LIEN OR STOP PAYMENT NOTICE:
Licensed contractors, licensed sub-contractors of any tier, design professionals, suppliers of labor or materials to those parties, and equipment lessors. [CC §§8010, 8018, 8014, 8024, 8026, 8028, 8046, 8400, 8404] Suppliers to suppliers are not entitled to bring any claim. NOTE that unlicensed contractors may be required to return all payments, including payments made for subs and materials, even if the owner knew the contractor was unlicensed from the outset. This also includes a general contractor that does not perform any work on the project themselves. [Ahdout v. Hekmatjah, 213 Cal.App.4th 21 (Ct.App. Div. 4, 2013)] A design professional may file a mechanics lien following the procedure set out here, or may, in certain circumstances, file a design professional’s lien. The design professional’s lien is only allowed in very limited circumstances. It is only allowed (a) if a building permit is obtained, (b) if the design professional has a written contract with the landowner and the contracting party is still the landowner at the time the lien is recorded, (c) the work of improvement has not commenced prior to the filing of the design professional’s lien; (d) the landowner defaults in or refuses to pay the design professional, and (e) the design professional follows all of the steps set out in this summary. A design professional is not entitled to a lien on a single-family owner-occupied residence unless the expected construction cost exceeds $100,000, and the improvement is not constructed. [CC §§8302, 8304, 8306, 8318] Employee fringe benefit trust funds are also entitled to file mechanics liens and give stop payment notice, as are contractors who perform “site improvement” work, such as demolition, grading, or excavating [CC §8024]. Generally, one who transports materials to a jobsite has no lien rights EXCEPT where (1) the hauler owns the materials and the hauling is part of the cost; (2) the hauler participates in the work of improvement, or (3) the hauler is hired by an agent of the owner. [Ivy Trucking, Inc. v. Creston Brandon Corp., 100 Cal.Rptr.2d 582, 84 Cal.App.4th 85, (App. 4 Dist. 2000)] NOTE that where contractors or subcontractors are required to be licensed, they must have the appropriate license in order to bring any action for compensation for work performed or materials provided, and that includes both breach of contract AND mechanics lien or stop payment notice claims. In fact, if a contractor is not licensed, an owner can sue to recover compensation already paid to the contractor. Note also that a contractor who is unlicensed when entering into contract, but licensed when the work begins will have lien rights, but a contractor that starts the work without a license but obtains a license during the project will not have any lien rights for the project, nor can they bring a breach of contract claim. [B&PC §7031; Banis Restaurant Design, Inc. v. Serrano, 36 Cal.Rptr.3d 532, 134 Cal.App.4th 1035 (App. 3 Dist. 2005); MW Erectors, Inc. v. Niederhauser Ornamental and Metal Works Co., Inc. 30 Cal.Rptr.3d 755, 36 Cal.4th 412, 115 P.3d 41 (2005) White v. Cridlebaugh, (100 Cal.Rptr.3d 434, 178 Cal.App.4th 506 (Cal.App. 5 Dist.,2009); Great West Contractors, Inc. v. WSS Indus. Const., Inc., 162 Cal.App.4th 581, 76 Cal.Rptr.3d 8 (Cal.App. 2 Dist., 2008)] When deciding whether to give a stop payment notice, there are several important considerations. A direct contractor may not give a stop payment notice to an owner, only to the construction lender or reputed construction lender. If a direct contractor gives a stop payment notice (not a bonded stop payment notice) to a lender, if the contractor provided a payment bond on the project, the lender may not be required to withhold funds. If the direct contractor gives the lender a bonded stop notice, the lender must in all cases withhold the funds. If any other claimant gives a bonded stop notice, the lender is required to withhold payment unless a payment bond has previously been recorded. Note also that where a bonded stop payment notice is given, attorney’s fees will be awarded to the prevailing party, and if the claimant recovers much less than originally sought, they might not be the prevailing party. [CC §§8200, 8520, 8530, 8558]
NOTE: Giving a stop payment notice is not a prerequisite to claiming a lien against the property, unless the owner demands in writing that the claimant serve a stop payment notice. If the owner so demands, then the claimant who fails to give the stop payment notice will lose his or her lien rights. Note also that filing a preliminary notice is a prerequisite to filing a stop payment notice. [CC §8520]
There is also a provision for an OWNER to provide security to a direct contractor, when the project exceeds $5 million, or for a TENANT to provide security to the direct contractor where the project exceeds $1 million. See “Other Remedies” section at the end of this summary.
Any claimant providing work (i.e., labor or materials, etc.) to the direct contractor providing the bond, regardless of whether the claimant provided work to the contractor directly or through one of the contractor’s direct subcontractors. [CC §§8608, 8612]