Construction Law deals with all legal issues relating to the construction process from land acquisition and project financing to post-construction claims settlement. These include such matters as building contracts, bonds and sureties, construction and builders' liens, tendering, and construction claims, which affect all participants in the construction industry, including lender financial institutions, architects, general contractors, subcontractors, suppliers, builders, owners, planners, designers, developers and engineers.

Construction law covers legal issues and disputes arising from building and improvements of all sizes and complexity from basic, residential work (private projects), to large, complex projects.

This section provides a brief overview of Construction Law issues commonly encountered by contractors, subcontractors, owners and suppliers of construction projects.  Please review the lists of Construction Law articles below.

Building or Remodeling? Check Out Your Contractor
Foundations: Something to Build Your House On
Homeowners Can Be Responsible for Injured Workers
In Contract Situations, Consult an Attorney
New Homes Come With Implied Warranties
Permission to Build?
Plan in Advance When Disputes May Exist
Retain Legal Counsel in the Event of a Dispute
What Are Liquidated Damages?
When a Problem Develops, Take Immediate Action
Mechanic's Lien Protection is Available
A Mechanic's Lien -- What's That?

 

Building or Remodeling? Check Out Your Contractor

Barry and Sandra Ehrlich hired a contractor to custom build their "dream-come-true house." Their home was to be built on the coast, and was to have clear ocean views. The Ehrlichs hire a contractor who promised to build them "a beautiful home," and after seven months of construction the Ehrlichs moved in.

Unfortunately, the home was poorly built. As a result, the house leaked badly when the rainy season started. Water leaked in almost every location, and nearly every window leaked. Walls became saturated, and the sheetrock in the garage became so wet that the plaster melted and fell from the ceiling. The living room filled with three inches of standing water. Three decks were at risk of collapsing and part of the concrete foundation began to crack. Erlich v. Menezes (1998) 60 Cal. App. 4th 1357.

The Erlichs filed a lawsuit against the contractor for the costs of repair and won. However, they filed the lawsuit seven months after moving in, but the lawsuit process required several years before it was complete.

Had the Erlichs known what kind of house they were to get, they would have undoubtedly used a different contractor. The Court's opinion doesn't say what steps the Erlichs took, if any, to check out their contractor before they hired him. However, in addition to getting references from previous customers, a number of steps can be taken to check out a contractor before signing a contract.

Contractors with poor construction practices may have been in trouble before you meet them. If you know the counties where the Contractor has worked, you can check the records at the County Courthouse. If he's been sued in that county before, the Court will have a record of the lawsuit.

Contractors receive their licenses from the California State Contractors License Board. This Board receives and investigates complaints about contractors. In appropriate cases, the Board may issue citations to contractors who violate the laws regulating contractors. Contractors may be cited for such things as abandoning a job, not paying subcontractors, poor workmanship or other contract violations. In severe cases, the board may suspend or revoke a contractor's license.

Complaints which the Board receives about specific contractors are not generally available to the public. However, information is available from the Board about any citations the Board has issued to a contractor, or any license suspension or revocation. The Board will also confirm whether or not a contractors' license is active or expired.

Several free publications are available from the Board. Two of the publications relating to contractors are "What You Should Know Before You Hire a Contractor" and "Home Improvement Contracts: Putting the Pieces Together." These publications can be ordered by calling the Board's toll free message line at (800) 321-2752. They can also be ordered directly from the Board at (510) 622-2744 or by writing to the Board at the following address: Contractors State License Board, 1515 Clay Street, Suite 1105, Oakland, California 94612.

Legal Footnote: After the Erlich case was decided, the California Supreme Court agreed to hear the case on further appeal. Until the Supreme Court finally determines this case, it cannot be used as precedent in other matters.

Robert B. Jacobs is a Real Estate, Construction and Business Law Attorney in Pleasanton, California. Note: Legal situations differ, and each one is unique. The foregoing information is not intended to be a complete or an exclusive treatment of the subject, and a legal professional should be consulted before deciding if or how the information above may apply to any specific situation.

