As a hardworking construction professional, you deserve to have a right to payment for goods and services rendered. For those working in California, it might be easier than you think to hold your clients accountable for payment and to protect your lien rights.
In many cases, the main thing you need to do is file a preliminary notice. What should you know about preliminary notices in construction?
This detailed guide will walk you through the ins and outs of this legal document, who should file one, how to file your notice, and common mistakes to avoid.
What is a Preliminary Notice?
California has unique rules and regulations for its preliminary notices in construction, and contractors should take note. Knowing the details of this legal document and why it matters to your construction company will be essential to protecting your rights. In short, this document provides all information about the project and payment to the person responsible for issuing the final payment.
Though some overlap exists, the preliminary notice is markedly different from a mechanic’s lien. A preliminary notice puts the ball in your customer’s court to issue payment. Without it, you may lose the right to file a mechanic’s lien, issue a stop payment notice, or assert a claim on payment bonds.
What is the difference between a preliminary notice and a mechanic’s lien?
A Preliminary notice is a written notification to all parties up the payment chain with the details of the providers services and materials that will be contributing to the permanent improvement on a construction project. Contractors and suppliers that send this notice at the beginning of the project (within 20 days of their first day on the job) are taking a critical step in securing their lien rights if they are faced with payment issues. General Contractors or contractors hired directly by the project owner or property owner are not required to send a preliminary notice; however, it is a good practice to create transparency.
A mechanic’s lien is a legal claim placed against a property, allowing a contractor, subcontractor, or supplier to secure payment for work or materials provided to improve the property, essentially giving them the right to foreclose on the property if they are not paid by the homeowner, even if they didn’t directly contract with the owner; it essentially “attaches” to the property itself, not the individual owner, meaning the lien remains even if the owner sells the property without paying the debt.
In California, a mechanic’s lien is only enforceable for 90 days after the mechanic’s lien recording date. If the property is liquidated or sold within those first 90 days of the lien recording date, the provider is almost guaranteed to get paid for the work performed. The contractor MUST take legal action, with the help of legal counsel, within these first 90 days or they will lose the ability to enforce the claim legally.
Read our blog for more about mechanic’s liens in California.
When and Why Should You Send a Preliminary Notice?
Strict rules govern when and why you should send a preliminary notice to your customer. In the state of California, you have what is known as a 20-day notice. You should provide the preliminary notice within the first twenty days of delivering your labor or materials.
Sending out the notice in this time window is essential. If you send them out late, you will only be entitled to place a lien for the amount of work or materials in the twenty preceding days from when the preliminary notice is sent.
These notices are issued on private and public construction projects, so you will likely become intimately familiar with them soon. The difference lies in who should receive a copy of the notice. For private jobs, an owner, general contractor, and construction lender receive the preliminary notice. For public jobs, the public agency in charge, general contractor, and surety receive the preliminary notice.
What are the benefits of sending a preliminary notice in a timely manner? First and foremost, this document establishes your right to a lien down the line and encourages your clients to make their payments for goods and services rendered. It also allows you to maintain an air of professionalism and transparency.
Key Elements of a Preliminary Notice in California
Chances are that you have all the information you need right at your fingertips to file your first preliminary notice in construction. You should collect and record this information upfront when you start a new project to prepare for filing this important notice. Mandatory information includes:
- Name and address of the property owner
- Description of the work or materials provided
- Estimate of the value of labor or materials
- Project address and relevant details
Accuracy in these areas is essential because errors can void your right to pursue legal payment through other avenues like a lien. It should also be formatted correctly so that all information is clear and easily read by the courts at a quick glance.
Every party involved in the project, up the payment chain, should receive a separate preliminary notice that covers the scope of work for the entire job. For example, you may send one to the general contractor and the homeowner on a private project. If you are unsure who the property owner is, you may want to research to ensure all bases are covered when issuing a preliminary notice in construction.
How to Serve a Preliminary Notice in Construction
With all the basics under your belt now, focus on how you can serve this crucial document. There are two methods of delivery: certified mail with return receipt requested or personal delivery with proof of receipt. In either scenario, you must keep proper documentation about the notice issued as well as proof of service.
Otherwise, you will have difficulty proving that you provided proper documentation, turning your lien into a he-said, she-said situation where you will likely come out on the losing end.
As you start to serve your first preliminary notices, there are a couple of common mistakes you want to avoid.
First, serving the wrong party muddies the waters of your payment and may lessen your chances of final payment. Failing to keep a record of who is responsible for what is an unfortunate mistake many contractors and suppliers make.
Second, providing the wrong project address or wrong property description of the project location on the preliminary notice may result in no lien rights. Take note that a delivery address for your materials is not necessarily the project address. Know the address and location of the property that is being improved.
What Happens After Sending a Preliminary Notice?
If you are lucky and the job goes smoothly, a preliminary notice will result in quick payment. This is why tracking and maintaining records is imperative if you need to follow up on any job that has yet to issue payment for completed work.
On the other hand, you might need to start thinking through your rights and obligations after you send a preliminary notice if the wheels stop turning.
The best thing you can do is maintain open communication with project stakeholders. Let them know the timeline for the project and stress the due dates for payment when possible. If this due diligence does not yield payment, you may need to take the next step and file a mechanic’s lien to ensure your payment.
Get Support with Your Liens at Titan
Are you worried that your preliminary notice in construction or mechanic’s lien paperwork might not be in order? Titan can help you create legal documents that give construction workers the right to file a lien if they never receive payment. We offer opinions on your situation, helping you to get what is owed at the job’s completion.
Give us a call today to learn more about how we can help you create preliminary notices for your California construction business!