By Daniel J. Kim
One of the tried-and-true tools used by California contractors to secure payment on construction projects is the mechanics lien. As conscientious contractors know, the timing of the recording of a mechanics lien is a critical component of successfully enforcing mechanics lien rights. The concern typically relates to recording a mechanics lien too late and, thus, losing lien rights. As a result, contractors often attempt to curb this risk by recording their mechanics lien as soon as they complete their work, often before any potential corrective or punch list work to come. This early bird approach, however, may have its limitations under a recent court of appeal decision that voided a mechanics lien as having been recorded too early.
In Precision Framing Systems Inc. v. Luzuriaga, decided September 3, 2019, the court of appeal affirmed a trial court’s ruling that under Civil Code Section 8414(a), if a mechanics lien is filed before the contractor has ceased all work, the filing is considered premature and the mechanics lien is void and unenforceable.
Precision Framing Systems, Inc. was a framing subcontractor on a project for the construction of a commercial building. It was responsible for the framing work, including the trusses. Precision never received full payment so they recorded a mechanics lien. Prior to Precision recording its lien, several corrective notices had been issued by the city relating to the trusses that remained outstanding at the time that Precision completed its remaining scope of work. And while there was a dispute as to who was responsible for the problems, approximately a month after Precision recorded its lien, Precision came back to the project and repaired the trusses.
In response to Precision’s lawsuit to foreclose on its mechanics lien, the owners argued that Precision filed its mechanics lien prematurely since, under Code of Civil Procedure § 8414, a claimant other than a direct contractor may record a mechanics lien only after claimant “ceases to provide work.” The owners claimed that since Precision’s lien was recorded prior to the repair work, the lien was recorded prior to Precision ceasing its work. Precision argued that at the time it recorded the mechanics lien, it did not know it had any work left to do. The trial court agreed with the owners and held that the lien was recorded prior to Precision ceasing its work and therefore the mechanics lien was void and unenforceable. The court of appeal affirmed.
The holding in Precision Framing must be interpreted with reference to its facts, which may have tipped the scales in favor of a finding that the mechanics lien was premature. First, Precision received notice that there were errors relating to its scope of work about two weeks prior to recording its lien. In addition, the owner informed Precision of its position that the lien was recorded prematurely during a meeting regarding the corrective work. Lastly, Precision ultimately agreed to and did perform the corrective work with ample time to properly re-record its mechanics lien upon completion, but chose not to do so. In affirming the trial court’s decision, the court of appeal stated that there was no legal authority suggesting that a claimant’s subjective belief as to whether it has ceased to provide work was relevant and that there was nothing in the mechanics lien law to prohibit Precision from recording its claim again after the corrective work was complete.
The decision in Precision Framing is a reminder of the importance of timing when pursuing rights under a mechanics liens. Whether the recording is too early or too late, the consequence will be the same; a waiver of lien rights. Contractors must be diligent about when to record their mechanics liens, especially when they are aware of remedial or significant punch list work that could be used as a basis to void a previously recorded mechanics lien.