BILL ANALYSIS                                                                                                                                                                                                    



                                                                       



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                                 THIRD READING


          Bill No:  SB 189
          Author:   Lowenthal (D)
          Amended:  1/14/10
          Vote:     21

           
           SENATE JUDICIARY COMMITTEE  :  5-0, 1/12/10
          AYES:  Corbett, Harman, Hancock, Leno, Walters

           SENATE APPROPRIATIONS COMMITTEE  :  Senate Rule 28.8


           SUBJECT  :    Mechanics liens

           SOURCE  :     California Law Revision Commission


           DIGEST  :    This omnibus mechanics lien bill recodifies,  
          reorganizes, and clarifies the mechanics lien statute;  
          modernizes terminology and eliminates inconsistencies in  
          language; makes provisions more readable and easier to use;  
          enacts separate provisions for private and public works;  
          modernizes and streamlines existing notice requirements;  
          revises and recasts provisions relating to liens for design  
          professionals; requires certain bonds to be obtained from  
          licensed sureties; improves and clarifies statutory forms  
          relating to waivers and releases; allows notices under the  
          mechanics lien statute to be given electronically; adds  
          procedural detail relating to a summary lien release; and  
          becomes operative January 1, 2012 to allow the industry and  
          homeowners to become familiar with the new reorganization  
          and updates. 

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           ANALYSIS  :    

           Mechanics Lien Statute

           Existing law provides that mechanics, persons furnishing  
          materials, artisans, and laborers of every class have a  
          lien upon the property upon which they bestowed labor or  
          furnished material for the value of such labor done and  
          material furnished.  (Article 14, Section 3 of the  
          California Constitution)

          Existing law sets forth obligations and rights of  
          contributors, owners, construction lenders, and persons  
          otherwise involved in an improvement to real property, in  
          what is informally known as the mechanics lien statute.   
          (Section 3082 et seq. of the Civil Code.  All references  
          are to the Civil Code) 

          This bill reorganizes, restates, and modernizes the  
          language of the existing mechanics lien statute. 

           Notices
           
          Existing law requires many different types of notices under  
          the mechanics lien statute, with most notices subject to  
          unique provisions governing content, manner of service,  
          location of service, proof of service, and the like.   
          (Section 3103)

          This bill standardizes those requirements for all notices  
          given under the mechanics lien statute, except as expressly  
          otherwise noted.  
           
          Existing law does not allow notices under the mechanics  
          lien statute to be given electronically.
               
          This bill allows notices under the mechanics lien statute  
          to be given electronically, provided the recipient of the  
          notice has agreed in writing to receive notice in  
          electronic form.  
           
          Existing law requires the giving of five days notice of a  
          hearing to summarily adjudicate a public work stop notice.   
          (Section 3201)

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          This bill increases that notice period to 10 days, if the  
          notice is given by mail. 

           Preliminary Notices/Recordation

           Existing law allows a claimant on a private work of  
          improvement to record a preliminary notice in the county  
          recorder's office, and requires the county recorder to make  
          a good faith effort to notify that claimant when a notice  
          of completion on the claimant's project has been recorded.  
          (Section 3097(o))

          This bill deletes the provision allowing recordation of a  
          preliminary notice, and the provision requiring county  
          recorder notification of a recorded notice of completion. 

          Existing law contains an ambiguity relating to whether a  
          general contractor must give preliminary notice to a  
          construction lender on a private work.  (Section 3097(b))
               
          This bill clarifies that a general contractor must give  
          preliminary notice to a construction lender on a private  
          work.  

           Completion of Private/Public Works of Improvement 

           Existing law provides that "acceptance by the owner" of a  
          private work of improvement is one of several events deemed  
          to constitute completion of that work of improvement.   
          (Section 3086(b))

          This bill deletes "acceptance by the owner" as an event  
          deemed to constitute completion of a private work of  
          improvement.  
           
           Existing law provides that a continuous cessation of labor  
          for 30 days or more on specified public works of  
          improvement constitutes completion of that work.  (Section  
          3086)

          This bill requires continuous cessation of labor for 60  
          days or more to constitute completion of those public  
          works.  

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          Existing law allows an owner or public entity to record a  
          notice of completion within 10 days after completion of a  
          work of improvement.  (Section 3093)

          This bill allows an owner or public entity 15 days after  
          completion of a work of improvement to record a notice of  
          completion.  

