California Contractors: It All Starts with the Preliminary Notice
Mark Coffin, Esq.
In California, contractors have special privileges. Most other professions are not given “secured creditor” status, or allowed to foreclose on real estate or bank accounts in order to collect payments, even if they have no contract with the owner of those assets. The California Constitution gives those rights to contractors (aka “Mechanics”) and construction suppliers (aka “material men”).
In order to preserve and exercise these collection rights, however, contractors must comply with a detailed set of code requirements. One of these requirements is the “Preliminary Notice” (previously referred to as the 20-day Prelim). In order to preserve their legal rights to file Mechanic’s liens, Stop Payment Notices, and Payment Bond claims, contractors must properly serve Prelims.
What is a Preliminary Notice?
A Preliminary Notice is intended to inform a third party (that you may not even have a contract with) that you will be performing work or supplying materials to “improve” a certain piece of real estate. If you are a plumber working on a new house, for example, you may not have a contract directly with the owner. Serving your Preliminary Notice tells the owner who you are, what work you will perform, and the price you expect to be paid. It also informs the owner that you will have certain legal rights – such as the right to record a Mechanic’s lien against the property – to ensure that you are paid for your work.
Who Do I Serve With A Preliminary Notice?
Primarily the owner of the property you will be working on, as well as any construction lenders, and any companies that issue a payment bond for the project. If you are a sub-subcontractor, or a material supplier, you are also required to serve your Prelim on the general (aka “direct”) contractor. If you contract directly with the property owner (making you a “direct” contractor), you are not required to serve the owner with a Prelim.
How Do I Serve A Preliminary Notice?
We recommend serving the Prelim by means of U.S. Postal Service certified mail, with return receipt requested. The current statute also allows for service by registered mail, express mail, overnight delivery by express service carrier, or by personal delivery. A Preliminary Notice does not need to be recorded against the property. However, there are some benefits to doing so (for example, the Recorder’s Office must notify you when the property owner files a Notice of Completion, which could shorten your deadline to file a Mechanic’s lien).
When Do I Serve The Preliminary Notice?
We recommend that you serve your Preliminary Notice as soon as you enter into a new contract. At that point you should have all the information necessary for the Prelim, and it is not “too soon” to serve it. Unfortunately, you cannot make a lien claim for work performed more than 20 days before the Prelim was served. You are not required to serve a Preliminary Notice at all if your work has a value of $400 or less, or if you are a laborer.
Where Can I Get The Current California Preliminary Notice Form?
Call Kelley Clarke PC at 805-884-9922, or send an email to email@example.com.
To be valid, the Preliminary Notice must be properly filled out with specific information, and it must contain a “Notice to Property Owner” with specific language required by the current statute.
Kelley Clarke PC has a great deal of experience with all phases of construction law, including preliminary notices, Mechanic liens, stop notices, bond claims, and other legal issues facing the building industry.
Read about Construction law changes HERE.