post: 1 Thing California’s New Mechanics Lien Law Should Include, But Doesn’t.
Instead, this article focuses on the mechanics lien filing period when a Notice of Completion or Cessation is not filed. This is probably a bit more common.
When a Notice of Completion or Notice of Cessation is not filed, the claimant has 90 days from the actual completion of the project to file a mechanics lien.
While getting knowledge about the existence of a Notice of Completion or Cessation may be laborous, at least it sets a firm date: the date of filing. The trouble with the default rule of “actual completion” is that determining the actual completion date is a complex legal question. See, Should You Monitor for a California Notice of Completion?
Keep in Mind: Sub-tier Claimants Mist File Liens After They Cease Work
What Is Substantial Completion Under California Mechanics Lien Law?
California’s mechanics lien law starts with a definitions section, and you’d think that the definition of “completion” would simply be there, right? Wrong. The term is so complex it actually warranted its own section, found in §8180 – 8190, and titled “Completion.” §8180(a) sets forth what constitutes “completion” for private improvements (commercial, residential and industrial projects):
For the purpose of this title, completion of a work of improvement occurs upon the occurrence of any of the following events: (1) Actual completion of the work of improvement. (2) Occupation or use by the owner accompanied by cessation of labor. (3) Cessation of labor for a continuous period of 60 days. (4) Recordation of a notice of cessation after cessation of labor for a continuous period of 30 days.
As you can see from a quick reading of this statute, a project will generally qualify as substantially complete once there is a “cessation” – or stopping – of “labor.” Note that items 2-4 require a complete cessation of labor, and item 1 infers it (‘actual completion.’). However, there are a few ambiguities here.
First, the statute reads “cessation of labor” and not “cessation of labor and material furnishing.” Theoretically, therefore a project can be “complete” but still have materials getting delivered. These materials may be stacked up in the attic or garage, may be installed by the owner (would that count?), or would be delivered for a separate project. These types of situations could go either way depending on the individual facts, and it’s a good idea to either (i) file your lien early enough to fall within the original and non-controversial lien period, or (ii) speak with a lawyer.
Second, the term “actual completion” is mentioned without a requirement for “cessation of labor,” but it is not defined. Therefore, while it seems practical that “actual completion” would require a cessation of labor, that requirement is not clear and a lawyer could make an argument here the project was actually completed but that some minor labor continued. Think, for example, about return warranty work or punch list work after an owner has occupied and started using the facility.
Finally, under California’s new mechanics lien laws, there is now the ability to separate a project into phases, and to mark a different completion date for each phase for the purposes of mechanics lien deadlines. Be very cautious of this.
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What is the Difference in State Projects?
All this talk about substantial completion and determining completion applies to private projects and improvements. What if you are working on a state, county or municipal project?
Since the public works and private works laws were combined by the recent California law changes, the definition of “Completion” for public works is in the same section as the definition for private works (the above quoted §8180). Except that for public works, paragraph (b) is added to the section qualifying as follows:
Notwithstanding subdivision (a), if a work of improvement is subject to acceptance by a public entity, completion occurs on acceptance.
Just like on a private project, completion of the project matters for a claimant’s “lien” or stop notice/bond claim rights on a state California project. A claim is required on these projects within 90 days from “completion” if a notice of completion is not filed, and if the notice is so filed, the period of time is reduced to 30 days.
While notices of completion are uncommon on a private improvement, they are more common on public improvements. For this reason, the determination of “completion” is a bit less important on these types of projects, and the lien period is usually about 30 days.
Nevertheless, the “Notice of Completion” is not filed hastily on state projects. The state typically waits until they can finally accept the project before recording the notice, which considering how slow government moves, is sometimes weeks or months after one would expect the project to be completed.