Mechanics lien timeframes are strict. Typically, this refers to the cutoff date for a lien filing. However, after a recent case, the risk of filing a lien prematurely becomes more clear. Let’s look at how Precision Framing Systems Inc. v. Henry Luzuriaga affects the California mechanics lien deadline.
What is California’s mechanics lien deadline for subcontractors and suppliers?
The mechanics lien deadline for parties hired by someone other than the owner is set out by § 8414 of the California Civil Code:
“(a) After the claimant ceases to provide work. (b) Before the earlier of the following times:
(1) Ninety days after completion of the work of improvement.
(2) Thirty days after the owner records a notice of completion or cessation.”
So there’s a beginning and an end to the timeframe. A sub, supplier, equipment lessor, laborer, etc. can’t file a mechanics lien until after they have ceased to provide work. And, they must file their lien within 90 days of the completion of the improvement (shortened to 30 days if a Notice of Completion or Cessation is filed).
More on lien deadlines and completion in California:
When has a subcontractor or supplier “ceased” to provide work?
There’s some gray area here, and a recent California case should make subcontractors, suppliers, and equipment lessors in the state cautious when looking to file a mechanics lien.
In some other states, where the mechanics lien deadline is based of the claimant’s last furnishing date, minimal work like punch list work or warranty work won’t affect the mechanics lien deadline much, if at all. This is true even when that work is more or less contemplated in the contract.
California’s mechanics lien deadline is not based off the last furnishing date, though, and similar sentiments about relatively insignificant work may not apply.
If the work being done falls under a claimant’s scope of work, then the claimant has not “ceased”
If the work being done is contemplated under the sub or supplier’s scope of work, then their work has not ceased. Under the recent case, which we’ll discuss in more detail below, a California claimant’s mechanics lien was deemed premature because it had filed a lien but there was still some work being done under that claimant’s scope of work.
Claimant’s work not “ceased” even though they weren’t the ones performing the work
This is the harder pill to swallow. Even if the subcontractor or supplier isn’t performing the work themselves, they haven’t “ceased” to provide work if their own sub-subcontractor or vendor is still providing work. This includes relatively minor repair work. Under the recent case, a subcontractor had completely finished their own work. But, because their sub-subcontractor was called back to make a repair, the subcontractor’s work wasn’t considered “ceased” even though the GC had already declared the subcontractor’s work on the job to be complete.
Precision Framing Systems Inc. v. Henry Luzuriaga
This case has a lot of moving parts, so we’ll try to stick to the bare bones here. You can read the full case here, courtesy of Justia. Further, the California Construction Law Blog has a great breakdown, too.
A sub-subcontractor performed faulty work and had to repair it
There’s a lot going on, but this is the gist of it…
The Luzuriagas were the property owners in this situation, and they hired a contractor to build a veterinary hospital on their land. That GC hired a Precision Framing Systems as a subcontractor to install trusses. The trusses were to be fabricated by a company named Inland who Precision apparently hired but was being paid by the lender.
Precision completed its work, and Precision’s president even walked the job site with the GC. Both parties deemed precision’s work on the project to be complete. However, an issue was later discovered with the trusses and corrective work was needed. But, before Precision even became aware of the issue, a payment dispute had broken out. One of the owners had told Precision’s president that Precision wouldn’t be paid. They told Precision to sue them, and locked everyone out of the job site.
Precision took the owner’s words to heart but filed a mechanics lien instead of a lawsuit. Shortly thereafter, Precision was notified that corrective work was needed. Precision’s president returned to the job site with Inland, the sub-subcontractor who fabricated the trusses. Inland made the necessary repairs while Precision’s president oversaw their work. But, Precision didn’t do the work themselves.
The subcontractor’s mechanics lien was filed too early
The property owner claimed that Precision filed their mechanics lien too early. According to the owner, the claimant had filed their mechanics lien before they had ceased to provide work – in direct violation of § 8414(a) of California’s mechanics lien rules.
Precision argued that their lien was filed after they had ceased to provide work. They argued that cessation could be gradual. Further, Precision argued that its oversight of Inland’s work was not “work” itself, as defined by the California Civil Code.
The court agreed with the property owner.
A subcontractor’s work is not “ceased” if any work under their scope of work is being performed
The court found that, even though the work in error was due to an issue with Inland’s work, even though the project’s general contractor had stated Precision had completed their scope of work, and even though Precision did not continue its own work on the project, Precision had not “ceased” to perform work because Inland performed repair work after Precision had filed its mechanics lien and because Precision’s president “helped coordinate” the 2-3 hour repair.
