In California, what is known as the American Rule is applied to all lawsuits unless otherwise modified by contract or statute. The American Rule states in essence that each party to a lawsuit must pay his own attorney fees regardless of who wins the lawsuit.
Except for certain circumstances—which will be explained later—a contractor, subcontractor, or materials supplier must precede legal action by issuing a document called a preliminary 20-day notice. This document must be sent before recording a mechanic’s lien, filing a stop notice, or asserting a claim against a payment bond. Unless exempted from having to serve a preliminary notice, failure to serve this document prevents the contractor, subcontractor, or materials supplier from exercising certain rights against a property, retained construction funds, or payment bond.
There are certain types of people or companies that do not have to serve a preliminary 20-day notice on the owner of the property. These include a contractor or material supplier that is contracted directly with the owner. This is because the notice is designed to advise an owner of your presence on the project to help make sure you get paid. But if you are contracted directly with the property owner, the owner knows you and knows you need to get paid. Be aware, that the preliminary notice may still required and sent to the construction lender if the project is being funded by a construction lender.
Another exception to the general rule is that laborers for wages or “or a person or entity to whom a portion of a laborer’s compensation is paid.” This most often applies to a union or employee trust.
What Is Contained in a Preliminary 20-Day Notice?
A preliminary 20-day notice must contain the following information:
- A general description of the labor, service, equipment, or materials furnished—or to be furnished—and an estimate of the total price.
- The name and address of the person furnishing that labor, service, equipment, or materials.
- The name of the person who contracted for purchase of that labor, service, equipment, or materials.
- A description of the job site sufficient for identification.
- The following statement in boldface type:
NOTICE TO PROPERTY OWNER
If bills are not paid in full for the labor, services, equipment, or materials furnished or to be furnished, a mechanic’s lien leading to the loss, through court foreclosure proceedings, of all or part of your property being so improved may be placed against the property even though you have paid your contractor in full. You may wish to protect yourself against this consequence by (1) requiring your contractor to furnish a signed release by the person or firm giving you this notice before making payment to your contractor, or (2) any other method or device that is appropriate under the circumstances.
Other than residential homeowners of dwellings containing fewer than five units, private project owners must notify the original contractor and any lien claimant who has provided the owner with a preliminary 20-day lien notice in accordance with Section 3097 of the Civil Code that a notice of completion or notice of cessation has been recorded within 10 days of its recordation. Notice shall be by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing. Failure to notify will extend the deadlines to record a lien.
If the notice is given by a subcontractor who has failed to pay all compensation due to his or her laborers on the job, the notice shall also contain the identity and address of any laborer and any express trust fund to whom employer payments are due. If an invoice for materials or certified payroll contains the information required by this section, a copy of the invoice, transmitted in the manner prescribed by this section shall be sufficient notice.
As stated earlier, the preliminary notice is to be given no later than 20 days after work has first been performed by the person or entity making the claim. This allows the claimant to make a claim for all the work or materials provided. However, if the preliminary notice is sent later, it will revert back twenty days and thereafter forward for any other work provided.
The Purpose of the Preliminary 20-Day Notice
Besides the right to lien the property, make a claim against a bond, or to file a stop notice, the other advantage is that a preliminary notice requires the owner to provide the claimant with any Notice of Completion filed with the county recorder. Failure to do so extends the time to record a mechanic’s lien, make a bond claim, or submit a stop notice.
Finally, the preliminary 20-day notice can be delivered personally, by leaving the note at the owners address of residence or place of business with some person in charge; or by first-class registered or certified mail, postage prepaid, addressed to the person to whom notice is to be given at his or her residence or place of business address, or at the address shown by the building permit on file with the authority issuing a building permit for the work.
The complete legal requirements for a preliminary 20 day notice can be found at Civil Code section 3097. Or you can contact David H. Ricks & Associates and meet with an attorney and get your questions regarding California construction law by a California construction attorney.