by: Richard Dreitzer, Esq. , Bullivant Houser Bailey, PC
Krista Dunzweiler, Esq., Bullivant Houser Bailey, PC
Everyone knows that when you supply labor and/or materials to a job site, the law allows you to lien that job in order to protect yourself. Everyone also knows that in order to create a valid lien, you need to serve certain parties with a “preliminary lien notice” within a certain period of time. But, not everyone takes these steps to protect themselves.
Why not? The short answer is that companies don’t want to offend their customers. But, the truth is that in the current economic environment, the issuance and service of proper preliminary lien notices is not just a preferred way of doing business; it is a necessity. Think about it: your customer could be the most reliable, financially secure company in the world. However, if the Owner, or General Contractor on that job is teetering on the brink of bankruptcy (or worse), does it matter how solvent your customer is? Absolutely not. One financially “weak link” on a project, could cause the entire “chain” to fall apart.
For this reason, it is recommended that companies begin to view the concept of liens and preliminary lien notices a bit differently. The issuance and service of a preliminary lien notice says absolutely nothing about the reliability or business reputation of your customer. What it does say is that your company wishes to protect itself and expects to get paid everything it is owed, and in a timely fashion. But, what if a customer asks, “does this mean you don’t trust us?” The answer is simple: “Not at all. When it comes to liens, I’m not just doing business with you, but with everyone you’re doing business with, and we all have to protect ourselves.”
So, if your company receives a preliminary lien notice, don’t assume that your customer doesn’t trust you. They are just trying to make sure they are in the best possible position to get paid later on. Moreover, if your company is contemplating whether to issue and serve a preliminary lien notice, don’t hesitate. Your company needs to protect itself with the strongest possible mechanism to ensure payment, and a mechanic’s lien will accomplish that. With these ideas in mind, what are the steps that must be followed as to preliminary lien notices in Nevada and California?
Nevada Preliminary Lien Notice Requirements:
Pursuant to NRS 108.245, within thirty-one (31) days of first delivery of materials and/or first labor performed upon a project, every lien claimant must provide a “Notice of Right to Lien” in the following statutory-approved format:
(Owner’s name and address)
The undersigned notifies you that he has supplied materials or equipment or performed work or services as follows:
(General description of materials, equipment, work or services)
for improvement of property identified as (property description or street address) under contract with (general contractor or subcontractor). This is not a notice that the undersigned has not been or does not expect to be paid, but a notice required by law that the undersigned may, at a future date, record a notice of lien as provided by law against the property if the undersigned is not paid.
As to service of this notice, any subcontractors, equipment or material suppliers who provide such notices must also personally deliver them (or provide a copy via certified mail) to the prime contractor on their project. It should also be kept in mind that this notice is not, by itself, a mechanic’s lien. It is merely a necessary step to perfecting a mechanic’s lien.
California Preliminary Lien Notice Requirements:
Pursuant to California Civil Code section 3097, every lien claimant who is not under direct contract with the owner must, within 20 days of first delivery or provision of materials, equipment, labor or services, provide a Preliminary 20-day Notice to the owner, original contractor and the construction lender. The Preliminary 20-day Notice must include the following information:
1. A general description of the labor, service, equipment, or materials furnished or to be furnished, and an estimate of the total price thereof;
2. The name and address of the person furnishing that labor, service, equipment or materials;
3. The name of the person who contracted for purchase of that labor, service, equipment or materials;
4. A description of the jobsite sufficient for identification; and
5. The following statement in boldface type:
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. Other than residential homeowners of dwellings containing fewer than five units, private project owners must notify the original contractor and any lien claimant who has provided the owner with a preliminary 20-day lien notice in accordance with Section 3097 of the Civil Code that a notice of completion or notice of cessation has been recorded within 10 days of its recordation. Notice shall be by registered mail, certified mail, or first-class mail, evidenced by a certificate of mailing. Failure to notify will extend the deadlines to record a lien.
In addition, if the 20-day Notice is given by a subcontractor who has failed to pay all compensation due to his or her laborers on the job, the notice must also contain the identity and address of any laborer and any express trust fund to whom the employer payments are due.
With regard to service of the 20-day Notice, the notice may be served as follows: by delivering the notice personally, or by leaving it at the individual’s residence or place of business with a person in charge, or by first-class registered or certified mail at the individual’s residence, place of business or the place of business shown by the building permit on file In addition, if the individual resides outside of California and cannot be served, the lien claimant may provide notice by first-class certified or registered mail, addressed to the construction lender or to the original contractor.
Just as with Preliminary Lien Notices and Mechanics Liens in Nevada, the Preliminary 20-day Notice is not a mechanic’s lien, but is a prerequisite to perfecting a mechanic’s lien.