LEGISLATIVE ADVOCACY

MECHANIC’S LIEN FORM TO CHANGE EFFECTIVE JANUARY 2011                   By Bruce D. Rudman, Abdulaziz, Grossbart & Rudman

On behalf of various subcontractor associations and groups, the Law Offices of Abdulaziz, Grossbart & Rudman have been participating in the law-making process, both before the Legislature and the California Law Revision Commission, concerning certain overhauls of the mechanic’s liens laws. While the California Law Revision Commission had been working on a global change to all of the mechanic’s lien, stop notice, and payment bond statutes, there have been some interim changes that have been enacted into law.

In particular, the Governor recently signed AB 457, which makes some changes to the mechanic’s lien form itself, including the requirements on the lien, and now requires the recording of a separate document known as a “ lis pendens” which simply means “notice of pending litigation” following the filing of a lawsuit. Most importantly, the claimant will also need to serve a copy of the lien on the owner at the same time it is sent to be recorded so that the owner can take action if necessary to free their property from the lien.

As an overview, the mechanic’s lien requirements for decades have simply been a signed and verified statement of the claimants demands, after deducting all payments and credits from the amount of work that has been performed, and includes: the name of the owner; a statement of the kind of labor, services,
equipment or materials furnished by the claimant; the name of the person who employed the claimant or to whom the labor, services and equipment were provided; and a sufficient description of the property location.

As of January 1, 2011, a mechanic’s lien will also be required to include a proof of service affidavit showing that the mechanic’s lien has been mailed by certified mail, return receipt requested, to: (1) the owner’s residence or place of business, or (2) at the address shown on the building permit on file with the building department, or (3) at any other address allowed under the preliminary notice statute. If the owner cannot be served in that manner, then the notice of lien can be served by certified mail to the construction lender or to the prime contractor. If the lien is not served as required, the lien will be unenforceable as a matter of law.

Another important change is that the lien now also must have a notice of mechanic’s lien that reads as follows:

“NOTICE OF MECHANIC’S LIEN ATTENTION!

Upon the recording of the enclosed MECHANIC’S LIEN with the county recorder’s office of the county where the property is located, your property is subject to the filing of a legal action seeking a court ordered foreclosure sale of the real property on which the lien has been recorded. That legal action must be filed with the court no later than 90 days after the date the mechanic’s lien is recorded. The party identified in the mechanic’s lien may have provided labor or materials for improvements to your property and may not have been paid for these items. You are receiving this notice because it is a required step in filing a mechanic’s lien foreclosure action against your property. The foreclosure action will seek a sale of your property in order to pay for unpaid labor, materials, or improvements provided to your property. This may affect your ability to borrow against, refinance, or sell the property until the mechanic’s lien is released.

BECAUSE THE LIEN AFFECTS YOUR PROPERTY, YOU MAY WISH TO SPEAK WITH YOUR CONTRACTOR IMMEDIATELY, OR CONTACT AN ATTORNEY, OR FOR MORE INFORMATION ON MECHANIC’S LIENS GO TO THE CONTRACTORS’ STATE LICENSE BOARDWEB SITE AT www.cslb.ca.gov.”

The other significant change occurs after a lawsuit on the mechanic’s lien is filed in the Superior Court. After the filing of the lawsuit to foreclose on the lien, the Plaintiff must record a notice of pendency of the proceedings (known as a lis pendens) on or before 20 days after the filing of the of the mechanic’s lien foreclosure action. The statute goes on to provide that only from the time of recording a lien pendens shall a purchaser or encumbrancer of the property (typically the lender) be deemed to have notice of the lawsuit.

While this Amendment is not as harsh of prior versions of the Legislation (which could deem the entire mechanic’s lien action to be void), it does appear that a subsequent title insurer, lender, or bona fide purchaser, would not be subject to the mechanic’s lien if the notice of lis pendens is not recorded. That means if the owner does anything with their property (borrow against it or transfers it) while the lien is pending, the failure to record the lis pendens could be fatal to your right to collect.

As always, consult with a lawyer if you have any concerns. Again, these changes do not take place until January 1, 2011.

