What to Include and How to Properly Serve
Direct contractors, subcontractors, and suppliers in California have a variety of ways to recover payment on private and public construction projects, including the recording and foreclosure of a mechanic’s lien (on private work) and the service of a stop payment notice freezing payments until the claimant is paid and a claim against a payment bond posted to ensure payment to eligible claimants. However, a prerequisite to utilizing these remedies is the timely service of a 20-Day Preliminary Notice.
A 20-Day Preliminary Notice also serves the important function of placing the other parties, such as the owner, lender, and direct contractor, on notice that the subcontractor or supplier is contributing valuable services, labor, materials, and equipment to the project, and can assert these various remedies if not paid. This also gives the owner and lender an incentive to ensure that subcontractors and suppliers receive the payments to which they are entitled and provide proper releases in exchange.
Failure to Serve
Subcontractors are subject to discipline by the Contractors State License Board for failing to serve a 20-Day Preliminary Notice, but the most serious ramification of a failure to serve a 20-Day Preliminary Notice is the potential bar of some or all of a subcontractor’s or supplier’s mechanic’s lien, stop payment notice, and payment bond claims. To fully protect the right to payment for services, labor, materials, and equipment, the 20-Day Preliminary Notice must be given not later than 20 days after the claimant first furnishes work on the project. In other words, the notice only reaches 20 days back in time to protect a subcontractor’s or supplier’s work. If the notice is not timely served, the claimant may still pursue mechanic’s lien, stop payment notice or payment bond remedies, but their claims can only cover work performed starting in the period 20 days prior to the service of the Preliminary Notice.
The content of the 20-Day Preliminary Notice is dictated by statute, and must include all of the following information:
- A general description of the work provided or to be provided.
- An estimate of the total price of the work provided or to be provided.
- The names and addresses of the owner, direct contractor, and construction lender, if any, the claimant, and any other person to whom or for who, the work is provided.
- A description of the property site that is sufficient to identify the site.
- On private work the 20-Day Preliminary Notice must also include the Notice to property owner putting the owner on notice that a mechanic’s lien may be recorded.
(Cal. Civ. Code §§ 8102 and 8202.)
How to Serve
Both the content of the 20-Day Preliminary Notice and how it is served are important, and a defect in service can also render a 20-Day Preliminary Notice invalid. A 20-Day Preliminary Notice must be served by one of the following methods:
- Personal delivery.
- Leaving the notice and mailing a copy under Cal. Civ. Proc. Code section 415.20.
- Registered or certified mail, express mail, or by overnight delivery by an express service carrier at the recipient’s residence, place of business, or address on the recipient’s building permit, if applicable.
(Cal. Civ. Code §§ 8106, 8110.)
Strict compliance with these service requirements is required. For example, service by regular first-class mail will not comply with the statute, and if sent by the U.S. Postal Service registered, certified, or overnight express mail must be used. Regardless of which approved method of service is used, the sender must complete a Proof of Notice Affidavit swearing as to when, where, and how the notice was given, to whom it was given, among other things, and be retained along with proof of the payment of postage, or documentation such as a return receipt, delivery confirmation, signature confirmation or other proof of delivery.
Each of these steps is a prerequisite to the preservation of claims. The owner’s, lender’s or direct contractor’s actual notice that the subcontractor or supplier is working on the project, or even their acknowledgment of an improperly served 20-Day Preliminary Notice will not satisfy the statutory requirements. This rejection of actual notice, and the requirement for strict compliance with the means of service, means that email is not an acceptable method to provide notice even if it is convenient for everyone and provides actual notice.
A 20-Day Preliminary Notice is simple to prepare, but the consequences of failing to prepare and serve a 20-Day Preliminary Notice can be fatal to the ability of a direct contractor, subcontractor, or supplier to enforce their payment rights on California construction contracts. Contractors and suppliers should incorporate the issuance of 20-Day Preliminary Notices into their contract workflow to ensure they do not waive statutory remedies that exist to protect the right to payment for their contributions to a project.