We regularly say (preach, nag, etc.) that serving a valid and timely Preliminary Notice to the correct individuals is the single most important thing a competent materials supplier or subcontractor can do to protect its investment in labor and materials. Our best estimate is that 30 percent of the commercial construction disputes we handle have their genesis in a problematic Preliminary Notice.
Our friends at CRM Lien Services provided a list of the “top 20” questions asked by their contractor and supplier clients last month. The questions make it clear that a few “refresher” blogs are in order. Today, we start with the basics.
What is a Preliminary Notice
A Preliminary Notice (“Prelim”) is served on entities to give them notice that construction labor or materials are being provided to a construction project at a particular location. California Civil Code requires that the notice be served on:
- The owner or reputed owner of the property where the construction project is located;
- The direct contractor (i.e., prime contractor or general contractor);
- The lender or reputed lender (if any).
Keep in mind that a tenant has an ownership interest in the property even if only temporary. Therefore, if the tenant is the entity that contracted for the work, both the tenant and the owner of the property must receive a Preliminary Notice.
Timing is Key
In order to be valid, notice must be given “not later than 20 days after the claimant has first furnished work on the work or improvement.” However, if the material supplier or contractor fails to serve the notice within 20 days of first furnishing work, it is not necessarily the end of its rights. It can still serve its Prelim, but if the work or materials are not paid for, the claimant will only be allowed to record a lien, or give a stop notice, with respect to work or supplies provided within 20 days of the service of the Prelim.
In most instances, that is not a problem for a subcontractor or materials supplier, as payment disputes typically occur toward the end of the job and the work or supplies not covered by the notice most likely will have been paid for (and the subcontractor or materials supplier gets full benefit of its Prelim).
Beware of Custom Materials & Fabrication
But what about situations where the contract for the work or improvement calls for certain materials to be custom manufactured to certain specifications (i.e., custom windows, electrical panels, cabinets)? If the materials constructed were built at the request of the owner, contractor, or subcontractor, it is appropriate to serve a Prelim, and if not paid, record a lien.
In this situation, the work is sometimes commenced (or furnished) long before it is delivered to the project. With that in mind, the prudent subcontractor or materials supplier dealing with custom materials or fabrication will serve its Preliminary Notice when it begins its work (or even better, when the contract is signed). Then there can never be any argument that the Prelim was not timely.
Next Up—Dealing with Problematic Owners
A Preliminary Notice helps protect your lien rights. In the next installment, we will discuss what happens if the owner denies responsibility for the project.
Let me know if you have questions or comments about California’s Preliminary Notice requirements. Reach me by email at JWakefield@cwlawyers.com or call 949/852-1800.