BILL ANALYSIS
SB 189
Page 1
Date of Hearing: June 15, 2010
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 189 (Lowenthal) - As Amended: June 2, 2010
PROPOSED CONSENT
SENATE VOTE : 35-0
SUBJECT : MECHANICS LIENS
KEY ISSUE : SHOULD THE MECHANICS LIEN STATUTES BE REORGANIZED
AND RECAST TO MODERNIZE AND CLARIFY THE LAW FOR THE BENEFIT OF
CONTRACTORS, OWNERS AND CONSUMERS?
FISCAL EFFECT : As currently in print this bill is keyed fiscal.
SYNOPSIS
This non-controversial mechanics lien bill reflects the good
work undertaken by the California Law Revision Commission at the
request of this Committee some years ago to review and consider
this venerable area of the law that according to many observers
has become unduly complex and impenetrable as the result of
piecemeal amendments over the years. This bill would
among other notable achievements streamline, reorganize, clarify
and re-codify these statutes; it would modernize terminology and
eliminate inconsistencies in language; make provisions more
readable and easier to use; place provisions that apply
exclusively to private or public work in separate titles, and
place jointly applicable provisions in a common third title.
These revisions are largely technical. To the extent they are
substantive they have been widely vetted by the Commission and
are not controversial with any stakeholder group.
SUMMARY : Updates the mechanics lien statutes. Specifically,
this bill :
1)Reorganizes, restates, and modernizes the language of the
existing mechanics lien statute.
2)Standardizes those requirements for all notices given under
the mechanics lien statute, except as expressly otherwise
noted.
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3)Increases that notice period to ten days, if the notice is
given by mail.
4)Clarifies that a general contractor must give preliminary
notice to a construction lender on a private work.
5)Deletes the vague term "acceptance by the owner" as an event
deemed to constitute completion of a private work of
improvement.
6)Requires continuous cessation of labor for 60 days or more to
constitute completion of those public works.
7)Allows an owner or public entity 15 days after completion of a
work of improvement to record a notice of completion.
8)Recasts the statutory forms for clarity, and would make those
procedural requirements applicable to subcontractors as well.
9)Adds procedural rules relating to the proceeding, and would
allow for an award of reasonable attorney's fees to the
prevailing party.
10)Reduces the required amount of certain bonds to 125% of the
recorded lien claim.
11)Requires public entities to provide notice of all specified
events that trigger the commencement of the time period for
enforcement.
12)Allows any person to post a release bond, requires those
bonds to be issued by an admitted surety insurer, makes the
expedited proceeding also available to the owner involved in
the dispute, clarifies that the bond must be recorded prior to
commencement, and clarifies that such persons may make a claim
against the payment bond provided by the general contractor at
the outset of the project.
13)Makes the limitation period also applicable to an action
against the principal on the bond.
14)Clarifies that such persons are permitted to make a claim
against the general contractor's payment bond.
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15)Expands that provision to also require notice of the
nonpayment to the owner on the project.
16)Adds licensed landscape architects to the identified list of
design professionals.
EXISTING LAW :
1)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.
(Cal. Const., art.14, Sec. 3.)
2)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. (Civ. Code Sec. 3082 et seq.)
3)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. (See, e.g., Civ. Code Sec.
3103.)
4)Requires the giving of five days notice of a hearing to
summarily adjudicate a public work stop notice. (Civ. Code
Sec. 3201.)
5)Contains an ambiguity relating to whether a general contractor
must give preliminary notice to a construction lender on a
private work. (Civ. Code Sec. 3097(b).)
6)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. (Civ. Code Sec.
3086(b).)
7)Provides that a continuous cessation of labor for 30 days or
more on specified public works of improvement constitutes
completion of that work. (Civ. Code Sec. 3086.)
8)Allows an owner or public entity to record a notice of
completion within 10 days after completion of a work of
improvement. (Civ. Code Sec. 3093.)
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9)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. (Civ. Code Sec. 3117.)