          Existing law allows an owner to record a notice of  
          completion of a portion of a private work of improvement  
          governed by a separate contract within 10 days after that  
          contract has been completed.  (Section 3117)

          This bill allows an owner to record a notice of completion  
          corresponding to a portion of a private work of improvement  
          governed by a separate contract up to 15 days after  
          completion of the entire work of improvement.  

           Waiver and Release of Claims Forms

           Existing law provides procedural requirements, including  
          the use of specified statutory forms, which must be  
          followed by owners or general contractors to obtain a  
          waiver and release of claims under the mechanics lien law.   
          (Section 3262)

          This bill recasts the statutory forms for clarity, and  
          makes those procedural requirements applicable to  
          subcontractors and construction lenders as well.  
           
           Release of Lien

           Existing law allows an owner to seek release of a recorded  
          lien claim that has not been timely prosecuted in a summary  
          proceeding, and allows an award of attorney's fees not to  
          exceed $2,000 to the prevailing party in the proceeding.   
          (Section 3154)

          This bill adds procedural rules relating to the proceeding,  
          and allows for an award of reasonable attorney's fees to  
          the prevailing party.

           Stop Notices:  Payment Bonds:  Fees

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          Existing law allows a stop notice claimant on a public work  
          to pay $2 to the public entity in order to be notified when  
          the latest of several specified events occur that trigger  
          the commencement of the time period in which the claimant  
          must file suit to enforce the stop notice.  (Section 3185)
               
          This bill increases the specified fee to $10, and requires  
          the public entity to provide notice of the applicable time  
          period for enforcement, after the occurrence of each such  
          event.  

          Existing law provides that only an owner, construction  
          lender, or contractor on a work of improvement may post a  
          stop notice release bond.  (Section 3171)
               
          This bill allows any person to post the release bond.  
               
          Existing law allows a statutory payment bond on a private  
          work and a stop notice release bond to be issued by a  
          non-licensed surety.  (Sections 3096, 3143, and 3171)

          This bill requires those bonds to be issued by an admitted  
          surety insurer.  
           
           Existing law makes an expedited proceeding available to a  
          general contractor to resolve a stop work notice dispute.   
          (Section 3260.2(d))

          This bill makes that expedited proceeding also available to  
          the owner involved in the dispute.

           Clarifying Ambiguities Related to Bonds:  Limitations  
          Periods
           
          Existing law contains an ambiguity relating to whether a  
          private work payment bond must be recorded prior to  
          commencement of a work of improvement in order to limit an  
          owner's lien claim liability.  (Section 3235)
               
          This bill clarifies that the bond must be recorded prior to  
          commencement. 

          Existing law contains an ambiguity relating to whether  

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          persons contributing to a public work pursuant to a  
          supplemental contract may make a claim against the payment  
          bond provided by the general contractor at the outset of  
          the project.  (Section 3247(b))
               
          This bill clarifies that such persons may make a claim  
          against the payment bond provided by the general contractor  
          at the outset of the project.  
           
           Existing law provides that an action against a surety to  
          enforce a claim against a statutory private work payment  
          bond recorded before commencement of the work of  
          improvement must be commenced within six months after  
          completion of the work of improvement.  (Section 3240)
               
          This bill makes that limitation period also applicable to  
          an action against the principal on the bond.  

          Existing law provides that an action against a surety on a  
          public work payment bond must be commenced within six  
          months after the period in which a stop payment notice may  
          be given.  (Section 3249)

          This bill makes that limitation period also applicable to  
          an action against the principal on the bond.  

          Existing law contains an ambiguity relating to whether  
          persons contributing work to a second tier or lower  
          subcontractor on a work of improvement are permitted to  
          make a claim against the general contractor's payment bond.  
           (Section 3267)
               
          This bill clarifies that such persons are permitted to make  
          a claim against the general contractor's payment bond.  

           Labor Issues
           
          Existing law requires a contractor that fails to timely pay  
          wages to laborers employed by the contractor to provide  
          notice of the nonpayment to the laborer, to the laborer's  
          bargaining representative, and to the construction lender  
          on the project, or face discipline.  (Section 3097(k))

          This bill expands that provision to also require notice of  

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          the nonpayment to the owner on the project.  

