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Our contractor is not getting paid and they file a notice of intent to stop work. I'm not receiving payment for work done. What should I do in this case?

CaliforniaRecovery Options

Our General Contractor is filing a Notice of intent to stop work to two of their clients for lack of payment. We are not receiving payment due to the fact the they are not getting paid. One of the projects is prelim the other is not. What should I do in this case? What would my move be? Please advise

1 reply

Feb 19, 2019

I'm sorry to hear about that. First, I should mention that I'm not able to provide you any advice on how you should proceed. For legal advice or legal review of your situation, you should consult a local construction attorney - they'll be able to review the circumstances and documentation in order to decide your best path forward. However, I am able to provide some relevant information, and that could help you come to those determinations yourself. With that in mind, let's look at (1) whether a contractor still owes their subcontractor payment despite not receiving payment themselves, and (2) some potential options for payment recovery. First, it's worth noting that a subcontractor may still be owed payment, regardless of whether their contractor has been paid - but that will be dependent on the contract under which work was performed. Potentially, though, if the subcontractor's right to payment hasn't been based on the contractor receiving funds themselves (via something like a pay-when-paid clause), the subcontractor could pursue payment form their customer. Of course, doing so could have an affect on relationships - especially when the owner is ultimately at fault for payment. So, it will be a business decision on behalf of an unpaid subcontractor as to whether payment recovery options against their customer should be taken (such as a breach of contract claim, or some other contractual claim). Regarding what options might be available to recover payment on the whole - there are a number of potential options, including, potentially, a mechanics lien. But, before discussing a mechanics lien or other formal options for recovery, it's worth noting that the mere warning or threat of lien is often enough to compel payment. That is, many claimants have found that sending a document like a Notice of Intent to Lien goes a long way to compel payment due to the seriousness of a mechanics lien filing. While an owner might not be receptive to payment talks, when their property is on the line (as it would be with a lien claim), construction debts cannot be ignored. Plus, a Notice of Intent to Lien is a less formal approach (and typically less risky), and it can be sent regardless of whether the and if push comes to shove, a claimant could still potentially pursue a mechanics lien filing. You can learn more about the option here: What is a Notice of Intent to Lien? Regarding making a lien claim for amounts owed and unpaid, as I believe you may have hinted at in the scenario described above, in order to make a California lien claim, subcontractors and other parties who do not have a direct contract with the owner must send preliminary notice in order to preserve the right to lien. Where the right to lien has been preserved, a mechanics lien can be filed, and mechanics liens often compel payment without the need for further legal action. Outside of the lien process, there are some other tools that might be helpful to force payment. Specifically, even where a claimant doesn't have a contract directly with the property owner, a claim like unjust enrichment might be available - but some other remedies (like a breach of contract action or a prompt payment action) against the owner might not be available when there's no direct contract with the owner. But, between a subcontractor and their customer, legal claims (like a breach of contract action, potentially) will likely exist when payment hasn't been made as long as the customer is required to make payment (as discussed above).

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