Is Work Actually Completed? Things to Consider Before Filing a Mechanic’s Lien
When it comes to opening a construction payment dispute, timing is everything. The state of California offers several legal remedies to contractors and suppliers who have not been paid for the work that they have completed or materials that they have provided.
Howard S. Wright Construction Co. V. BBIC Investors, LLC (2006)In 2006, a California trial court ruled that Wright prematurely recorded a mechanic's lien against BBIC Investors, LLC, and therefore the lien was void. However, after reviewing the facts of the case, the Appellate Court ruled that a mechanic's lien cannot be prematurely recorded and ruled void if the owner of the project breaches the contract. The facts of the case were pretty straightforward: Wright Construction entered into a contract with BBIC for the construction of a business facility. However, after they began work, the owner of the facility approached Wright and informed them that they would be stopping work prematurely as they ran out of monetary resources to fund the project. BBIC requested that Wright perform closeout work. After Wright completed the closeout work, BBIC informed Wright that no more payments would be made. Wright informed the owner that their statement regarding no further payments was a breach of contract. They then stopped work and filed a mechanic's lien.
BBIC claimed that the lien was premature, citing Civil Code section 3115: "Each original contractor, in order to enforce a lien, must record his claim of lien after he completes his contract and before the expiration of (a) 90 days after the completion of the work of improvement as defined in Section 3106 if no notice of completion or notice of cessation has been recorded, or (b) 60 days after recordation of a notice of completion or notice of cessation."
Though the trial courts ruled in favor of BBIC, the Appellate Courts determined that a breach of contract was reason enough to prematurely file a lien, and therefore, reversed the trail court's decision.
When is Work Completed?Oftentimes, a construction project in California will stop before the scope of work is actually completed. When this happens, California Civil Code ?3086 defines "completion" so that contractors may know when and when is not appropriate to file a lien.
1. The occupation or use of a work of improvement by the owner, or his agent, accompanied by cessation of labor thereon;
2. The acceptance by the owner, or his agent, of the work of improvement; or
3. After the commencement of a work of improvement, a cessation of labor thereon for a continuous period of 60 days, or a cessation of labor thereon for a continuous period of 30 days or more if the owner files for record a notice of cessation.
Though earlier cases ruled that a contract is generally not completed if work remains to be done, the Wright ruling concluded that if a construction contract is rescinded or terminated before a work can be deemed "complete," the earliest time for recording a mechanic's lien commences.
When Should a Mechanic's Lien Otherwise Be Filed?If everything goes according to plan, and if a project owner still fails to pay the contractor upon the completion of the job (meaning all obligations of the contract have been fulfilled), the general rule of thumb is that the contractor must record their lien within 90 days from the date of completion (Civil Code ?? 3115-3116).
If a project stops before the work can be completed and remains stopped for a period of 60 consecutive days, California law allows contractors to pursue payment via a mechanic's lien after that 60-day period lapses. They then must record their mechanic's lien within 90 days of that date (Civil Code ?3092).