[back to top]

 

Foundations: Something to Build Your House On

Most people know that buildings sit on foundations. The type of foundation used depends on the kind of construction and the age of the building. Some homes over a hundred years old in the Oakland Hills still rest on foundations built only of redwood lumber and crushed rock. But most modern construction uses concrete and reinforcing steel for foundation materials.

Concrete foundation systems presently used for single family homes in the Bay Area are generally one of two types: "Slab on Grade" or "Pier and Grade Beam."

In a "Slab on Grade" system, the "Slab" refers to a large poured section of concrete. The "Grade" refers to ground level. "Slab on Grade" means a large section of concrete poured directly on the ground. These systems have been developed by civil or geotechnical engineers to serve as a support for the house itself, and also to address the pressures caused by "expansive soils."

Not all soils are created equal. When some soils get wet, they have a tendency to swell up much like a sponge. When they swell, they move. If the ground is level, they move upwards. If the ground is sloped on a hill, they move upwards and sideways. When the soils get dry, they shrink back to their original size. Over a period of time, the soils can actually move downhill. This movement is called "Soil creep" or "slope creep." A lazy Sunday afternoon drive in the East Bay hills can reveal occurrences of "slope creep." Cattle fences that were once straight up can begin to move downhill over a period of years until they are almost lying on the ground. The soil near the top of the posts expands more than deeper soils, and moves downhill more quickly. This makes the posts begin to lie down.

When they expand, the soils can exert a significant amount of upward pressure. Pressures may equal several tons of pressure per square foot. Unless a concrete foundation is designed to withstand such pressure, it can easily buckle and crack.

A slab on grade system is often designed to be a "post-tension slab." The slab is made by running cables through the area where the concrete will be poured. After the concrete is poured, the cables are tightened. The cables are intended to hold the entire concrete slab together as a single unit. When pressure is placed on any part of the slab by expanding soils, the entire unit is designed to hold and move together. This is intended to keep the concrete slab, or foundation from breaking or separating.

The "Pier and Grade Beam" foundation system uses a different approach. Holes are drilled several feet into the soil around the perimeter of the house. They are filled with concrete and reinforcing steel, which creates a column of concrete below ground level. These concrete columns are called "piers." A large concrete beam, or "Grade Beam," is placed along the tops of the several piers. The house is built on the Grade Beam. The Grade Beam is several inches off the ground. When the soils expand, the soils are intended to rise around the piers and to not reach the grade beam. The piers are designed to remain in place with little or no movement. When the soils dry out and shrink, the piers are supposed to remain in place without moving.

When properly designed and constructed, these foundation systems can be effective and useful, and can have long productive lives. However, sometimes the systems are defectively built or designed. In those situations, foundation distress can occur. The concrete foundation can begin to break and crack over time. The house can begin to move, and significant cracks may begin to appear in sheetrock around windows and doors. The length and size of the cracks can increase over time. When homeowners become concerned about these cracks, they often contact a construction attorney or a geotechnical engineer, and further studies are performed to determine whether the foundation is performing appropriately. Sometimes cracking may not require remedial measures, but other times it can be a sign of foundation or drainage problems that need to be addressed.

Incidentally, people sometimes ask about the difference between cement and concrete. Every little boy or girl knows that the big trucks with the big round metal bins are called "cement trucks." Nobody ever calls them "concrete trucks." The difference is in the gravel. Cement is the liquid that holds the gravel together. Concrete is cement with added gravel.

[back to top]

 

Homeowners Can Be Liable For Injured Workers

As the new homeowner surveys the front yard, an old worn pickup with substantial body damage pulls up to the curb. The faded lettering on the side says "First Class Landscaping and Tree Service." The driver gets out and says to the homeowner "Hey there, you've got a big elm tree here that really needs to be trimmed. I'll have my crew take down those dead limbs, clear out the top, and make it look first rate. The going rate is $800, but I'll do it for $550." Does the homeowner have any cause for concern?

Yes. The homeowner may be able to call references to confirm whether the contractor does good work. But the homeowner also needs to ensure that the contractor is properly insured. If not, the homeowner might be liable for any employee injuries on the job.

A recent California court case underscored the need for proper insurance. Andreini v. Superior Court (1998) 60 Cal. App. 4th 1415. In that case, the homeowner hired a contractor to do touch-up painting on their home. The contractor had an employee. Even though the law required the contractor to carry worker's compensation insurance, he didn't have any.