           Notification of Contract Change of Five Percent or More

           Existing law requires that an owner notify the general  
          contractor and construction lender of a change in the  
          original contract if the change increases the contract  
          amount by five percent or more.  (Section 3123(c))

          This bill deletes that provision.

           Licensed Landscape Architects
           
          Existing law allows licensed architects, engineers, and  
          surveyors to claim a "design professionals lien" for  
          pre-commencement design services provided for a work of  
          improvement.  Services that these design professionals  
          provide are also governed by selected provisions of the  
          mechanics lien statute.  (Sections 3081.1 to 3081.10)

          This bill adds licensed landscape architects to the  
          identified list of design professionals.

           Overview of SB 189 Provisions
           
          The provisions of the bill that recodify the mechanics lien  
          law are contained in three sections of the bill:  Sections  
          16, 17, and 22.

          Section 16 of the bill repeals the existing law informally  
          known as the design professionals lien statute (Sections  
          3081.1 to 3081.10) in order to incorporate these sections  
          into a new mechanics lien statute.

          Section 17 of the bill repeals the existing body of law  
          informally known as the mechanics lien statute (Sections  
          3082 to 3267).

          Section 22 of the bill enacts a modernized, clarified, and  
          better organized mechanics lien statute that would  
          incorporate the existing design professionals lien statute  
          as well as all provisions of the existing mechanics lien  
          statute presently applicable to both private and public  
          works of improvement.  The new statute would appear in a  

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          new statutory Part within the Civil Code, with the private  
          and public work provisions in two adjacent statutory  
          Titles.

          Of the remaining 107 sections of the bill, 103 make  
          nonsubstantive conforming revisions to code sections that  
          contain a cross-reference to the existing mechanics lien  
          statute.  The conforming revisions correct the  
          cross-references, and in some cases, conform existing  
          statutory language to language used in the new mechanics  
          lien statute.  For example, a reference to a "20 day  
          Preliminary Notice" has been revised to read "Preliminary  
          Notice."  In some instances, purely nonsubstantive  
          stylistic changes (unrelated to mechanics lien law),  
          generated by the CLRC or by the Legislative Counsel Bureau,  
          are also made to these sections.

          Section 107, which would be uncodified, contains the bill's  
          operative date provision.

          Sections 11 and 21 are to be amended out of the bill as  
          author's amendments.  These sections concern the Automatic  
          Checkout System, which has nothing to do with the mechanics  
          lien law.
           
          Background
           
          The California Constitution grants laborers and materials  
          suppliers a mechanics lien on any property improved by  
          their labor or material.  The mechanics lien law in the  
          Civil Code generally specifies the obligations, rights, and  
          remedies of those involved in a construction project.   
          Mechanics liens are not available on public works of  
          improvement.  However, the mechanics lien law in the Civil  
          Code provides claimants on public works projects with other  
          statutory remedies, including stop notices and claims  
          against payment bonds.

          In 1999, the Assembly Judiciary Committee requested the  
          California Law Revision Commission (CLRC) to provide a  
          comprehensive review of mechanics lien law and make  
          suggestions for possible areas of reform.  Following  
          initial efforts to substantively revise specific provisions  
          of existing law, the CLRC began studying a general revision  

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          of mechanics lien law in 2004.  The CLRC believed that the  
          mechanics lien statute had "become increasingly difficult  
          to use, generating litigation over confusing provisions,  
          and often leaving participants unsure of their rights and  
          obligations."  Therefore, the CLRC decided that its primary  
          objective would be to revise the statute in a way that  
          would make it easier for all practitioners to use and  
          understand.  It placed its highest priority on drafting a  
          "nonsubstantive reorganization of the existing mechanics  
          lien statute that would modernize and clarify existing  
          law."  

          This bill is based upon the February 2008 recommendations  
          of the CLRC resulting from its study of mechanics lien law.  
           (CLRC, "Recommendation, Mechanics Lien Law," February  
          2008.)  It is also based upon working group discussions  
          with stakeholders and other interested parties.

          In general, the CLRC included substantive changes to  
          existing law only if the proposed reform fell into one of  
          two categories:  (1) substantive reforms that were believed  
          to bring about an overarching improvement to the statute as  
          a whole, thereby benefiting all affected persons, and (2)  
          substantive reforms that, although primarily benefiting one  
          group of persons affected by the statute more than others,  
          were perceived not to unduly burden any other group.  (See  
          CLRC "Memorandum 2009-45," October 13, 2009.) 

