Lately, we’ve written quite a few posts on recent California legislative changes. Well, it’s time to discuss another. Under California AB 534, which has been signed into law, three changes are made: (1) Authorization for work made by a CID association on common areas will be imputed to all owners within the association; (2) notice required by lien laws to go to the property owner may be sent to the CID association instead of individual owners for work done on common areas; and (3) unit owners in a CID may bond off a lien by posting a bond that equals 125% of their pro-rata share. The bill takes effect on January 1, 2018.
Take a peek into the issues condominium lien claims with this post: Liens on Condominiums – An Overview.
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California AB 534
If you’re thinking: “Wait. He never defined a CID!” you’re right, and I apologize. A CID association is a “common interest development” association. This refers to self-governing groups of common property owners, such as condominiums or apartments. 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 be CIDs.
Anyway, let’s take the these changes one at a time….
California AB 1701 has also made quite the splash.
Authorization for Work
First, let’s note that this does not affect how projects are decided on within a CID. Instead, California AB 534 merely affects how authorization for a project is determined in light of mechanics lien laws.
There is no single governing format of CIDs, and the differences between how a CID is governed can create drastic changes for lien claimants. Under California lien law, an owner must provide authorization for the project. Practically speaking, prior to AB 534, this meant that the party providing work might have to track down and obtain authorization from every member of the CID to preserve their lien rights. You can imagine how challenging and tedious this could get, especially on small-time projects with many owners.
Now, once a CID association has approved a project and hired someone to provide work on a common area, the CID’s authorization will be imputed to all owners for the purposes of supporting a potential claimant’s right to lien.
Mechanics lien claimants must strictly adhere to procedural requirements in order to preserve their rights and eventually file a lien (plus, additional notice requirements are present once a lien is filed). However, the complex governance present in many CIDs creates problems – a lien claimant must to send notice to an owner, but depending on how a CID is set up, there could be any number of “owners” for the common area of a CID.
With the passage of California AB 534, for work done on common areas, a claimant can send notices directly to the CID association instead of individual owners. The CID association would in turn provide notice to each individual owner within the CID. This relieves a massive burden from lien claimants who work on large CIDs.
Bonding Off Liens
Typically, a California property owner may bond off a lien by merely posting a removal bond for 125% of the amount claimed. However, because CID associations may jointly own certain aspects of the property (for example, a pool, the lobby, or community rooms), the ability for owners to bond off the lien created a complex issue.
Following California AB 534, an owner may now bond off their portion of the lien by posting a removal bond equal to 125% of their pro-rata share of the mechanics lien. So if there are 100 different unit owners, and a lien is filed for $100,000, an owner could post a removal bond for $1,250 to clear their property title. Of course, if an owner owns multiple units, the amount would multiply.
Note that a bonded off lien is often good news for a claimant.
Filing a mechanics lien against a condominium or apartment complex is no longer a daunting, complex feat- at least on common areas. Then again, mechanics liens are pretty complex all on their own…In any event, this is great news for those in the California construction industry.
We’ve got a virtual library on California construction payment – give it a look!