The contractor's employee climbed onto the roof and began painting the chimney. While painting, the employee lost his balance, fell from the roof and was injured.

If the contractor had purchased worker's compensation insurance, that insurance would have paid the employee everything the employee was entitled to. The employee couldn't also sue the homeowner unless the homeowner had somehow caused the injury. In this situation, the homeowner did nothing to cause the injury. But because the contractor carried no worker's compensation insurance, the law allowed the employee to sue the homeowner so that the employee would have a source of money to pay for his injuries. The homeowner is liable to the employee along with the contractor because the homeowner could have made sure that the contractor had worker's compensation insurance.

This result may seem unfair to the homeowner. After all, most homeowners don't usually ask contractors whether they have workers' compensation insurance, and this homeowner probably had no idea whether or not the contractor was insured. However, the homeowner had the ability to control the situation by requiring proper insurance. In this situation, the homeowner has a valid claim against the contractor for anything the homeowner pays to the employee, but if the contractor has little or no money the homeowner may never recover any amounts paid.

The bottom line? Homeowners who hire contractors are at risk for injuries to the contractors' employees. Homeowners can reduce their risk by asking to see a certificate of insurance showing that the workers' compensation policy is currently in force. And what about the contractor who drops a limb on your neighbor's car? Or on your neighbor? Homeowners should also ask to see a certificate of insurance showing that the contractor has an appropriate liability policy in force with an appropriate level of coverage.

[back to top]

 

In Contract Situations, Consult an Attorney

I sometimes counsel with people in a legal dispute who advise me that they used a "standard contract" from a book they bought. Because they used a form contract from a published book, they expect the contract to be authoritative and adequate. If the contract is inadequate for their purposes, they sometimes seem surprised, and always disappointed, that the form contract they used has not served them well.

I have seen contracts for leases - or sales - of real property from published books that were ambiguous and vague. The problem with an ambiguous contract is that nobody is sure what it means. If you want to enforce an ambiguous contract, you may have a problem, because at trial, you'll be asking the judge to compel the other side to perform according to the contract. Problem is, if the contract isn't clear, then nobody's quite sure what the other side should do, or exactly what the other side agreed to. It may then be possible for the other side to "break" the contract, meaning that they may succeed in convincing the judge that they shouldn't be forced to do anything.

It's impossible to evaluate whether all of the contracts from all printed sources are adequate. Prepared contracts are available from bookstores, some stationary stores, and even off the internet. Because each contract must be separately evaluated, nobody can say whether prepared contracts are adequate or not. But I can say this much: some of the poorest contracts I have seen have come from prepared sources that people purchased and then used on their own.

Some prepared sources claim to follow California law. But others do not. The problem is that the California state Legislature regularly passes new laws. If a prepared contract does not consult California Law, then it is possible that portions of the contract may be void or unenforceable because they may violate California state Law. If a prepared contract does follow California law, then it is important to know whether the contract followed the legal updates. A contract prepared three years ago may include provisions that have been recently banned or prohibited.

In addition, many people have an inadequate understanding of the legal foundation of contract principles. Unless they have devoted themselves to a serious study of the law, they may change the contract, or use it in such a way that it has unintended consequences.

The best course of action? Enter contracts with care. And if it's a contract you are concerned about, give serious consideration to having it prepared or reviewed by competent counsel. The information in this article is not a complete treatment of the subject discussed and is not intended to be legal advice. Readers with a specific matter or question should consult an attorney.

[back to top]

 

New Homes Come With Implied Warranties

The purchase of a new home can be one of the most exciting experiences of a lifetime -- and one of the most expensive. Few people ever make any single investment larger than their home. But a home is a product, and just like any other product, sometimes a home isn't built properly.

Most people who buy new homes find that the builder is willing to offer an "express warranty." This is a warranty by the builder that the home was properly built. These express warranties often last for one year. During that time, many builders will repair most defects in the house without any charge to the homeowner.

But what about problems that surface after a year? Homeowners are certainly well advised to inform the builder of any problem areas before the year is expired. But some new homebuyers find that their builders are hesitant -- or unwilling -- to repair defects that aren't found for over a year. In those cases, does the buyer have any recourse?

