BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 189| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ 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. CONTINUED SB 189 Page 2 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) SB 189 Page 3 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. SB 189 Page 4 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 SB 189 Page 5 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 SB 189 Page 6 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 SB 189 Page 7 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 SB 189 Page 8 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 SB 189 Page 9 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 SB 189 Page 10 "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 SB 189 Page 11 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 1/25/10) California Law Revision Commission (source) California Council/American Society of Landscape Architects OPPOSITION : (Verified 1/25/10) Roofing Contractors Association of California 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." ARGUMENTS IN OPPOSITION : The Roofing Contractors Association of California states: SB 189 Page 12 "While the California Law Revision Commission (CLRC) has stated that its intent is to reorganize and restate statutory mechanic's lien law to improve its clarity and usability, the CLRC has also made changes to language which may substantively alter the rights and obligations of general contractors, trade contractors, suppliers and owners "One example is the CLRC's proposed changes to long-established language which sets forth the required contents of a mechanic's lien and was re-enacted last year in AB 457 (Monning). Current language states that the claim of lien must contain 'A general statement of the kind of labor, services, equipment, or materials furnished by the claimant.' The CLRC has revised this subsection to state, 'A general statement of the kind of work furnished by the claimant.' This revision omits reference to claimants who provide materials or equipment but do not actually perform services to works of improvement. "The shear enormity of the bill prevents stakeholders from determining whether such substantive and detrimental changes are isolated or an indication of pervasive substantive changes to well established law. While the bill's purpose is to reduce risk, ambiguity and litigation, the substantive amendments to fundamental provisions will likely only increase uncertainty and litigation." RJG:mw 1/25/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****