Abdulaziz, Grossbart & Rudman emphasize all aspects of construction law. Their “California Construction Law” book is published and updated annually. They represent numerous construction trade associations and contractors. Abdulaziz, Grossbart & Rudman appears at Contractors State License Board meetings and has argued a number of cases before the appellate courts, including the California Supreme Court dealing with the "Pay-If-Paid Clause." Abdulaziz, Grossbart & Rudman provides this information as a service to its friends & clients. The documents are of a general nature and are intended to highlight areas of the subject matter and should not be used as a substitute for specific legal advice. You should seek the aid and advice of a competent attorney and/or accountant instead of relying on the presentation and/or documents. Bruce D. Rudman can be reached at Abdulaziz, Grossbart & Rudman, P.O. Box 15458, North Hollywood, CA 91615-5458; (818) 760-2000, Facsimile (818) 760-3908; or by E-Mail at bdr@agrlaw.net . On the Internet, visit our Website at www.agrlaw.net

Letter Writers Make the Difference on SB 629!

The companies listed below wrote letters when they received our Legislative Alerts asking for support of the 5% Retention Cap. Their participation helped push the bill through the
Senate Judiciary Committee and off the Senate Floor. Many of them wrote the letter on company letterhead and also had their employees write letters on personal stationery. This
is the kind of action we need to succeed!

ASAC Retention Reform - Organization Name

SUPPORT OF ASAC BILL AB 1119 (Emmerson), as introduced

Current Law Provides:

Timely payments to general contractors by project owners, and payments to subcontractors thereunder are required in several code books. These provisions are not only inconsistent but lead to confusion, misapplication, missed deadlines, and delays in both payments and recourse.

AB 1119 is sponsored by American Subcontractors Association of California and would:

Apply the prompt pay provisions in code to contracts entered into on or after January 1, 2010;
Makes consistent the due date deadline to 7 days for all projects.
Simply recasts the provisions governing the timely payment of progress payments, retention proceeds, and final payments under a contract for a public or private work of improvement.
Subjects a licensed contractor under the Contractors' State License Law to disciplinary action by the Contractors' State License Board for a violation of these provisions.
Requires all owners, including a public utility or a state agency, to release retention proceeds withheld from any payment within a 45-day period, and, upon receipt of all or any portion of the retention proceeds or final payment, or any progress payment, would also require an original contractor or subcontractor to pay his or her subcontractors within a 7-day period.
Makes the existing 2% penalty for non-payment applicable to all owners of private and public works of improvement.
Provides that the prevailing party in any action for the collection of funds wrongfully withheld is entitled to attorney's fees and costs.
Reasons to SUPPORT:
1. The bill addresses inconsistencies in various codes regarding “prompt payment”.
2. It shortens the prompt payment deadline to 7 days in private works whereas 7days is already the requirement in public works. (Again, consistency.)
3. It clarifies that the enforcement mechanism is available under the Business &Professions Code through the State Contractors License Board.
4. It eases the considerable cash flow problem being experienced in this economic crisis. Cash is king in construction projects and needs to flow quickly so supplies can be purchased, employees can be paid, and projects can stay on schedule.
5. There is NO State cost to the bill.

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SUPPORT OF ASAC BILL SB 629 (Liu), as introduced

Current Law Provides:
Payments to general contractors by project owners, and payments to subcontractors thereunder typically have 10% of the amount due withheld. This is “Retention” and it occurs even when work is complete and approved. It also exceeds the profit margins in today’s economy and prevents contractors from paying employees, contributing to benefit programs, buying supplies and tools, and causes construction firms to close down.