In many cases, the answer is yes. In addition to the express one year warranty, most new homes come with an "implied warranty." When a builder sells a new home, a buyer can't rely on the past performance of the home to decide whether it was properly built. The buyer relies on the skill and the judgment of the builder. California courts have ruled that because the buyer must rely on the builder's skill and judgment, the home carries an "implied warranty" that it was properly built. If the home was defectively made, then the builder will most likely be liable for the cost of repairs.

No specific time is set by law for the expiration of these "implied warranties." However, it is clear that few if any claims can be brought more than 10 years after the home was completed, and many claims can be lost through delay in less than 10 years.

An implied warranty can be lost if the buyer knows of the defects but doesn't promptly inform the builder of the problems or require that repairs be made. The general rule is that delay can damage a homeowner's rights, or may cause them to be lost altogether. In one case, a buyer of real property knew that a ceiling was buckling, walls weren't straight, sliding glass doors were sticking, and excessive water remained on patios after rainfall. However, the buyer waited nearly four years before informing the builder of the problems and demanding repairs. Pollard v. Saxe & Yolles Development Co. (1974) 12 Cal. 3d 374. The California Supreme Court held that the buyer had waited too long to notify the builder, so the buyer's claim was denied.

Homeowners who know of problems with their new homes, or even potential problems, should take appropriate action immediately.

[back to top]

 

Permission to Build?

It's a safe bet that a close inspection of the pyramid tomb of Raamses II or King Tut won't turn up any permission slips in Egyptian hieroglyphics allowing the great pyramids to be built. No grading inspections. No framing inspections. No final inspection. Perhaps that's one of the perks of being an Egyptian pharaoh: No red tape from the building department.

For the rest of humanity, at least in this country, nothing gets done without a nod from city hall. And when it comes to building, the nod comes from the building department.

Many homeowners are not aware that a building permit must be obtained for repairs or improvements that may seem minor. Chances are good that a permit is required if an expected improvement affects the plumbing, electrical, framing, structural, heating, or air conditioning systems of a home. A building permit can even be required for something that appears to be as mundane as replacing a water heater or other appliance. One of the simplest ways to determine whether or not a permit is required for any specific repairs or improvement is to contact the building department prior to construction.

A major purpose of the permit process is to safeguard against improper construction practices that may make improvements unsafe or defective. Building inspectors typically review construction in progress to determine compliance with applicable building codes and procedures. If the construction does not comply with relevant codes, the construction may not pass inspection. The inspector may require the construction to be changed so that it satisfies the requirements of the building code.

Even though building departments charge fees for building permits and inspections, the services relating to a permit can be valuable even though they may seem routine. Several years ago I handled a case where a homeowner purchased a new water heater. He paid for installation, and the installer removed the old water heater and replaced it with a new one. The installer didn't change the location of the water heater. The original water heater was installed directly on the concrete garage floor, and the new one was also placed on the floor. After the home was built, the building codes changed so that water heaters were required to be raised several inches off the floor. The building codes recognized that gasoline or other explosive fumes can accumulate in garages. If the water heater is raised off the floor, then any fumes may be able to disperse through garage vents before they are ignited by the water heater. In this case, the new gas water heater had a pilot light. A can of gasoline was accidentally knocked over on to the floor of the garage. Explosive gasoline fumes accumulated, and the pilot light ignited the fumes. The vapors burned quickly and caused a fire that leveled the house. If the homeowner had called the building department before installing the water heater, he might have found that the new codes required the water heater to be placed on a stand so that the water heater is off the ground.

Obtaining the proper permits can help promote safe construction. Also, the proper permits can make it easier to sell a home. When a homeowner sells a home in California, he or she is required to disclose to the buyer whether any improvements have been made without necessary permits. If the proper permits have been obtained, then no negative disclosure about permits will need to be made.

[back to top]

 

When Disputes May Exist

An ounce of prevention can be worth a pound of cure - or even several pounds.

