A preliminary notice is a critical tool in the mechanics lien process. In California, as in many other states, the preliminary notice must be sent to preserve the option of filing an enforceable mechanics lien, if necessary.
Even though the 20 day notice is a legal tool, it has two positive roles to play: improving cash flow and professional relationships. When seen in this positive light, you should embrace the practice of using them when circumstances arise that call for this important, yet very handy, instrument.
When used appropriately, a preliminary notice also serves to add transparency to the entire project – a transparency that property owners, lenders, and general contractors rely upon. California has strict requirements regarding the content of the notice, but the deadline for serving it is straightforward.
What is a California Preliminary Notice?
If you provide labor or materials to a construction project, you may file a mechanics lien on that project for non-payment. However, California mandates that certain parties must send a preliminary notice prior to filing the lien. This must occur to ensure the right to file the mechanics lien, and it must meet certain form requirements (get a free California preliminary notice form here).
Simply put, the California preliminary notice notifies the property owner that you will follow through with filing a mechanics lien if payment is not made. Rather than being a bludgeon, the notice is designed to provide good-faith notification of a problem. This benefits the property owner, lender, general contractor and other stakeholders. They don’t want a lien, and they most likely are unaware of non-payment.
Why Send a Preliminary Notice?
Sending the notice preserves your right to file a mechanics lien on a project.
Failing to serve notice is essentially fatal to the mechanics lien in California, and the state mandates that suppliers, GCs, and subcontractors serve the notices to preserve the right to file a mechanics lien, asset a claim on a payment bond, or give stop notice.
Good Working Relationships
These legal tools have a positive side. They support good working relationships by ensuring that owners, GCs, and lenders remain fully aware of who is working on the project. This is particularly beneficial on large construction projects. When you file a mechanics lien on a project, the consequences can be severe, so that preliminary notice will receive prompt attention.
Some contractors who don’t have much experience with the 20 day notice may hesitate to utilize this practical tool. They worry that sending a legal demand may create ill will with the recipients. That is simply not true in situations with legitimate stakeholders. The 20 day notice is a common device to maintain positive, healthy working relationships especially on projects with many moving parts and people.
Look at the legal tool this way: they were created to protect property owners from a mechanics lien filed by an unknown party. Serving the notice keeps positive lines of communication open while giving the parties ample time to resolve potential problems.
The objective is to enable an efficient, timely payment process across the entire project to prevent trouble with mechanics liens or other major obstructions. Successful companies use these instruments wisely, and when this happens, the recipients benefit.
Using the Preliminary Notice to Improve Cash Flow
As noted above, you must send the preliminary notice in California to preserve your right to file a mechanics lien on a construction project. While this is important, most business operators prefer to keep the payments flowing smoothly to avoid the hassle and expense of the lien process.
You receive a significant benefit to using this legal device when necessary. You will typically receive payment faster than companies that avoid the preliminary notice or filing a lien. When you serve a 20 day notice, you are ensuring better visibility with the other party. You also show that you run an efficient operation.
The result? Improved cash flow and respect for your operation.
There is nothing unusual about filing 20 day notices, and most large organizations involve in construction invest considerable effort to track the filing or non-filing of preliminary notices to maintain awareness of who has protected lien rights or not.
In states that require a preliminary notice to preserve the right to file an enforceable mechanics lien, the parties who fail to send them become lower priorities for financial managers looking to optimize their cash management. If you don’t regularly use this instrument, you may find that payments for your bills are strung out just a little longer.
In construction, cash flow is always a challenge, so why risk a slowdown?
When to Send a 20 Day Preliminary Notice
In California, you must send the preliminary notice within 20 days of first providing materials and/or labor.
This is important to understand. If you send the notice later, such as 35 days after first providing materials or labor, the notice protects only the preceding 20 days. This first 15 days are not protected. Or, if you serve a 20 day notice on day 52, you cannot file a mechanics lien for materials or labor supplied on days 1 through 31. You will have protection from day 32 to the end of the project.
Well-run organizations automatically file these 20 day notices as soon as they receive the project information. In addition, the automatically file them on every construction project. The construction industry is known for cash flow slowdowns, so the preliminary notice must be sent early.
Can You Send a Preliminary Notice Early in California?
This is a worthy practice and possible in California. You can send a preliminary notice prior to providing the labor or materials.
Can You Send a Preliminary Notice Late in California
You can, although it is much better to be on time. As noted above, you will have the right to file a mechanics lien on the recent work done in the last 20 days, but not earlier. However, it is still preferable to have that protection rather than none at all. The only time it is too late to send notice is when the last work performed ended more than 20 days prior to the notice.
The best practice is to always send a California Preliminary Notice at the commencement of work.
How to Send a California 20 Day Notice
You can use certified or registered mail, express mail, or overnight mail by a quality service carrier. The key date is the send date, not the received date. So, typically you do not need a return receipt, but proof of mailing the item. Retaining that proof is crucial.
If the property owner is not within California and the noted methods above do not work, you can send the owner’s notice to the original contractor or construction lender via registered or certified mail. It is perfectly fine to use the most cost effective method to mail as long as you have proof or a tracking number.
The Declaration of Delivery is Required!
Literally, hundreds of thousands of 20 day notices get sent each year within California. Unfortunately, those that fill them out and mail them on their own frequently forget a very critical requirement: completing and signing a Declaration of Delivery. This is a straightforward document, but necessary. It is a statement that identifies the person who completed and served the notice, when it was sent, and how it was sent. If you choose to complete your own California preliminary notices, be sure to complete this document for each one.
What Exceptions Should You Know About to California’s Preliminary Notice Laws?
Generally, if you did not directly contract with the property owner on a construction project, you should serve a 20 day preliminary notice within that 20 days of first providing materials and/or labor to the construction project.
However, you need to be aware of one exception which is limited, but recognized in California courts. This takes meticulous care. A 1984 court case held that an owner with actual knowledge of involvement by a specific party in a construction project cannot challenge a lien by claiming not to have received notice.
This means that if you missed sending a notice, you may still have retained mechanics lien rights if the owners knew of your involvement in the project, knew you were working on the project, and had that knowledge within the required 20 days of commencing the labor or providing the materials. This is an exception. You may or may not be able to pursue a mechanics lien.
If that sounds a bit complex, it’s best to consult with an attorney if you think you fall into this category.
California has an economy so large it would be the 5th largest country in the world on its own. The state’s construction industry is massive as well, and the majority of successful construction companies use the California Preliminary Notice as a practical tool to preserve rights, improve cash flow, and build stronger professional relationships.
Securing your rights to a mechanics lien should be an automatic process. Legitimate stakeholders in construction projects do not find them threatening. Instead they view these instruments as documents that improve transparency and efficiency.