Legislative Changes Affecting The Construction Industry Effective July 2012

Law Talk

By Sam K. Abdulaziz
& Kenneth S. Grossbart
Abdulaziz, Grossbart & Rudman

As discussed in the last article we wrote on the subject, The California Law Revision Commission and the Legislature have worked for many years to revamp the Mechanic's Lien, Stop Notice and Payment Bond process. SB 189 became law in 2010, and SB 190 became law in 2011, which cleans up SB 189. They both go into effect July 1, 2012. The changes are not very substantive to the entire process, but there are many of them and they will all need to be complied with. This article is meant to be a very brief overview of the items that are changing July 1, 2012.

The biggest change is the statutory reference changes. The Civil Code sections that deal with Mechanic's Liens, Stop Notices and Payment Bonds have been completely renumbered. As an example, the information currently found Civil Code section 3081.1 will be found in the new Civil Code sections 8014 and 8300 after July 1, 2012.

Some of the common terms that the industry is used to dealing with have been redefined in the statutes. Effective July 1, 2012, "materialman" will be "material supplier"; "original contractor" will be "direct contractor"; "Stop Notice" will be "Stop Payment Notice". In addition, the definition of a contract has been broadened. If the contract is with the "direct contractor" it will be called a "direct contract". Lastly, the definition of a "design professional" will include a licensed landscape architect effective July 1, 2012.

The "Preliminary 20-Day Notice" will simply be referred to as a "Preliminary Notice". The private works Preliminary Notice will have new language for the Notice to Property Owner effective July 1, 2012. This language can be found in the new Civil Code section 8202 or on our website.

The waiver and lien releases have been completely re-written by the new legislation. The statute indicates that "the waiver and release shall be null, void, and unenforceable unless it is in substantially the following form:" and proceeds to have the suggested text for each waiver. We believe it is better to be safe rather than risk the waivers and releases being unenforceable and use the exact same language provided in the statutes. The Conditional Waiver and Release on Progress Payment, Conditional Waiver and Release on Final Payment; Unconditional Waiver and Release on Progress Payment and Unconditional Waiver and Release on Final Payment can be found in the new Civil Code section 8132, 8134, 8136 and 8138 or on our website.

Effective July 1, 2012, an owner, including a public entity, will have 15 days after the date of completion of a work of improvement in order to record a Notice of Completion. The owner currently has 10 days. Additionally, if the Notice of Completion contains an erroneous statement of the date of completion, it will not affect the effectiveness of the Notice if the true date of completion is 15 days or less before the date of recordation of the notice.

The new Civil Code section 8180 no longer recognizes acceptance by the owner as an event that constitutes completion in private works.

The Notice of Extension of Credit statute is currently not very clear as to who must execute the Notice of Extension of Credit. Effective July 1, 2012, there is some clarification and the new Civil Code section 8460 explicitly provides that both the contractor (the claimant of the Mechanic's Lien) and the owner must sign the Notice of Extension of Credit and have it notarized before recording. The statute also specifies the exact additional time granted to file the suit to foreclose. The Notice of Extension of Credit will also be able to be recorded after the expiration of the Mechanic's Lien if it is recorded before any purchaser or encumbrancer for value acquires rights.

There are slight changes to the language of the Mechanics Lien Warning that is required on Home Improvement Contracts as per Business and Professions Code section 7159 and there is now a different Mechanics Lien Warning for New Residential Contracts as per Business and Professions Code section 7164.

Also in Business and Professions Code section 7159, the spelling of "Down Payment" which is in the contract twice, has been changed to read as one word so it should now be "Downpayment".

There have also been slight changes to both the Three-Day Right to Cancel and the Seven-Day Right to Cancel language that are to be a part of the Home Improvement Contract as per Business and Professions Code section 7159. You can review the language in the statutes or visit our website.

With respect to public utilities, the "direct" contractor will be required to pay a subcontractor the amount allowed to the direct contractor on account of the work performed by the subcontractor to the extent of the subcontractor's interest in work within 21 calendar days of a progress payment from the public utility; this is changed from 15 working days.

A public entity shall give notice to a claimant that has given a Stop Payment Notice of the time within which an action to enforce payment of the claim stated in the Stop Payment Notice must be commenced if the claimant paid the public entity ten dollars ($10) at the time of giving the Stop Payment Notice.

As you can see, there are many things that SB 189 and SB 190 changes regarding Mechanic's Liens, Stop Notices, and Bonds, and this is just a very brief overview. For more information, please visit our website at www.agrlaw.com. We plan on having new information up by the New Year.

Lastly, the above changes are effective July 1, 2012. You still have some time, but there is no grace period on compliance, so make sure to get the forms and contracts that you may need beforehand.