“Senate Bill 1691, if passed in its current form, would dramatically impact subcontractors and suppliers. The impact would require these potential mechanic's lien claimants to take more care and to monitor events at the jobsite more closely than is currently required.”
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CONSTRUCTION LAW UPDATE
Legislative Attack On Subcontractors?
Why Senate Bill 1691 Will Force Subcontractors
To Take Extra Steps To Preserve
Their Mechanic's Lien Rights
By David J. Barnier
There is currently a bill, Senate Bill 1691, in the California legislature that, if passed in its current form, would dramatically impact subcontractors and suppliers. The impact would require these potential mechanic's lien claimants to take more care and to monitor events at the jobsite more closely than is currently required. There would also be changes to the current laws that would swing the pendulum closer to owners.
Among the many proposed changes are the following:
The applicable definition of "completion," which dictates a lien claimant's deadline to record a mechanic's lien, to serve a stop notice, and to pursue a payment bond claim, has always been ambiguous and the basis of a significant amount of attorney work as attorneys argue both sides of uncertain factual issues. SB 1691 attempts to define completion in terms of "substantial completion," which will serve to shorten the deadlines for claimants.
A new notice document, called a "notice of intent to record claim of lien," will be required of lien claimants before a lien is recorded. The document will seem to serve no purpose as the current 20-day preliminary notice requirement will accomplish the same notice to interested parties that would be accomplished by any additional notice requirement.
All lien claimants who file suit on their lien will be required to record a notice of their lawsuit, which will allow interested parties to confirm that the claimant has preserved the lien claim. Currently, only a review of court records would allow an interested party to learn whether the claimant has filed suit in time to preserve lien rights.
Currently, there is no way by which an owner can attack a recorded lien unless the claimant fails to file suit within the 90-day deadline to sue. The owner must defend the lien foreclosure lawsuit, which will usually require the owner to await a trial date on the factual issues affecting the lien. The current law greatly favors the lien claimant. SB 1691 would allow an owner to challenge a lien in a summary (i.e., expedited) proceeding if the owner can show the claim was paid in full, that none of the work has been provided, that the claimant was not licensed, or that there has already been a court decision declaring that the lien claimant's claim is invalid. In concept, these new rules seem fair enough, however the factual issues to be addressed could be complex and it would seem inappropriate to allow an owner to force a court decision without giving the claimant full due process on the complex factual issues.
It is obvious that developers are the driving force behind these proposed changes. As with most legislation issues, this is a political issue. Mechanic's lien rights and the policy of protecting our state's qualified contractors are grounded in the California Constitution. Developers certainly feel that they are negatively impacted by many rules that protect lien claimants and, in many cases, have detrimental effects on developers.
Our state has some decisions to make. Do we support developers' rights with the hope that the result will be reduced prices for new housing? Do we preserve current contractor and supplier protections to ensure that we do not drive out our state's best construction businesses, which discover as the result of new rules that their ability to collect payment has been diminished to the point at which they cannot do business? Subcontractors and suppliers will argue that these sweeping changes will force the best subcontractors and suppliers out of business, leaving developers with other costs as they deal with less qualified businesses.
There is a compromise in here somewhere. Some changes to the current laws may give owners some concessions without significantly impacting lien claimants. SB 1691 represents the most dramatic attempt to modify a century-old policy of protecting our state's subcontractors' and suppliers' ability to be paid for the work and materials that they provide.
More Legal Update articles.
Download entire June Legal Update in PDF format.
This article is intended as a brief overview of the law and are not intended to substitute as legal advice. Any questions or concerns regarding any statute or case law should be addressed to a licensed attorney. Copyright © 2008 by Barker Olmsted & Barnier, APLC. San Diego, California. All rights reserved.
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