           Comments
           
          According to the Senate Judiciary Committee analysis, the  
          author received opposition from California Professional  
          Association of Specialty Contractors (CALPASC) and the Air  
          Conditioning Trade Association of California.  A group  
          meeting was held on December 21, 2009 with the author's  
          staff, CLRC staff, Senate Judiciary Committee staff,  
          stakeholders, and other interested parties.  The  
          opposition's concerns were discussed and addressed.  During  
          the meeting the parties agreed to work on concerns as the  
          bill moves through the process.

          Based upon that meeting and the assurance that all parties  
          would work together towards a consensus bill, CALPASC  
          withdrew its opposition letter and in its place sent an  

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          "oppose unless amended" letter.  One of CALPASC's concerns  
          is the interaction between AB 547 (Monning), Chapter 109,  
          Statutes of 2009 - operative January 1, 2011, and SB 189.   
          The CLRC is in discussions with the Contractors State  
          License Board (CSLB), the sponsor of AB 547, and SB 189  
          stakeholders and interested parties are informed that the  
          CLRC and CSLB are very close to agreed language that  
          incorporates AB 457 into SB 189.

          The Associated General Contractors of California (AGC)  
          writes that with the December 15, 2009 amendments it has  
          changed its position on the bill from oppose to neutral.   
          AGC also writes that there are a few remaining issues it  
          would like to have included in the bill, and if those  
          issues are resolved it would change its position to  
          support.

           Prior Legislation  

          AB 457 (Monning), Chapter 109, Statutes of 2009 (which  
          passed the Senate on July 9, 2009 with a vote of 34-0) -  
          operative January 1, 2011, provides that the definition of  
          "claim of lien" is also the definition of "mechanics lien"  
          and includes within this definition a Notice of Mechanics  
          Lien, which contains specified information regarding the  
          legal effect of the lien.  The bill requires the mechanics  
          lien and Notice of Mechanics Lien to be served upon the  
          owner or reputed owner of the property, or on the  
          construction lender or the original contractor if those  
          parties cannot be served.  The bill requires a proof of  
          service affidavit to be completed and signed by the person  
          serving the Notice of Mechanics Lien.  The bill provides  
          that a failure to serve the mechanics lien, including the  
          Notice of Mechanics Lien, would cause the mechanics lien to  
          be void as a matter of law.  The bill also revises the  
          permissive provisions regarding the recording of the  
          complaint to enforce the lien, to make them mandatory.  

          SB 1691 (Lowenthal), 2007-08 Session, was an omnibus bill  
          (similar to SB 189) that would have reorganized and  
          restated statutory mechanics lien law in order to improve  
          its clarity and usability.  The reorganization and  
          restatement was primarily nonsubstantive.  A number of  
          substantive changes were deleted from the bill pursuant to  

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          agreement among the stakeholders.  The bill was vetoed by  
          the Governor based upon the 2008-2009 State Budget delay,  
          and not upon the substance of the bill.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

           SUPPORT  :   (Verified  1/19/10)

          California Law Revision Commission (source)
          California Council/American Society of Landscape Architects


           ARGUMENTS IN SUPPORT  :    The CLRC writes:

            "The existing mechanics lien statute contains archaic  
            language dating back to 1872.  Since the last  
            recodification of the statute in 1969, individual  
            provisions have been amended more than 70 times.  Over  
            time, the statute has become increasingly difficult to  
            use, generating litigation over confusing provisions, and  
            often leaving unsophisticated participants unsure of  
            their rights and obligations.

            "This bill would modernize terminology and make it more  
            uniform; clarify or eliminate inconsistencies and  
            ambiguities throughout the statute; divide longer  
            provisions into shorter and more readable provisions; and  
            organize all provisions in a functionally coherent order.  
             This clarification of the law should reduce litigation  
            and reduce the risk that important rights will be  
            inadvertently lost through misunderstanding of the law.   
            This bill would also make a small number of substantive  
            improvements to existing law that would result in an  
            overall benefit to practitioners and persons affected by  
            the mechanics lien statute, with no significant  
            detriment."


          RJG:mw  1/19/10   Senate Floor Analyses 

                         SUPPORT/OPPOSITION:  SEE ABOVE

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