Menu

Safe Harbor

CaliforniaPreliminary NoticeRight to Lien

In some cases, our company is selling material to customers under the Safe Harbor rules (namely, relating to a tax deduction for U.S. manufacturing businesses - which provides a safe harbor provision allowing businesses to take the tax deduction if at least 20 percent of the total costs are the result of direct labor and overhead costs from US-based operations). In such cases, our customers are purchasing material and then storing it until needed for a project. Because the material is not being delivered to a project site, where it will be affixed to a property, is it true that we cannot consider delivery dates until such delivery is to the actual project site? Hope that question is clear. Please advise and thank you.

2 replies

Dec 6, 2019
Oh, failed to mention that this question relates to the entire US, not just California.
0
Report Spam
Dec 9, 2019
There are some interesting considerations regarding mechanics lien rights, notice timeframes, and materials supplied somewhere other than the job site. While I'm not able to review how lien and notice requirements might potentially be affected in every state, there are some general considerations that should be taken into account across the board.

Timeframe for sending preliminary notices

The first furnishing date is commonly a big part of sending preliminary notices. Often, the deadline to send a notice will be based on the first date when labor or materials were furnished to the project. But, keep in mind it's usually just that - a deadline. So, in many situations, preliminary notices can be sent early (like on CA and WA projects). But, note that sending early notice isn't always allowed. Obviously, there are hurdles to account for when materials are sent somewhere other than the project property. This is especially true when there will be a long lag time between when materials will be sent to the project, and where it's hard to identify which materials sent to a customer are actually used on a given job. As a result, in order to best preserve lien rights when materials are shipped directly to a customer, it will likely take organizational effort to ensure it's possible to know which materials will be used on which projects, as well as the timeframes for furnishing. Still, regardless of whether notices are being used to preserve any lien right, they have great value in improving communication, collaboration, and transparency.

Proving incorporation at the job site

There's a natural problem that arises when materials are delivered somewhere other than the job site. Unless there's a clear and obvious way to identify which projects were ordered and ultimately used for which projects, then it can be hard to prove the right to lien in any given job. And, mechanics lien rights arise in a given project because specific materials are furnished and incorporated, leading to the improvement of that specific land. When materials are delivered to the job site - it's a lot easier to identify that the materials are ultimately incorporated, and there's little doubt as to what project materials were used on. As a result, there's a general presumption (and often a legal presumption) that delivered materials are actually incorporated into the improvement. As discussed above, though - the right to lien a specific property arises due to the material supplier's involvement (and nonpayment) with that particular property. So, if a supplier is simply providing inventory to its customers to be used on all manner of jobs, preserving and securing lien rights can be an uphill battle. For further discussion: - Material Suppliers: Proving Incorporation When Filing A Mechanics Lien - Lien Rights for Material Suppliers: First Furnishing Date Delivery Date or Shipping Date? Does it Matter for Lien Deadlines?
0 people found this helpful
Helpful