SB 629 is sponsored by American Subcontractors Association of California and would:

Apply to contracts entered into on or after January 1, 2010;
Prohibit retention proceeds withheld from any payment made by the owner to the original contractor from exceeding 5% of the amount of the payment otherwise due under the contract;
Prohibit the percentage of the retention proceeds withheld from any payment made by the original contractor to any subcontractor, or by a subcontractor to another subcontractor, from exceeding 5% of the amount of the payment otherwise due under the contract, or the percentage of each payment that may be withheld under the contract between the owner and the original contractor, whichever is less;
Require that any retention proceeds withheld pursuant to these provisions be deposited in an interest-bearing escrow account and would provide for payment of that interest, upon release of the retention proceeds, to the contractor or subcontractor to whom the proceeds were released; and
Require that, with respect to a contract between an original contractor and a subcontractor, or between two subcontractors, any retention proceeds withheld, together with accrued interest, be released within 45 days after the date that all line items listed separately in any schedule of values that forms a part of the applicable contract were completed, or the date that the original contractor or subcontractor, as applicable, accepted the work for those line items.
Reasons to SUPPORT:
1.Right now, cash flow is the most important element in construction. Yet, on most projects, 10% of money that is due for work properly performed by subcontractors and approved is withheld until the entire project is completed. This means that a subcontractor’s entire profit margin is absorbed in the retention. Trades working on the job may go years before receiving their final payment.
2.Without full payment, subcontractors cannot pay employees, contribute to their benefit programs, or buy adequate supplies and tools. The ability to seek or begin new projects can be delayed as a result.
3.Retainage increases bid prices, because contractors have to account for loss of use and financing costs of retained funds.
4.Retainage is not necessary, because performance bonds and the right to withhold payment protect against incomplete or defective work.
5.Since 1983, the Federal Government’s Fair Acquisition Regulations have allowed zero retention on projects it funds, unless poor performance is documented.
6. Last session the Legislature responded to this dilemma for public works projects by passing Senator Bob Margett’s SB 593 to prohibit the Department of Transportation from retaining any payments (0%) to subcontractors once their work has been satisfactorily completed. SB 629 parallels this policy by limiting retention in the private sector to 5%.
7.Numerous other states prohibit or limit retainage practices.
8.The logic to this approach is inescapable and is critical to our economic recovery. Full payment for full performance is fair and responsive to the cash crisis. Full payment will keep companies in business, stimulate construction, and keep projects on schedule.

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ASAC Government Relations Committee Supported the Passage of AB 2738.  Approved by Governor Schwarzenegger September 27, 2008, Effective January 1, 2009, brought NEW RULES FOR WRAP INSURANCE PROGRAMS

Article by Daniel McLennon, ASA California Government Relations Chair,
415/394-6688 New Civil Code section 2782.9 ANY Residential Construction Contract Entered after 1.1.09

New Civil Code section 2782.9
ANY Residential Construction Contract Entered after 1.1.09

• Applies to wrap insurance programs involving residential works of improvement (not just new construction or construction of units for sale) for CONTRACTS ENTERED after 1.1.09. NOT clear if this includes apartments—arguably it does

• Clauses requiring indemnity from one enrolled party to another are unenforceable:

• If arise out of the project, and

• If covered by the wrap,

• Not clear if bar applies whether or not coverage is actually provided—arguably it does

• Equitable indemnity claims are still permitted unless there is coverage for the claim under the wrap—NOT clear whether equitable indemnity is allowed if coverage is not actually provided—arguably it is

• Builder or general may require subcontractor to contribute to SIR or deductible if:

• If maximum amount and calculation method is disclosed in the parties’ contract,

• If contribution amount is proportionately allocated to subcontractor’s scope of work relative to total claims,

• Demand for contribution is set forth amount and basis for the contribution, and

• Total amount of contributions does not exceed amount of obligation actually incurred by builder or general contractor,

• Builder or contractor may include in contract for recovery of costs and fees incurred in pursuing contribution

• Builder or general contractor may not require subcontractor to waive any of these provisions

New Civil Code section 2782.96
Public and Commercial Construction Put Out For Bid after 1.1.09

• Applies to wrap insurance programs in projects PUT OUT FOR BID after 1.1.09 involving construction work

• Done under contract and paid for in whole or in part out of public funds, and

• Any other project not including “original construction intended to be sold as an individual dwelling unit". Including:

commercial projects     condominium conversions      apartment buildings      residential remodels

