by Larry Lubka, Esq.
In a case published yesterday, Shady Tree Farms vs. Omni Financial, the court held that only “the” general contractor is exempt from serving preliminary notices in order to preserve their lien, stop notice and bond rights. In that case, Shady Tree Farms was a seller of trees for landscaping. It had a direct contract with the owner on a construction project. All of the trees died. Shady Tree Farms sought to recover approximately $2,000,000 on its mechanic’s lien.
Shady Tree Farms argued that Civil Code §3097(a) and (b) exempted it, as a materialman, from having to give a 20-day preliminary notice. It also argued, that since it had a direct contract with the owner, it was exempt from the preliminary notice requirement.
The court interpreted Civil Code §3097(a) and (b) as in fact requiring that a materialman in Shady Tree’s position needed to serve a 20-day preliminary notice as a condition of asserting its lien claim. When it came to the issue of whether one in a direct contract with the owner was exempt, the court read the statutory language “the contractor” as referring to a single person or company, “i.e., the prime or general contractor for the project, not multiple contractors, i.e., the subcontractors or others with direct contracts with owner.” Finding that Shady Tree had no exemption from filing a preliminary notice, the court held that Shady Tree could not enforce its lien.
I understand that the Shady Tree case has already been appealed to the California Supreme Court and that court has agreed to hear the case. The current court holding flies in the face of decades of custom and practice in the industry. Nonetheless, readers are strongly cautioned that unless they are the one and only general contractor on a project (and that contractor has a direct contract with the owner), that they should always serve a 20-day preliminary notice as proved in the Civil Code. If you are a subcontractor or supplier, you might as well always serve a preliminary notice.
Stay in touch for the exciting Supreme Court conclusion to this issue.
Larry Lubka is a Shareholder with Hunt Ortmann, a leader in California construction law and Mechanic’s Lien issues. If you have any questions about this bulletin or the changes regarding the new Mechanic’s Lien Law, please contact him at firstname.lastname@example.org.