10)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 most
claims under the mechanics lien law. (Civ. Code Sec. 3262.)
11)Allows a reduction or release of a stop notice given to an
owner to be made on other than a statutory waiver form. (Civ.
Code Sec. 3262(b)(2).)
12)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. (Civ. Code Sec. 3154.)
13)Allows an owner, general contractor, or subcontractor to
release a recorded lien claim by posting a release bond in the
amount of 150% of the recorded lien claim. (Civ. Code Sec.
3143.)
14)Allows a stop notice claimant on a public work to pay $2.00
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. (Civ. Code Sec. 3185.)
15)Provides that only an owner, construction lender, or
contractor on a work of improvement may post a stop notice
release bond. (Civ. Code Sec. 3171.)
16)Allows a statutory payment bond on a private work and a stop
notice release bond to be issued by a non-licensed surety.
(Civ. Code Secs. 3096, 3143, 3171.)
17)Makes an expedited proceeding available to a general
contractor to resolve a stop work notice dispute. (Civ. Code
Sec. 3260.2(d).)
18)Contains an ambiguity relating to whether a private work
payment bond must be recorded prior to commencement of a work
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of improvement in order to limit an owner's lien claim
liability. (Civ. Code Sec. 3235.)
19)Contains an ambiguity relating to whether 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. (Civ.
Code Sec. 3247(b).)
20)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.
(Civ. Code Sec. 3240.)
21)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. (Civ.
Code Sec. 3249.)
22)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. (Civ. Code Sec. 3267.)
23)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. (Civ. Code Sec. 3097(k).)
24) 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. (Civ. Code Sec. 3123(c).)
25) 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. (Civ. Code Secs. 3081.1 to 3081.10.)
COMMENTS : The California Constitution grants laborers and
materials suppliers a mechanics lien on any property improved by
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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 provides claimants on public works projects
with other statutory remedies, including stop notices and claims
against payment bonds.
In 1999, this 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 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.
(California Law Revision Commission, 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 California Law Revision
Commission Memorandum 2009-45, October 13, 2009.)
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
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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.
Overview of the bill's provisions. The provisions of the bill
that would recodify the mechanics lien law are contained in
three sections of the bill, Sections 15, 16, and 20.
Section 15 of the bill would repeal the existing law informally
known as the design professionals lien statute (Civ. Code Secs.
3081.1 to 3081.10) in order to incorporate these sections into a
new mechanics lien statute.
Section 16 of the bill would repeal the existing body of law
informally known as the mechanics lien statute (Civ. Code Secs.
3082 to 3267).
Section 20 of the bill would enact 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 new statutory Part within the
Civil Code. The first title in this Part would contain
provisions jointly applicable to both private and public work;
the next two titles of the Part would contain provisions
exclusively applicable to either private or public work,
respectively.
Of the remaining 106 sections of the bill, 102 make
non-substantive conforming revisions to code sections that
contain a cross-reference to the existing mechanics lien
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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
non-substantive stylistic changes (unrelated to mechanics lien
law), generated by the CLRC or by Legislative Counsel, are also
made to these sections.
Section 19.5 of the bill would renumber the heading of a Part in
the Civil Code unrelated to mechanics lien law to allow the new
mechanics lien statute to appear in the Civil Code in proper
numerical sequence.
Section 105, which would be uncodified, contains the bill's
operative date provision.
Section 106, which would be uncodified, provides that any
amendment or repeal that the bill would make to any section is
to be subordinate to any change made to that section by any
other bill enacted this session, other than the annual
Maintenance of the Codes bill.
Section 107 is a statutorily required non-reimbursement section.
Section 108, which would be uncodified, provides that the bill
is intended by the Legislature to be nonsubstantive in effect,
except as otherwise specified in Section 108.
Proposed Substantive Changes To The Mechanics Lien Law. The
bill's few substantive provisions appear to be modest,
thoughtful and harmonizing.