I occasionally counsel with clients who have sensed a legal problem was developing long before any lawsuits were filed. These clients may have sensed that the personalities involved would likely lead to litigation, or that at some point a negotiation has started having problems. Some of these clients have taken no preventive action and have hoped the problem would resolve itself without the need for attorneys to get involved. And some of these matters have eventually resolved themselves, but others only seem to get resolved after litigation is filed and thousands of dollars of attorneys fees and costs are spent.

A simple legal motto goes like this: People look most closely at documents the second time they read them. The meaning is this: When contracts or deals are being made, read, and signed, people are often anxious for the contract to be completed, and they may gloss over terms, conditions, disclosures and provisions. But when problems arise as they sometimes do, these same people look at their contracts and their documents a second time, but this time they are looking for assistance for their case. At this stage, the language in the contract or the document can be very important, because frequently the language in the written agreement will control the rights of the parties involved in any dispute. The bottom line? It's a good idea to have the most written protection possible in any contract situation. The problem? Many people who sign contracts have little or no legal expertise in contract law. This means that in order to get the best protection, the parties need to hire an attorney.

It's a difficult problem. Many contracts are drafted, signed, and executed without any kind of significant dispute. California real estate practices rely to a significant extent on this proposition, because California law does not require an attorney to be involved in a house transaction, whereas several other states require an attorney to be involved in such transactions. If the parties knew when a dispute would develop, they could hire attorneys to help them draft contracts for those situations, and could do the others themselves. In a situation where it appears likely a dispute may develop, parties are certainly well-advised to retain legal counsel. But what about situations where all of the parties appear to get along well, and no dispute appears likely?

In such situations, the parties must evaluate their degree of comfort with the risk of a potential dispute or lawsuit. If the parties are comfortable with the transaction, then they may decide to save the cost of retaining an attorney, and recognize that if a lawsuit develops, they will then hire an attorney. On the other hand, if the parties want to maximize their protection in the event of a dispute, they may decide to spend the money up front to have legal counsel review their documents or help them prepare revisions. Competent, thorough legal counsel can frequently make recommendations on contracts that can provide invaluable assistance in the event of a dispute. But there is no easy answer, because of the up-front costs involved. Each person must ultimately decide whether or not they will incur the costs to acquire the contractual protections that competent counsel can provide.

[back to top]

 

Retain Legal Counsel In the Event of a Dispute

At a party several years ago, someone asked me what it was like to be a lawyer. I responded "It's just like L.A. Law. People come into my office each day with the most astounding problems. We resolve everything in an hour, and we handle eight matters a day.

"After the laughter died down, I explained that people who go to law school based on what they see on television or in theatres are likely to be sorely disappointed. In over 10 years of practice, I can count on the fingers of one hand the number of times I've seen a witness break down, or 'fess up, or produce the 'smoking gun,' and admit that he or she was either guilty or wrong. But Perry Mason managed to do it every episode.

My clients are sometimes surprised, and always disappointed, when they learn that people in litigation don't always follow "truth, justice, and the American way." At trial or deposition, attorneys are often civil to each other and to the opposing sides, and may even smile at each other. While litigation may sometimes appear to be civil, in many ways it is a hard-fought contest, with both sides struggling to win, often at a very high cost. Clients are sometimes surprised at the substantial costs involved. But building a case in many respects is like building a house and in significant cases even the costs can be similar.

Because such a conflict often consumes such a significant amount of time and resources, I generally counsel clients to prepare themselves as best they can prior to such an event. By the time a matter gets to litigation, the time for some of the preparations has passed. When clients are concerned about possible litigation, I advise them to have the best contracts they can. How do they have such contracts prepared? By competent counsel. People who aren't lawyers often look at lengthy contracts and think "that's just boilerplate" or it's "just a standard contract." There really is no such thing. At trial, the judge may decide significant portions of your case in your favor - or against you - based on that very contract that at one time appeared so mundane. The best protection? If you're signing a contract that you're concerned about, have it reviewed by competent counsel.

[back to top]

 

What Are Liquidated Damages?

It happens to every new home buyer. After finding the perfect house at the perfect price, the real estate broker walks in and lays down a contract. Seven pages of single spaced boilerplate in double-talk legalese from the seventeenth century.

