Pre-Lien

CALIFORNIA

For private work of improvements, a "Preliminary Notice" must be served on the property owner, the prime/general contractor, and the construction lender (if any).^[1]

Every person who furnishes labor, professional services, materials, machinery, fixtures, or tools must serve the Preliminary Notice otherwise he/she may lose his/her rights to a construction lien, stop notice, and bond claim. Contractors who have a direct contract with the property owner or any "laborers" are exempt from having to serve this notice.^[2] However, if there is a construction lender involved, all contractors (including prime/general contractors) must serve a Preliminary Notice to the lender in order to retain claim rights against the lender. The Preliminary Notice should be served no later than twenty (20) days from when the claimant first provided labor, professional services, materials, machinery, fixtures, or tools to the job site.^[3]

If the notice is not served within the required time frame, it may still be served late. However, late notices will limit your rights to a construction lien, stop notice, and bond claim to twenty (20) days prior to the service of the notice and anytime thereafter.^[4] Below is an example of the limited rights of a construction lien, stop notice, and bond claim if the Preliminary Notice is served late:

Example: ABC Construction is a subcontractor that commenced work at the job site on August 1, 2005 but did not serve the Preliminary Notice until August 31, 2005. According to California law, the notices must be served no later than 20 days from the start date and ABC Construction has served their notice 10 days late. Although the notice can still be served on the 31st of August, their rights to a construction lien, stop notice, and bond claim will be limited.

Since the notice was served 10 days late, ABC Construction will lose rights to a construction lien, stop notice, and bond claim for all of the work that was completed during the first 10 days on the job site. Let’s assume that the work provided during the first 10 days was worth $2,500 and the total price of the construction project is $75,000. There are no rights to a construction lien, stop notice, or bond claim rights for the $2,500 but ABC Construction still retain rights to a construction lien, stop notice, and bond claim for $72,500.

If the estimated price listed on the original Preliminary Notice has changed substantially, a "Pre-Lien Amendment" is typically served in order to document the change. A court case denied lien rights to an equipment rental company whose Preliminary Notice contained an estimated price of $10,000 and the actual price invoiced was $160,000. The courts rejected the equipment rental company’s request to enforce the construction lien because the estimated price was substantially different from the actual price.^[5]

Service of the Preliminary Notice is considered complete once the notice has been delivered to the Post Office.^[6]

The term "days" are calculated by calendar days and NOT business days unless otherwise stated. Time is calculated by excluding the first day, and including the last, unless the last day is a holiday or weekend, then it is also excluded.^[7]

List of Cited Statutes and Case Laws for further research
^[1] California Civil Code § 8200.
^[2] Ibid.
^[3] California Civil Code § 8204.
^[4] Ibid.
^[5] Rental Equipment Inc. v. McDaniel Builders Inc., 91 Cal.App.4th 445 (2001).
^[6] California Civil Code § 8116.
^[7] California Code of Civil Procedure §§ 12, 12(a).