BILL ANALYSIS Ó SENATE JUDICIARY COMMITTEE Senator Noreen Evans, Chair 2011-2012 Regular Session SB 190 (Lowenthal) As Amended March 16, 2011 Hearing Date: March 29, 2011 Fiscal: No Urgency: No TW SUBJECT Mechanics Liens DESCRIPTION This bill, sponsored by the California Law Revision Commission (CLRC), would update several cross-references and make technical corrections to various new mechanics liens provisions enacted in last year's SB 189 (Lowenthal, Ch. 697, Stats. 2010), which overhauled the mechanics lien law. This bill, which also would clarify circumstances under which a mechanic's lien could be invalidated, would contain a delayed operative date of July 1, 2012, consistent with the provisions of SB 189. 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 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 (more) SB 190 (Lowenthal) Page 2 of ? 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." SB 189 overhauled the mechanics lien law and was 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.) 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 issued a tentative recommendation in December 2010 to provide for clean-up provisions to last year's SB 189. (See California Law Revision Commission Tentative Recommendation, Mechanics Lien Law: Clean-Up Legislation, December 2010.) Those recommended clean-up provisions would revise several cross references and correct minor technical errors. This bill would adopt the CLRC's tentative recommendations and would make technical corrections to last year's SB 189. This bill would clarify circumstances under which a mechanics lien claim could be invalidated. The provisions of this bill would become operative on July 1, 2012, consistent with the provisions of SB 189. CHANGES TO EXISTING LAW 1. Existing law regulates home improvement project contracts. (Bus. & Prof. Code Sec. 7150 et seq.) Existing law identifies projects for which a home improvement contract is required, outlines the contract requirements, and SB 190 (Lowenthal) Page 3 of ? lists the items that shall be included in the contracts. (Bus. & Prof. Code Sec. 7159.) Existing law provides that home improvement project contracts, as specified, must include a statement whereby the home improvement contractor will provide to the person contracting for home improvement after payment a full and unconditional release from any potential mechanics liens made pursuant to Civil Code Section 3110. (Bus. & Prof. Code Sec. 7159(c)(4).) Existing law provides regulations regarding home improvement projects between an owner or tenant and a contractor who is licensed or subject to licensing. (Bus. & Prof. Code Sec. 7159.5.) Existing law provides that a contractor who is licensed or subject to licensing and involved with a home improvement project is subject to discipline if the contractor fails upon request to furnish the paying party with a full and unconditional release from any potential mechanics lien pursuant to Civil Code Section 8410. (Bus. & Prof. Code Sec. 7159.5(a)(6).) Existing law regulates service and repair contracts between a homeowner or tenant and a contractor who is licensed or subject to licensing. (Bus. & Prof. Code Sec. 7159.14.) Existing law provides that a service or repair contractor that is licensed or subject to licensing who fails, upon request and payment by the buyer, to provide to the buyer a full and unconditional release from any potential mechanics lien authorized pursuant to Section 8410 is subject to disciplinary action. (Bus. & Prof. Code Sec. 7159.14(11).) Existing law regulates structural pest control operators. (Bus. & Prof. Code Sec. 8500 et seq.) Existing law provides that a company performing structural pest control services for which company registration is required must provide the owner of the premises for which services are being rendered with a full and unconditional release from any mechanics liens prior to payment by the owner. (Bus. & Prof. Code Sec. 8513(d).) Existing law regulates bond securities provided in connection with subdivision improvements. (Gov. Code Sec. 66499 et seq.) Existing law provides that the security provided by a subdivider to secure payments to contractors, subcontractors, laborers, and materials or equipment suppliers, after the SB 190 (Lowenthal) Page 4 of ? expiration of lien recordation and acceptance of the work, be reduced to an amount equal to the total claimed by all recorded and noticed lien claimants, and if no claims have been recorded, the security shall be released in full. (Gov. Code Sec. 66499.7.) This bill would correct the cross-references to the Civil Code to conform to the new mechanics lien provisions enacted under SB 189 and correct various technical errors. 2. Existing law regulates the conditions under which a mechanics lien may be enforced. (Civil Code Sec. 8410 et seq.) Existing law provides that erroneous information include in a lien claim relating to the claimant's demand, credits and offsets deducted, work provided, or description of the site does not invalidate a claim of lien unless: (1) the claim of lien was made with the intent to slander title or defraud; or (2) a bona fide owner came into possession of the property after recordation of the lien claim and the lien claim was so deficient that it failed to put the bona fide owner on notice of the lien claim. (Civil Code Sec. 8422.) This bill would clarify that slander of title is not a circumstance under which a lien claim can be invalidated, but any person who willfully includes in a lien claim labor, services, equipment, or materials not furnished for the property described in the claim will forfeit the lien. 3. Existing law , as enacted by SB 189, becomes operative on July 1, 2012. (Civil Code Section 8000 et seq.) This bill would also become operative on July 1, 2012. COMMENT 1. Stated need for the bill The author writes: This bill would make conforming revisions to two code sections to update cross-references to sections that were repealed by last year's enactment of SB 189, and would make similar non-substantive revisions to cross-references in three other code sections necessitated by the enactment of SB 189. The SB 190 (Lowenthal) Page 5 of ? bill would also make a minor revision to a recodified section of the mechanics lien statute enacted by SB 189, to make its intended meaning clearer. 2. Circumstances that would invalidate a mechanics lien This bill would clarify the circumstances under which a mechanics lien may be invalidated. Existing law, Civil Code Section 8422, invalidates a lien claim if the lien claim was made with intent to slander title. The CLRC Tentative Recommendation states the need for clarification of this provision as follows "Civil Code Section 8422 is intended to continue the substance of former Civil Code Sections 3118 and 3261. Section 8422 includes a reference to slander of title. That reference might cause confusion in this context. In order to avoid any misunderstanding, the Commission recommends that the reference be deleted and replaced with language drawn closely from former Civil Code Section 3118." (See California Law Revision Commission Tentative Recommendation, Mechanics Lien Law: Clean-Up Legislation, December 2010, p. 2.) Former Civil Code Section 3118 provides that "Ýa]ny person who shall willfully include in his claim of lien labor, services, equipment, or materials not furnished for the property described in such claim shall thereby forfeit his lien." This language, left out of last year's mechanics lien overhaul bill (SB 189), would be added to Civil Code Section 8422 to clarify another circumstance under which a mechanics lien would be invalidated. By adding this additional invalidating circumstance, this bill would conform the new mechanics lien law to the prior mechanics lien law. 3. Technical corrections to SB 189 This bill would make minor technical corrections to the provisions of SB 189. The CLRC Tentative Recommendation states that some of the technical corrections to cross-references contained in this bill were included in SB 189 but were inadvertently chaptered out by two other bills from last year. (See California Law Revision Commission Tentative Recommendation, Mechanics Lien Law: Clean-Up Legislation, December 2010, pgs. 1- 2.) SB 392 (Florez, Stats. 2010, Ch. 698) chaptered out the technical corrections to Business and Professions Code Section 7159. The technical corrections to Government Code 66499.7 were chaptered out by SB 1019 (Correa, Stats. 2010, Ch. 174). In addition to the technical SB 190 (Lowenthal) Page 6 of ? corrections chaptered out by SB 392 and SB 1019, the CLRC identified several other cross-reference and technical errors contained in SB 189. This bill would correct these minor technical errors. Support : American Society of Landscape Architects Opposition : None Known HISTORY Source : California Law Revision Commission Related Pending Legislation : None Known Prior Legislation : See Background and Comment 3. **************