To quote the court: “If, when Precision recorded its mechanic’s lien claim, it did not know that it had any work left to do, it may seem unfair to hold that it recorded its claim prematurely. However, we have not found any case law suggesting that a claimant’s subjective knowledge or belief as to whether it has ceased to provide work is relevant.”
How does this decision affect California mechanics lien deadlines ?
First, California mechanics lien claimants should take special care deciding when to file their lien claims. After this decision, it appears that California courts won’t be lenient here. Claimants should only file a mechanics lien after they have truly ceased providing work, full stop. But there’s more to it than that.
Claimants must also consider whether their own sub-subcontractors or suppliers have ceased their work. If your sub’s work isn’t complete, and if their work also falls within your scope of work, then your work probably hasn’t “ceased.” And, note that seemingly insignificant work – performed by you or your sub – might prevent a project from being ceased if it’s within the scope of work identified in your contract.
Is the Precision Framing Systems Inc. v. Henry Luzuriaga decision fair for California construction businesses?
No. The decision misses the mark for a few important reasons: (1) cessation and completion are distinctly different under the California mechanics lien laws, and the decision conflates the two at times; (2) the decision ignores the nature of the construction industry and that intertwined scopes of work are common; and (3) the decision undermines the very purpose of mechanics liens.
Completion and cessation are not the same
The term “completion” is heavily defined in the California Civil Code. However, the term “cease” is not. This is true even though the lien rights of sub-tier claimants heavily depend on when work is considered “ceased.” This decision attempts to take subjectivity out of the term “cease” and should, theoretically, provide an objective way to determine when work is ceased. However, according to this decision, a claimant hasn’t ceased their work unless the scope of work has been completed.
Precision stopped working. Their GC told them their work was done on the job. Precision was then physically prevented from returning to the job site – the owner locked them out. Then, when allowed back, Precision didn’t actually perform any work. They “accompanied” their sub-sub and “helped coordinate” the sub-sub’s work, which took 2-3 hours. If that’s not “ceasing” work, I’m not sure what could be – other than actually completing the contract. And, again, completion is not cessation.
The decision ignores the nature of the construction industry
To quote the court: “It does not matter whether Precision actually carried out the repairs itself or merely ‘helped coordinate’ them.” I’m inclined to disagree.
For better or for worse, construction is a unique industry. General contractors are hired to build or repair property, and their scope of work is all-encompassing. That GC’s scope of work is then divided into separate subcontracts and vendor agreements, and often, those subcontractors hire their own sub-subcontractors to perform a portion of that work. So, every party’s scope of work is sprawling, and their scope of work will often contain work that they don’t directly perform themselves.
However, this decision determines that a subcontractor can’t cease their work if a sub-subcontractor underneath them has continued to work. But, what happens if there’s a dispute between a subcontractor and their customer, and the sub-subcontractor carries on? At least based on this decision, such a subcontractor wouldn’t be able to file a lien until their sub-subcontractor also ceases their work. That doesn’t make much sense.
The decision undermines the point of mechanics liens
Construction payment comes with a lot of risk. Those who are further down the payment chain bear a disproportionate amount of that risk. But, with the ability to file a mechanics lien, subs and suppliers are able to speed up payment and ensure that it will actually come at all.
Mechanics lien rights are generally available to ensure that those in the construction industry are paid – and paid timely – for their work. Mechanics liens are available to these parties for many reasons, but two of the most important are (1) to avoid litigation over every construction payment dispute; and (2) because sub-tier claimants don’t have a contract with the owner, many traditional legal options aren’t available to ensure they’re paid.
With this decision, claimants are discouraged from filing a mechanics lien if the project is ongoing. And, if mechanics liens are discouraged, claimants will need to pursue some other way to recover what they’re owed. That runs exactly counter to the convenience mechanics liens are supposed to provide these businesses. Plus, with most subcontractors being small businesses with little budget for legal disputes, these subs might be left with little recourse of their own in some cases.
Luckily, this is just one decision and it’s not official legislation. So, it’s not like this “rule” is set in stone. However, at least for now, subs and suppliers in California should make sure they’ve completely stopped working on the project. And, if any work is being done within their scope of work, it’s a good idea to try and have that work stopped if a lien claim will be filed – or, to at least make it clear that the claimant, themselves, is intending to cease their work on the project.