Problems Arising From Unpaid Contractors, Subcontractors, Laborers, And Material Suppliers
Many construction related contract disputes arise due to unpaid subcontractors and material suppliers working on the project. Do not assume that the general contractor you hired has or will pay these lower tier subcontractors and material suppliers. Also, don't assume these lower tier subcontractors have paid their subcontractors and or material suppliers.
Property Owners Are Ultimately Responsible For Payment Even If They Have Already Paid The Original Contractor!
Disputes often arise after the owner has paid the full amount of the contract to the original contractor, usually the general contractor, but that contractor fails to pay his subcontractors, suppliers, and laborers. The problem is exacerbated by the lower tier subcontractors then failing to pay their subcontractors, suppliers, and laborers. Payment of the full amount due to the original contractor is no defense to a mechanic's lien.
Protect Yourself From Mechanic's Liens By Tracking All Contractors, Subcontractors, Material Suppliers, And Laborers Working On The Project
California Civil Code Section 3114 requires a mechanic's lien claimant, as a prerequisite to filing a mechanic's lien, to serve, pursuant to Civil Code Section 3097, what is known as a "Preliminary 20-Day Notice" on the property owner, lender, and general contractor. Keep track of all Preliminary 20-Day Notices to ensure all who serve this notice sign the appropriate waivers as described below. Note: It is also good policy to track all persons bestowing labor on the project as Civil Code Section 3097(a) exempts persons performing actual labor for wages from the notice requirement. This means that a laborer can file a mechanic's lien without the property owner having actual knowledge that the laborer was on the job.
Require Proper Releases By All Contractors, Subcontractors, And Material Suppliers
Before making any payment to the original contractor, require that all contractors, subcontractors, and material suppliers submit proper releases for payment. There are four types of wavier and release forms which will effectuate valid releases of mechanic's lien rights. They are: 1) Conditional Waiver and Release Upon Progress Payment, 2) Unconditional Waiver and Release Upon Progress Payment, 3) Conditional Waiver and Release Upon Final Payment, and 4) Unconditional Waiver and Release Upon Final Payment. These releases are found in California Civil Code Section 3262 and should be exchanged by the contractor, subcontractor, or material supplier for either a progress payment or a final payment. The proper use of these releases causes the claimant to waive mechanic's lien rights in exchange for payment. For more information related to the four types of releases, see my Legal Guide To Waiver And Release Forms. As always, contact a competent construction lawyer.
Additional resources provided by the author
For more information related to legal matters in construction contracting, contact the author, Southern California Construction Lawyer, Thomas F. Nowland of Nowland Stone LLP.
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