Home>Levelset Community>Legal Help>How do I Protect my Lien Rights if I Mainly do EE design

How do I Protect my Lien Rights if I Mainly do EE design

I own an engineering firm that mainly does EE design. I am registered in many states, but 70% of my business comes from CA. I have the traditional hourly and fixed price models, but I also offer monthly services to clients, where we become their entire engineering department. On fixed price or hourly contracts, we have a specific project. For the monthly contracts, we work on anything the client wants us to look at, which often includes preliminary sales proposals and other designs that go nowhere. Some of those monthly customers have us working on dozens of residential systems per month that are as little as $10,000 in construction cost. Please clarify with your legal team if the pre-lien process would be useful and not cumbersome for this type of arrangement.

2 replies

Sep 26, 2019

Sending preliminary notices can be helpful for any job, regardless of whether lien rights will actually become available. But, to be sure, they're most effective - and appropriate - on jobs where lien rights will exist. While I'm not able to advise on whether adopting a preliminary notice process will make sense for your business, I can break down what relevant liens and notices may be available. That should provide a peek behind the curtain and help decide whether sending preliminary notices is right for your business. With that in mind, let's dip into some detail on California lien rights. Then, we can proceed to some talk about notices. California lien rights - mechanics liens and design professionals liens California has two different kinds of lien claims for parties who provide professional services (like engineering). On one hand, the traditional mechanics lien process is available to those who provide professional services if the project is actually undertaken and work starts at the site. On the other hand, there's the design professionals lien, which is a bit different from a mechanics lien. A design professional's lien is only available to those who are hired directly by the owner, and it preserves the right to file a lien for design work done before any improvement is actually made in the given property. However, for either case, it's important to note that proposals that have been designed without a hard agreement from a property owner to undertake an improvement on their property might not give rise to lien rights. For a design professionals lien, under § 8302 of the California Civil Code, the lien cannot be filed "unless a building permit or other governmental approval in furtherance of the work of improvement has been obtained in connection with or utilizing the services provided by the design professional." So, a solid agreement must be in place - and a mere proposal which isn't accepted would likely not give rise to lien rights. And, this type of lien is only available if it's made before work commences. As for mechanics liens - the right to lien won't exist unless work is actually physically commenced. Sending preliminary notice Preliminary notices, also called "pre-lien" notices, can help obtian payments for a variety of reasons. Namely, they improve project communication, provide better transparency, and act as a first step toward a collaborative project. But, if there's no project, and if payment doesn't really rely on traditional payment chain processes, then the value of sending preliminary notices might be diminished. Further, while preliminary notices will typically preserve the right to later file a mechanics lien, if there's no project actually being undertaken, there won't be any rights to preserve. Notice of Demand For Payment Jumping back to design professionals liens, note that there's an additional notice requirement - separate from preliminary notice requirements - that must be fulfilled in order to preserve the right to lien. Under § 8304 of the California Civil Code, a notice of demand for payment must be sent at least 10 days prior to filing a design professionals lien. So, if such a lien will be pursued, then that pre-lien process would need to be incorporated. For projects that are actually undertaken, a preliminary notice process is valuable With all of the above being said, for jobs that actually reach the construction phase, sending preliminary notice should generally be a standard part of the process. Preliminary notices preserve the right to later file a mechanics lien, if necessary, so when work is actually being undertaken, it's a good idea to send notice. Plus, it provides the owner and other higher-tiered project participants and idea of who's all on the project, which can help to avoid payment issues before they start. As for sending notice re: a design professionals lien - a Notice of Demand for Payment is a crucial part of that process. So, if a design professionals lien may be available, it's wise to make sure the notice is sent, as required. Additional resources I hope this information was helpful! For more information on California preliminary notices, here are two great resources: (1) California Preliminary Notice Guide and FAQs (2) The Ultimate Guide to California’s 20-Day Preliminary Notice

0 people found this helpful

Helpful

Sep 28, 2019

Once again, spot on advice offered by Matt. As Matt references, it is important to secure proper project information (regardless of whether it goes anywhere) so that you can preserve and enforce your design professional or lien rights on any particular project.

0 people found this helpful

Helpful