What is our obligation to a third tier subcontractor who has filed a preliminary notice?

5 months ago

We have a Preliminary Notice filed by a Third Tier Subcontractor. The Third Tier has filed a Conditional Final Lien Waiver. We are preparing to pay our first tier subcontractor. their one and only payment with no retention held. Should we issue a joint check that includes first, second and third tier subcontractors?

Senior Legal Associate Levelset

Good question. Receiving preliminary notices doesn’t generally create any additional requirements for a contractor. Though, if a contractor has received preliminary notice from some sub-tier party, they’d need to send that party a copy of the project’s Notice of Commencement if one is filed. And, if some sub-tier party requests the owner’s information in order to send a prelim, they must be given that info. But, otherwise, it merely serves an informative purpose – when a GC fully understands the payment chain on their project, they can better ensure that the appropriate waivers are collected, and it’s easier to reach out to project participants and verify that the job is going according to plan.

As far as joint checks go…
Joint checks are a great way to make sure everyone is paid. However, they’ll only be available when the contract between a contactor and their sub allows for them or requires them. Meaning, a contractor can’t unilaterally force their sub into using joint checks unless that’s allowed under their agreement. Of course, some subs may be amenable to the use of joint checks even if they aren’t specifically contemplated in the contract – so their use might not be challenged. Though, it’d probably be wise to have them agree to use joint checks or to at least discuss that option before cutting checks.

I hope this was helpful! For more information on Califonia preliminary notices: (1) About California Preliminary 20-Day Notices; and (2) The Ultimate Guide to California’s 20-Day Preliminary Notice.

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