Yes, 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. But what if one of the correct individuals rejects your Preliminary Notice and denies responsibility for the project?
Oftentimes tenants construct improvements in the spaces they occupy. Usually the work is done with the owner’s knowledge and approval. Often the owner pays for the improvements as part of his or her lease obligations. But on rare occasions, tenants undertake construction projects without the owner’s knowledge or approval. When that occurs, the legislature provides the owner with a mechanism to disavow any obligations to pay for the work.
Notice of Nonresponsibility
Within 10 days of receipt of a Preliminary Notice, an owner who did not contract for the work or improvement may post a “Notice of Nonresponsibility” at the construction location, as well as record the notice with the local County Recorder. (California Civil Code provides that within 10 days of the owner learning that construction will take place on its property, it must post and record the notice.)
Protection from a Mechanic’s Lien Not Guaranteed
The Notice of Nonresponsibility is critical, as it may protect the owner from having a mechanic’s lien foreclosure action. We say “may protect” because many owners post Notices of Nonresponsibility, but most owners are actually responsible and Notices of Nonresponsibility very rarely protect them.
Lease Contract is Key
Owners should be aware that a Notice of Nonresponsibility is invalid in California where the owner “ordered” or “caused” the improvement work such as through the lease contract. If the owner knew the work was going to be done before it was commenced, the notice will not protect the owner. Many times the lease provides that tenant improvements will be undertaken or paid for by the owner. Sometimes the lease only provides that the tenant will use the property for a specific purpose, but both parties to the lease understand that construction will be required in order for the property to be used for that purpose. In almost all situations, the owner benefits from the improvements, if for no other reason than the tenant can pay its rent.
Take Away for Owners & Suppliers/Contractors
In our years in practice, we have not seen a Court enforce a Notice of Nonresponsibility, but that could change. Even if an owner fails in defending itself with a Notice of Nonresponsibility, it can still attack a Preliminary Notice and later a Mechanic’s Lien if the Preliminary Notice did not provide the owner with adequate notice of the project. Regardless, owners should become familiar with the rules for use of a Notice of Nonresponsibility and when it will and will not protect them.
For a supplier or contractor who does not get paid on a project for which the owner posted a Notice of Nonresponsibility, the supplier or contractor should always include the owner on a mechanic’s lien that it records. Let the owner prove that he or she is truly not responsible.
Coming Up in Part 3 — Problems with the Preliminary Notice
We continue to stress that Preliminary Notices help protect your lien rights. In the last installment in this Preliminary Notice refresher course, we will discuss what happens when the Prelim does not accurately state how much value the project will be.
Let me know if you have questions or comments about California’s Preliminary Notice requirements or the rules for the use of a Notice of Nonresponsibility. Reach me by email at JWakefield@cwlawyers.com or call me 949/852-1800.