BILL ANALYSIS Ó
SB 424
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Date of Hearing: June 14, 2011
ASSEMBLY COMMITTEE ON JUDICIARY
Mike Feuer, Chair
SB 424 (Rubio) - As Amended: April 26, 2011
PROPOSED CONSENT (As Proposed to be Amended)
SENATE VOTE : 38-0
SUBJECT : MECHANICS LIENS: DESIGN PROFESSIONALS
KEY ISSUE : SHOULD DESIGN PROFESSIONALS' LIENS BE CONVERTIBLE TO
MECHANICS' LIENS?
FISCAL EFFECT : As currently in print this bill is keyed
non-fiscal.
SYNOPSIS
This non-controversial bill would give design professionals
providing services for private works of improvement the ability
to convert a design professionals' lien into a mechanics' lien,
as specified.
SUMMARY : Modifies the relationship between design
professionals' and mechanics' liens on specified works of
improvement. Specifically, this bill :
1)Authorizes a design professional to convert a design
professionals' lien into a mechanics' lien if the design
professionals' lien otherwise expires, the lien remains
partially or fully unpaid, and the mechanics' lien is recorded
within 30 days of the expiration of the design professionals'
lien.
2)Requires the recorded mechanics' lien to specifically state
that it is a converted design professional lien and that it
shall be recorded and enforced in the same manner as a
mechanics' lien.
3)Provides that the recorded mechanics' lien shall be effective
as of the date of recordation of this mechanics' lien and
shall be given priority pursuant to the provisions of Civil
Code Section 8450.
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4)Exempts the converted design professionals' lien from the
preliminary notice required of a standard mechanics' lien.
EXISTING LAW authorizes design professionals to record design
professional liens against project owners prior to construction
of a private work of improvement, authorizes design
professionals to record mechanics' liens against a private work
of improvement after construction has begun, and requires a
preliminary notice to be served, as specified, prior to the
recording of a mechanics' lien. (Civil Code Sec. 8200 et seq.)
COMMENTS : 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 only available once construction begins on
the project. While mechanics' liens are not available on public
works of improvement, existing law provides claimants on public
works projects with other statutory remedies, including stop
notices and claims against payment bonds.
AB 1789 (Cortese, Ch. 1789, Stats. 1990) established the design
professionals' lien right. Prior to that legislation, design
professionals, who typically provide design, engineering, or
planning on a work of improvement, could assert only a
mechanics' lien against the project owner to collect monies
owed. Design professionals regularly provide services on works
of improvement prior to actual construction. The mechanics'
lien does not apply to services rendered prior to construction.
Accordingly, the design professionals' lien was created through
AB 1789 to allow design professionals to recover monies owed
prior to construction. This bill, sponsored by the American
Council of Engineering Companies of California, would provide
that a design professionals' lien could be converted into a
mechanics' lien, as specified.
Converting A Design Professionals' Lien Into A Mechanics' Lien.
This bill would authorize a design professional to convert a
recorded design professionals' lien into a mechanics' lien.
Existing law allows a design professional to record a lien prior
to construction on a work of improvement through a design
professionals' lien. (Civ. Code Sec. 8300.) Existing law also
allows a design professional to assert a lien after construction
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begins through a mechanics' lien. (Civ. Code Sec. 8400.) A
design professional can utilize either or both liens.
However, the sponsor of this bill, American Council of
Engineering Companies of California, argues that private project
owners have discovered a loophole between these two liens. If
the design professional provides services on a private work of
improvement but the owner fails to pay for services rendered by
the design professional, the design professional can assert a
design professionals' lien. This lien expires as soon as
construction begins on the project or 90 days after the lien is
recorded and the design professional has not begun an
enforcement action on the lien. If construction begins and the
design professional is still owed full or partial payment but
has not begun an enforcement action on the lien, then the design
professionals' lien expires and the owner has no obligation for
payment on this lien. The design professional's next tool to
collect payment is through recording a mechanics' lien.
Prior to recording a mechanics' lien, existing law requires a
preliminary notice to be served within 20 days of commencing
services on the work of improvement. (Civ. Code Sec. 8204(a).)
The design professional, because of the nature of his or her
work being performed prior to commencement of construction of
the work of improvement, is allowed to serve the preliminary
notice within 20 days of construction commencement. (Civ. Code
Sec. 8204(b).) The sponsor argues that, because the services
provided by design professionals are performed, in most
instances, prior to construction, the vast majority of design
professional contract claims are defeated by the timing
requirement of the preliminary notice for mechanics' liens.
After a project owner contracts for and receives design
services, it may be many months if not years after receiving
these services that construction commences on the project. By
this time, the design professionals' lien would have expired,
and the design professional would have to keep tight watch over
the construction project to make sure to record a mechanics'
lien within 20 days of commencement of construction.
This bill still would require design professionals to
proactively assert their rights to payment, but their rights
would not be lost due to the timing loophole.
Removal Of Preliminary Notice Requirement For Converted
Mechanics' Lien . This bill would allow a design professional to
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convert a properly recorded design professionals' lien into a
mechanics' lien without serving the 20-day preliminary notice
required for mechanics' liens. Existing law requires a notice
of demand to be served on the project owner ten days prior to
recording a design professionals' lien. (Civ. Code Sec.
8304(c).) Prior to recording a mechanics' lien, existing law
requires a preliminary notice to be served within 20 days of
commencing services on the work of improvement. (Civ. Code Sec.
8204(a).) The design professional, because of the nature of his
or her work being performed prior to commencement of
construction of the work of improvement, is allowed to serve the
preliminary notice within 20 days of construction commencement.
(Civ. Code Sec. 8204(b).) The sponsor argues that the
preliminary notice usually required for a mechanics' lien would
not be necessary because the project owner already would have
had notice of the claim through the design professionals' lien.
Converted Lien Generally Could Not Be Asserted Against A New
Owner. This bill would not permit a mechanics' lien to be
asserted against a new project owner with whom the design
professional did not contract.
Author's Technical Amendment. To clarify an ambiguity, the
author helpfully proposes to amend the bill to add a new
subdivision clarifying that this section does not apply when a
lien expires pursuant to Civil Code section 8306(b)(2).
REGISTERED SUPPORT / OPPOSITION :
Support
American Council of Engineering Companies of California
(sponsor)
California Land Surveyors Association
Opposition
None on file
Analysis Prepared by : Kevin G. Baker / JUD. / (916) 319-2334
SB 424
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