"What'll it be? You have the option of selecting 'Liquidated Damages.' As the homebuyer, it's up to you. Do you want 'Liquidated Damages' in this contract, or not?"

The new homebuyer has never heard of 'Liquidated Damages' but it sounds ominous. The real estate broker isn't quite sure what it means, but since it's in the contract, the buyer goes ahead and chooses the 'Liquidated Damages' option. Has the buyer done the right thing?

"Liquidated Damages" can apply to any contract. Most printed real estate contracts contain a "Liquidated Damages" clause. If the buyer and seller agree, then the "Liquidated Damages" clause is included in the contract. So what are "Liquidated Damages?"

"Liquidated Damages" only apply if the buyer or seller breaks a contract. Any time a party to a contract breaks it without justification, the other party is entitled to recover any money they lost because the other party broke the contract. The amount of money they are entitled to is called "Damages." It literally means the amount of damage the party suffered, or the amount of money they lost, when the other party broke the contract.

Before a party can recover any "Damages," they must prove the amount of their damages, which is the amount of money they lost. Sometimes it's hard to prove the amount of money that's lost. If a buyer breaks a contract, how much has the seller lost?

What if the seller loses nothing because the property gets sold to another buyer for more money? The seller has lost nothing, and has no damage. What if a seller refuses to complete the sale? The buyer can buy another property. But how much money has the buyer lost in the first transaction? It's not always clear.

To get around these problems, the buyer and seller can agree to "Liquidate" any damages. This means that the buyer and seller agree up front on the amount of money either side will get if the contract is broken. By agreeing on the precise amount of damages, the parties "Liquidate" the damages, meaning that the amount of damages is certain.

Many printed real estate contracts contain a "Liquidated Damages" clause that limits the amount of "Liquidated Damages" to the amount of the down payment, up to a maximum of 3% of the price of the house. Sellers often don't understand that their buyer can walk away from the contract at any time and pay no more in "Liquidated Damages" than the down payment. If sellers understood this, they might ask for larger down payments.

There are no consistently right or wrong answers with "Liquidated Damages." The decision on whether to agree to "Liquidated Damages" is just one of the many items to be considered when a house is sold.

[back to top]

 

When a Problem Develops, Take Immediate Action

The parties have signed a contract, and now it's time for performance. One side begins to sense that important facts in the transaction may not have been disclosed before the contract was signed? What should both parties do?

A contract is an agreement between two or more persons where both sides agree to provide goods, services, or something of value to the other side. What happens when one side fails or refuses to perform? Or what happens when one side begins to feel that the contract was not fairly negotiated, such as a situation where defects in goods or services were not disclosed?

The parties, having entered a contract, now find themselves in a situation where performance is not what was expected. At this point, the party that doesn't receive full performance has a problem, and that party actually has two problems. The first problem is how to get the other side to perform, and the second problem is the potential cost of getting the other side to perform.

When contract disputes arise, many people have a natural tendency to try to informally resolve the problem with the other party. This approach can sometimes be successful, and if successful both parties can save attorneys fees in attempting to resolve the dispute. But what about situations where the other party absolutely refuses to perform, or where the party lacks the necessary resources to perform?

At this point, one or both of the parties frequently seek legal counsel. In some situations, an attorney is consulted early in the process, but in others an attorney is consulted after extensive efforts by the parties to informally resolve the dispute.

What should the parties consider in deciding whether to retain counsel? Cost is often an issue, and in very small matters an attorneys fee may not but justified. But when dealing with matters of any significance, in almost every situation people's rights are better preserved when they consult competent counsel. An attorney is trained to spot legal issues, legal rights, and to counsel clients on how best to preserve their rights. On a practical level, many attorneys deal with disputes, confrontation, and problems on a daily basis, and over a period of time they develop a sense of dispute resolution, and like a river guide, they can sometimes help clients know what to expect. They can often use their experience to help clients see what may be around the next bend. Because such attorneys are experienced in dispute resolution, they can sometimes provide invaluable assistance in helping clients decide which steps are necessary or best for resolving a particular dispute.

[back to top]

 

Mechanic's Lien Protection is Available

Q. What is a Mechanic's Lien?
A. If a homeowner hires a contractor, that contractor has a right to be paid for the work performed. If the homeowner doesn't pay the Contractor, the Contractor records a Mechanic's Lien in the public records at the County Recorder's office. The homeowner's home then has a "lien" against it.