Notices. This bill would standardize the requirements for all
notices given under the mechanics lien statute, except as
expressly otherwise noted. The standardization would reduce the
likelihood of confusion or inadvertent errors by unrepresented
or occasional practitioners whose rights under the mechanics
lien law often depend on compliance with these notice
requirements.
This bill would increase the notice period for a hearing to
summarily adjudicate a public work stop notice from five to 10
days. This would correct an apparent oversight in the existing
statute, as a notice of a hearing sent by mail five days before
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a hearing date may not be received until on or after the hearing
date.
Preliminary Notices. This bill would clarify that a general
contractor must give preliminary notice to a construction lender
on a private work. Giving of this notice would be consistent
with a basic policy reason underlying the giving of all
preliminary notice- identification of a contributor to a work of
improvement whose identity may otherwise be unknown to the
recipient of the notice.
Completion of Private/Public Works of Improvement. This bill
would delete "acceptance by the owner" as an event deemed to
constitute completion of a private work of improvement. The
existing mechanics lien statute does not define the term
"acceptance by the owner," nor does it indicate how it must be
manifested, or to whom it must be conveyed. The event does not
appear to be significantly relied upon in the industry, and may
be constitutionally suspect to the extent it serves to time bar
a lien claim of a claimant who was reasonably unaware that the
event had occurred. The bill does continue a provision of
existing law (Civ. Code Sec. 3086(a)), which provides that
occupation or use of the work of improvement by the owner,
accompanied by cessation of labor, constitutes completion of the
work of improvement.
This bill would allow 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,
rather than the 10 days allowed under existing law. This would
standardize the deadline for recordation of all notices of
completion, which should reduce confusion for both owners and
claimants that do not have substantial familiarity with
mechanics lien law.
This bill would require continuous cessation of labor for 60
days or more to constitute completion of public works of
improvement. On a modern public construction project, it is not
uncommon for a 30-day work stoppage to occur when the project is
far from complete. Requiring a continuous cessation of labor
for 60 days or more would reflect the realities of modern public
work projects. A 60-day requirement would also coincide with
the period of cessation of labor deemed to constitute completion
of a private work of improvement, thereby standardizing this
requirement for both private and public works of improvement.
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This bill would allow an owner or public entity 15 days after
completion of a work of improvement to record a notice of
completion. On more complex projects, 10 days may not be a
sufficient time to allow for an accurate determination of
whether completion has occurred. Further, while the extra few
days could make a significant difference to an owner or public
entity, it would not significantly adversely affect a claimant,
as the claimant's time to pursue a remedy would continue to run
from the date of recordation of the notice of completion.
Waiver and Release of Claims. This bill would recast the
statutory forms relating to waivers and releases of claims for
clarity, and would make certain procedural requirements
applicable to subcontractors and construction lenders. Current
statutory forms and procedural requirements already apply to
owners and general contractors. The CLRC states that there does
not appear to be any sound public policy reason why this
protection of claimants intended by the Legislature should only
apply to a subgroup of entities on a construction project that
regularly seek waiver and release forms from claimants.
Release of Lien. This bill would add procedural rules relating
to the release of a recorded lien claim that has not been timely
prosecuted in a summary proceeding, and would allow for an award
of reasonable attorney's fees to the prevailing party.
The inclusion in the statute of basic procedural guidelines for
these proceedings would assist litigants by reducing ad hoc or
inconsistent rulings on procedural issues by different trial
courts. The CLRC and author also believe that it makes sense to
allow the court to award reasonable attorney's fees.
This bill would reduce the required amount of a bond that can be
posted to release a recorded lien claim, from 150% of the amount
of the lien claim to 125%. This change would reconcile the
required amount of a lien release claim with the required amount
of a stop notice release claim, and would appear to provide
sufficient security for lien claimants while making release
bonds more affordable to owners that need to rely on a release
bond to obtain an unencumbered title.
