Weissman & Weissman

By: Robert A. Weissman

A Preliminary Twenty-Day Notice is interchangeably referred to as a prelim, a 20-day notice or a preliminary notice. This notice is a written notice by a person or firm providing labor, services, material or equipment (for convenience, collectively "services") to a specific construction project and is served on the property owner, the general contractor and the construction lender. The notice informs the recipients that the sender or claimant will provide services to the construction project of a certain type, advises who hired the sender, what type of services are to be provided and an anticipated value of the services to be provided.

Generally, all claimants except for those working directly for a property owner or the persons performing actual labor for wages must serve a preliminary notice or forfeit their Mechanics' Lien, Stop Notice and Payment Bond rights. If a claimant contracts with a tenant or property manager, the claimant must serve a preliminary notice. If also, for example, a project is being financed by a third party, a claimant must serve a preliminary notice (this requirement applies also to general contractors).

Don't be misled when you receive a preliminary notice that your contractor is a bad contractor or has failed to pay someone. California law requires any licensed contractor to serve a preliminary notice when the contract price to be paid exceeds $400.00. The failure to serve such a notice constitutes grounds for disciplinary action by the Registrar of Contractors.

Although this discussion will focus on private works of improvement, the requirements of service of a preliminary notice are very much the same for public works of improvement (those works owned by local and state government entities). Private works of improvement are projects which are privately owned by an individual, partnership, corporation, not-for-profit organization or any other similar entity. These include single family homes, apartment buildings, office or other commercial buildings, restaurants, churches and even some schools.

The major purpose of a preliminary notice is to alert the property owner that the sender/claimant is out there and will be providing services to the construction project. It has been this author's experience that most people who serve and receive preliminary notices, really don't read them. Although they may scan the general information provided in notices including what type of services are to be provided and the anticipated value of the services, very few recipients take the time to read the actual statutorily required notice. The notice reads as follows:

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."

As you can see by reading the notice, it is intended to alert the property owner to the existence of the sender/potential lien claimant and of the possible problems that the owner may encounter if the sender of the notice is not paid. It suggests to the owner that it obtain signed releases from the sender or that the owner take advantage of any other appropriate method or device.

The release referred to in the "Notice to Property Owner" is actually four different statutory releases. Prior to completion of the job, any time a payment is being made a portion of which is intended to go the sender/claimant, the property owner should request a Conditional Waiver and Release Upon Progress Payment. At the end of the job, when final payment is being made, the owner should request a Conditional Waiver and Release Upon Final Payment. After clearance of these payments, the owner may request an Unconditional Waiver and Release Upon Progress or Final Payment. The reason to request Unconditional Waiver and Releases is to confirm that the sender/claimant actually received the money.

If you receive a preliminary notice after you have already paid your contractor for services which you believe are included in the notice, this is an obvious red flag. You should contact the sender and confirm whether or not they have been paid and, if so, ask for an Unconditional Waiver and Release Upon Progress Payment (or Final Payment). Remember, only the sender/claimant can sign a lien release. No other party including your contractor or subcontractor can sign a release on someone else's behalf. And since a Conditional Release only works if the party giving the Conditional Release actually receives payment, you may have to pay the bills more than once if the sender/claimant does not receive payment. This is why joint checks (checks made jointly payable to the contractor and subcontractor and/or material supplier) are a good idea as is obtaining an Unconditional Release after payment has cleared the sender/claimant's bank account.

The other suggestion in the "Notice to Property Owner" of any other appropriate method or device refers to several possibilities including obtaining a payment bond or performance bond to be provided by the general contractor or a subcontractor.

A performance bond is a bond, as it sounds, given to guarantee the faithful performance of a contract. This bond obligates the surety or bonding company along with the contractor providing the bond. A payment bond is a bond which guarantees payment to subcontractors and suppliers if the bond principal fails to pay. Both performance bonds and payment bonds can protect the property owner from the failure of its general contractor or one of its subcontractor's failure to pay another sub or sub-subcontractor or supplier. These bonds are readily available but will increase the cost of construction by the amount of the bond premium.

A preliminary notice must be given not later than twenty (20) days after the claimant has first furnished services to the jobsite. If the notice is given later, it will reach back 20 days and cover all services provided after that date. For example, if the claimant begins work at the jobsite on November 1, 1997, a preliminary notice must be served not later than November 20, 1997. It can be served at any time before the sender/claimant begins work and if, for example, it is not served until November 30, 1997, it would only cover those services provided after November 10, 1997. Any services provided from November 1, 1997 to November 10, 1997, would not be covered by the preliminary notice.

Generally, for private construction projects, a preliminary notice may be served by personal service which includes delivering it personally to the individual or leaving it at the address of the residence or place of business with someone in charge or by mailing it First Class Registered or Certified mail, postage prepaid. When served by mail, the notice is deemed delivered when it is properly addressed, postage prepaid and dropped in the mailbox or at the post office. The fact that the recipient chooses not to pick up its mail, loses the notice or evades receiving it is irrelevant. Particularly in the case of a preliminary notice, the whole point of the notice is to alert the property owner and others involved in the construction project of the existence and participation of sender/claimant.

If the sender/claimant is not paid and timely served its preliminary notice and did not provide an Unconditional Waiver and Release of its rights, that claimant will have the right to record a Mechanics' Lien against the property, serve a Stop Notice to the construction lender or person providing financing or assert a claim against a payment bond (if there is one). That claim will be in the amount of services provided commencing 20 days prior to the service of the preliminary notice and thereafter. Even if a Mechanics' Lien is recorded or a Stop Notice is served, the claimant must then timely commence a lawsuit to foreclose on its Mechanics' Lien or enforce its Stop Notice. The lawsuit must be filed in the proper court, name the correct parties and the claimant must prove it provided services which were used or consumed at this particular construction project and that it was not paid for those services.

There are number of defenses to such a lawsuit and there are several steps that a property owner can take to protect its rights and/or restrict the rights of the potential claimant. These include the recordation of a notice of completion and/or notice of non-responsibility which I will discuss in a future article.

The law in this area is highly technical and must be strictly complied with. There are numerous technical, legal and practical defenses to claims. Property owners, in fact, all parties who participate in the process of construction, are encouraged to have access to and work with an experienced construction attorney.