California Preliminary Notice, Private Work
Preliminary Notice-Private Work
Warning: All information contained within this data base is subject to change at any time by the various states and is not guaranteed in any way by FWM Software, Nor does FWM Software assume any liability or responsibility for its content. Please use in conjunction with advice from your attorney.
Note: This information is limited in scope and applies only to this document. Please see the general information, all forms memo, and the general information memo for this type of document, for additional information.
Document Title: Preliminary 20-Day Notice (Private Work)
Scope: State of California, Private Works
Special Revisions: See Below
Time Constraints: A Private Work California Preliminary Notice must be prepared and served on the owners, general contractors, lenders (and sureties, if one exists) and, optionally, your customer, if not one of the above parties, by personal service or certified mail no later than 20 days after first furnishing of labor, materials or service. if you are a subcontractor serving a residential property you must also send an owner letter (See Specialty Letters, above). If you are a contractor of the job, you must file a Preliminary Notice on any claim over $400.00, or face disciplinary action by the Contractor's Board.
Prohibitions: There are several prohibitions on seeking protection under the California Mechanic’s Lien statutes:
- What construction project participants are not protected by the lien law? An unlicensed contractor cannot use the mechanic’s lien remedy. A person not in contractual relations with any of the major parties (owner, prime contractor, subcontractor) or their agents cannot use the mechanic’s lien remedy. Participants in construction projects for public entities, including the United States, must use other remedies, as public property is not subject to lien.
- What costs or damages are typically not allowed in a lien claim? Delay damages and attorney fees. Also, a mechanic's lien claim cannot be for more than the contract price or the fair value of the work or materials (whichever is less).
Lender Information: If there is no construction lender or surety, you must note that fact in the entry block for lender (entering 'None' is fine). Since you can file a claim against payment bonds getting this information can be very important.
Trust Funds: If you have contractual duties to construction trust funds, you must enter that information in either the Company setup (as a default listing) or on page two of the Current Jobs/Liens entry screen (as a specific listing of trust funds).
Failure to serve a Preliminary Notice will disallow any lien claim against the owners property, but may not disallow claims against the payment bond. See the memo on California Bond or Lien Claim, Private Work, for more information.
Information Requirements: The information required by program, an owner cover letter, and whether you intend to file a copy of your Preliminary Notice with the County Recorders Office (see below).
START OF JULY 2012 CHANGES
An number of technical changes were made to the Preliminary Notice forms, Public and Private Jobs, as of July 01, 2012. But for one additional field the use of Lien Writer® with the forms did not actually change, but there are a number of things a user should be aware of:
All forms are called just Preliminary Notice now, but still must be mailed by the 20 day after your performance has begun on the job;
Statutes have changed from CA Sec. 3082-3268 to 8000-9566.
These terms have changed:
General or Original Contractor is now a DIRECT CONTRACTOR, acknowledging that one many jobs nowadays there can be several Prime Contractors
Materialman is now called a Material Supplier.
These Direct (General) Contractors are now required to give preliminary notices to the construction lender. A notice is not required to the Owner.
END OF JULY 2012 CHANGES
Form Types: Preliminary 20-Day Notice (Private Work),Exhibits A-D (if needed), Owner Letter and Recorder letter(if needed).
Procedures: Enter the program data, including additional Legal Parties or Releases for Other Companies. Copies of all of the forms (less the Owner Cover Letter and the Recorder Letter) must be served personally or sent by registered or certified mail to all legal owners, all general contractors, all lenders and all sureties and, optionally, your customer, if not one of the above parties. If you are a subcontractor serving a residential property, your must also send an owner letter. When sending by mail, service is considered complete upon deposit of the notice in a mailbox.
In California the preparing contractor or supplier has the option to file a copy of the private works Preliminary Notice with the County Recorder's Office of the county where the project is located as to receive a copy of the Notice of completion from that office when the Notice of Completion is filed. However, the California County Recorder's Offices have been notoriously delinquent in providing those form copies, usually sending the copy long after the required filing time for your Mechanic's Lien has expired. Considering the $40.00 to $150.00 fee for requesting the copy, it is our suggestion that you not rely on the California County Recorder's Office for Notices of completion.
When in doubt, file your lien claim immediately.
Important: If you fail to prepare and serve your Preliminary Notice within the 20 days after first furnishing of labor, materials or service, this does not have to mean that you have to lose all of your lien rights. The service of the Preliminary Notice becomes effective at the date of service minus 20 days before, so if you file on the 21stday, you actually lose your lien rights only for the 1stday. In any case, even if you ar late, serve your preliminary notices. The owners may require that they are honored in any case.
Important: An appellate court decision just came down that may change how a number of companies doing business in California do Preliminary Notices.
On August 9th, 2001, in the Court of Appeal of the State of California, Second Appellate District, Division Five, Case # B139044, the court rendered a decision on what constitutes a reasonable estimated price declaration in the State of California Preliminary Notice (it was a private job, but probably could be considered to apply to public jobs as well). In summary, the court declared that an estimated price must reasonably reflect an honest attempt to be near the amount actually billed.
In this case the company bringing the claim to court (the Appellant) sent out a preliminary notice for $10,000 on a job. An equipment rental company, the Appellant, as a matter of policy, sent out every preliminary notice for the amount of $10,000, whether the job ended up costing $1,000.00 or, in this case, $159,898.00, because it was difficult to arrive at a estimated amount and $10,000.00 covered the average cost of a job. Personally, we agree it is very difficult.
But, the Respondent/Owner claimed that this was not fair as the entire contract with the Appellants client was for only $75,000.00, and if they had seen a preliminary for, say, $100,000.00, they all would have been talking about that a lot earlier, and so the law required a published estimated amount so the owners could reasonably assess and mitigate their liability on a job.
The court agreed with the respondent/owner, stating that the trial court noted that the Appellant’s “dollar figure of $10,000.00 was not even a guess, much less an estimate” of the amount due, and that under both the facts of the case and the law the Respondent was due a reasonable estimate of their potential liability.
Because of this we are strongly urging our clients to no longer use a set amount as company policy for your preliminary notices until, at least, this case goes to the California State Supreme Court. It will be a red flag to any competent attorney. Instead, try to base your estimated amount on past jobs of a similar type, or based on your industry’s average percentage amount of a total contract. Do a new (not revised or additional) preliminary notice when the amount exceeds your original claim. And, pre-lien everything that you do not want to lose.
We would also like to emphasize that this is an Appellate Court decision and the decision may yet be appealed and overturned. However, like the Holbert Lumber decision a few years back, and the 1995 Legislative change requiring the preliminary notices to show the estimated amount of a job (so, again, the owner can reasonably seek to mitigate damages) both our attorney and I have a sneaking feeling this one is going to stick.
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