Know the Key: The Importance of the Preliminary Notice

What do you do if faced with a contractor or customer unwilling or unable to pay for labor or materials? When a contractor or supplier comes to me with this problem, the first question I always ask is, “Did you serve a Preliminary Notice?” I then ask, “When was the Preliminary Notice served?” The answers to these questions will often determine their ability to recover money owed.

The Preliminary Notice is the most powerful tool available for inducing payment of construction-related debt. Excuses such as “the customer has always paid me on time” or “it takes too much time to do this on every job” are dangerous.  There should be no excuses. Miss this step and you have lost your right to a mechanic’s lien. 

The rules regarding Preliminary Notices are found in California Civil Code sections 8000 through 8848 and 9000 through 9566. The Preliminary Notice is intended to inform a property owner, lender and/or project contractor or other interested party, that someone is working on the project that has a right to file and enforce a mechanic's lien or stop notice against the property. You must serve the Preliminary Notice within 20 days from first furnishing labor or materials. If you are late serving this notice, then your lien rights are limited and will not cover labor or materials furnished any time prior to the 20 days before service of the notice. To avoid this pitfall, get in the habit of sending out a Preliminary Notice right after the contract is signed. 

Along with serving the Preliminary Notice on time, you must complete it correctly and serve it to the appropriate parties. If you have a ‘direct contractual relationship’ with the owner, then you are a direct contractor and you do not need to serve the Preliminary Notice to the owner to protect your lien rights. However, if there is a construction lender on the project, direct contractors must serve the Preliminary Notice to the lender. Everyone else working on the project or supplying materials to the project should serve a Preliminary Notice to the owner, lender and contractor. The importance of getting the Preliminary Notice right is further highlighted in Graniterock CEO Tom Squeri’s article “Two New Important Preliminary Notice Court Cases Warrant Attention” found here:  http://www.graniterock.com/blogs/rock/2012/06/two-new-important-preliminary-notice-court-cases-warrant-attention/

If you make the Preliminary Notice part of your regular routine, you can rest assured that you are following the law and will benefit from an added level of protection in the event your customer or contractor has trouble paying. By following the law, contractors, subcontractors and suppliers can ensure that their customers’ financial problems don’t become their own.