Stop Notices; Payment Bonds; Fees. This bill would increase a
specified $2.00 notice from public entity fee to $10.00, and
would require the public entity to provide notice of each
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specified event that triggers commencement of the time period in
which a claimant must file suit to enforce a stop notice. The
$2.00 fee was established in 1969, and represents approximately
$10.00 of buying power today. The revised notice would reduce
confusion as to deadlines on the part of occasional or
unrepresented claimants that do not have substantial familiarity
with the mechanics lien law.
This bill would also allow any person to post a stop notice
release bond. The CLRC and the author assert that it would be
unreasonable to preclude any person that seeks to release funds
withheld pursuant to a stop notice from posting an appropriate
bond to do so.
This bill would require a stop notice release bond and a
statutory payment bond to be issued by an admitted surety
insurer. This requirement would provide the bond recipient with
greater assurance of the solvency of the surety.
This bill would make an expedited (stop work notice) proceeding
available, in addition to the general contractor, to the owner
involved in the dispute. The CLRC and author do not believe
there is any policy reason not to provide an owner aggrieved by
a work stoppage the same procedural right to an expedited
resolution of the dispute that is available to the contractor in
the dispute.
Clarifying Ambiguities Related to Bonds; Limitation Periods.
This bill would clarify that a private work payment bond must be
recorded prior to commencement in order to provide an owner with
statutory protection against lien claims that exceed the price
of the work of improvement. Pre-commencement recordation would
allow all contributors to a work of improvement to learn prior
to contributing work, whether a constitutional lien right
attributable to the work may be restricted or precluded by
statute.
This bill would clarify that persons contributing to a public
work of improvement pursuant to a supplemental contract may make
a claim against the payment bond provided by the general
contractor at the outset of the project. To the best of CLRC's
and the author's knowledge there is not any legislative history
suggesting an intent to preclude claimants providing work on
supplemental public work contracts from a payment bond remedy.
Such preclusion would severely limit the remedies available to
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such claimants for unpaid work, since lien claims are not
allowed on a public work. (See Civ. Code Sec. 3109.)
This bill would make the limitation period for an action against
the principal on a private or public work payment bond the same
as that against a surety on that bond. The principal on a bond
typically provides for joint and several liability of the
principal as to any claim made against the bond. Conforming the
applicable limitation period for bringing such an action against
either named defendant would facilitate the joint and several
liability, and would standardize this procedural requirement.
This bill would clarify that persons contributing work to a
second tier or lower subcontractor on a work of improvement
would be permitted to make a claim against the general
contractor's payment bond. Neither the CLRC nor the author have
uncovered any legislative history suggesting an intent to
preclude claimants that provide work to subcontractors below the
first tier from a payment bond. To the contrary, policy
considerations suggest an intent to allow such claims, as an
alternative lien claim is not available on a public work, and
may be restricted on a private work. (See Civ. Code Sec. 3235.)
This ambiguity was analyzed by the court in Union Asphalt v.
Planet Ins. (1994) 27 Cal.Rptr. 2d 371, which reached the same
conclusion.
Labor Issues. This bill would expand the provision that
requires a contractor who fails to timely pay wages to provide
notice of nonpayment to not only the laborer, the laborer's
bargaining representative, the construction lender, but also to
the project owner. Such notice would provide advance warning to
the owner that a lien claim from the unpaid laborer may be
forthcoming.
Notification of Contract Change of Five Percent or More. This
notification in existing law does not indicate when the
notification must be made, the manner of notification, or the
consequences of failure to notify. Thus, the provision does not
appear to have any practical utility, is often ignored in the
industry, and appears more confusing than helpful. For those
reasons the provision would be deleted in the bill.
Licensed Landscape Architects. This bill would add licensed
landscape architects to the current list of design professionals
(licensed architects, engineers, and surveyors) who may claim a
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design professionals lien. All four types of professionals are
licensed under the Business and Professions Code, and are the
only types of licensed design professionals that frequently
provide pre-commencement work on a work of improvement, often in
conjunction with each other. Thus, it makes sense to afford the
same lien rights to all four categories of design professionals.
REGISTERED SUPPORT / OPPOSITION :
Support
American Society of Landscape Architects, California Council
Opposition (as amended)
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334