Q. Is it possible to protect myself from Mechanic's Liens? If so, how?
A. Protection is available against potential Mechanic's Liens. Before a contractor or supplier can claim a lien on your property, they must notify you that they are doing work on your property. You always know who the general contractor is, because the general contractor signs the contract to do the work. Subcontractors and suppliers must send you a notice within 20 days of working on your property or they lose any right to a Mechanic's Lien. Such a notice is often referred to as a "20 day notice."

Q. What is a 20 day notice?
A. A 20 day notice is not a lien. The notice only means a subcontractor or supplier is working on your property. The notice advises you that the subcontractor is involved. If your contractor doesn't pay the subcontractor, then the subcontractor might claim a lien against your property.

Q. What should I do if I receive a 20 day notice?
A. There are two common ways to protect yourself. First, you can require your general contractor to provide you with releases signed by all of the subcontractors who have sent you a 20 day notice. These releases will release any claim for a mechanic's lien by the subcontractors up through the date of payment. The release is effective once the subcontractor is paid for the work he or she has done through that date. By getting the signed release, you will know that your general contractor is paying the subcontractors, and your risk of a Mechanic's Lien will be substantially reduced. Second, you can write joint checks. If you sense your general contractor is not paying subcontractors, or if you want to make sure the subcontractors get paid, you can make your checks jointly payable to the general contractor and to any subcontractors who have given you a 20 day notice.

Q. Can my general contractor claim a Mechanic's Lien against my Property?
A. Yes. If you want to protect yourself, then require your general contractor to provide you with a lien release when you pay him. The release should state that once your general contractor is paid, he or she releases any Mechanic's Lien claim on the amount of work done up to the time of payment.

Q. Must a lien release follow a specific format?
A. Yes. California law provides that a lien release must contain specific language. Proper forms of release may be available from the State Contractor's License Board, from a Construction Law Attorney, or at a Law Library.

[back to top]

 

A Mechanic's Lien -- What's That?

A mechanic's lien. Isn't that something done by a car shop? Not really. A Mechanic's Lien is used by a contractor, a subcontractor, or a company that supplies building materials. If a contractor isn't paid for work he's done on your home, California law allows him (or her) to place a "lien" against your property. The "lien" allows the contractor to sell your home at an auction. However, the contractor must first file a lawsuit, and win a judgment against you.

Following are some common questions about Mechanic's Liens.

Why are they called "Mechanic's Liens?"
"Mechanic" is an old fashioned word for contractor. It has nothing to do with a car mechanic. The term could just as well be "Contractor's Lien.

" What is a "Lien?"
A lien is a claim against property. A "Lien" means a person other than the legal owner has a claim to an interest in the property. A "Mechanic's Lien" can only be claimed on land, houses or buildings. What is a Mechanic's Lien? If a homeowner hires a contractor, that contractor has a right to be paid for the work performed. If the homeowner doesn't pay the Contractor, the Contractor records a Mechanic's Lien in the public records at the County Recorder's office. The homeowner's home then has a "lien" against it.

Can a lumber yard get a lien against my house?
Yes. The Contractor gets his (or her) materials from suppliers like lumber yards. These suppliers sell to the Contractor on credit. If the Contractor doesn't pay the supplier, then the supplier can record a lien against your home.

You mean I might have to pay for the same thing twice?
Yes. You might pay the contractor for the work performed, but if he doesn't pay his suppliers or subcontractors for the work they did, you might have to pay them again for the same work.

That doesn't seem fair.
Well, it isn't for the homeowner. But if the homeowner pays twice, he or she has a valid claim against the Contractor for a refund.

What if the Contractor can't refund my money?
Then the homeowner pays twice and gets no refund. However, the Contractor's State License Board may revoke or suspend the license of a contractor who doesn't pay his subcontractors. But even if the Contractor loses his license, the homeowner may still pay twice.

That still doesn't seem fair.
It isn't. The best thing you can do is to take steps to protect yourself. And there are steps you can take to protect yourself.

[back to top]