• Owner, builder or general must disclose in the bid documents total amount or method of calculation of any credit or compensation for premium enrolled parties must contribute

• Named insured must disclose in the contract documents to the extent known:

• The policy limits,

• Known exclusions, and

• The length of time the policy is intended to stay in effect

• Upon written request, named insured must provide copy of policy to all covered by the policy when available

• Until the policy is available, the named insured may satisfy disclosure requirements by providing to covered persons a copy of the insurance binder or declarations page

• Parties receiving the binder or declarations page may not share with anyone other than broker or attorney unless required by law

• Disclosure requirements apply to base policy and to additional coverage's if sponsor requires premium contribution from enrolled parties

• This section does NOT affect ability to require indemnity from one enrolled party to another (section 2782.9 does not apply), provide that it may not be waived, or state penalties for failure to comply

New Civil Code section 2782.95
PRIVATE Residential Construction First Commencing after 1.1.09

Applies to wrap insurance programs involving “original construction intended to be sold as an individual dwelling unit" when CONSTRUCTION STARTS after 1.1.09. Not included: condominium conversions; apartment buildings; residential remodels.

• Does NOT affect ability to require indemnity from one enrolled party to another (but prohibition in AB 2738.9 applies)

• Owner, builder or general must disclose in the contract documents total amount or method of calculation of any credit or compensation for premium enrolled parties must contribute

• Subcontractor not bound by bid if information not provided before bid, unless subcontractor is allowed to adjust bid to reflect required premium contribution

• Owner, builder or general must disclose in the contract documents if and to the extent known:

• The policy limits,

• The scope of policy coverage,

• The policy term,

• The trigger for deductible or occurrence under the policy,

• The total number of units stated in the policy application, if the policy covers more than one project (“rolling” wraps), and

• A good faith estimate of available limits as of a date stated in the disclosure

• The disclosure of the number of units is presumed to be in good faith if it reflects the number of units stated in the policy application

• The disclosure of available limits is presumed to be in good faith if it was obtained from the wrap‐up insurer or broker

• The presumption of good faith may be overcome only by proof of intentional misrepresentation

• This section does not provide that it may not be waived, and no penalties are stated for failure to comply
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New Rules for Construction Defect Indemnity Clauses
By Daniel McLennon, ASA California Government Relations Chair

AB 2738, Effective 1.1.09-- Indemnity and Defense – New Residential Construction For Sale

This law applies to construction of “original construction intended to be sold as an individual dwelling unit". Not included: condominium conversions; apartment buildings; residential remodels.
Construction contracts May Not :

• Require subcontractor to indemnify owner, builder, or general contractor for negligence of or design provided by owner, builder, or general contractor (or persons for whom they are responsible)

• Require subcontractor to pay defense costs of owner, builder, or general contractor related to defense of negligence of or design provided by owner, builder, or general contractor (or persons for whom they are responsible)

• Require indemnity or defense from subcontractor for claims arising out of work outside of subcontractor's scope of work

• Require subcontractor to reimburse defense costs of owner, builder, or general contractor without prior tender by owner, builder, or general contractor

• Require subcontractor to pay indemnity or defense shares owed by but not collectible from another subcontractor

• Restrict rights of equitable indemnity by owner, developer, contractor, or subcontractor against each other or against supplier, design professional, or product manufacturer

• Change the requirements of the “Fix it Bill”—SB 800

Construction contracts Must :

• Allow, after tender by owner, developer, or general contractor providing specified information,

  • subcontractor to defend, using counsel of its choice,

  • OR by paying percentage share of defense costs, monthly, incurred by owner, developer, or general contractor in their own defense, to the extent caused by fault of subcontractor, subject to reallocation at the conclusion of the matter

• Allocate to owner, developer, or general contractor shares of damages and defense costs to the extent claims are alleged to be caused by its own work

• Allocate to all subcontractors shares of damages and defense costs to the extent claims are alleged to be caused by the subcontractor's work, whether or not the subcontractor is participating in the defense

Construction contracts May :

• Require the defense provided by subcontractor to include vicarious liability incurred by owner, developer, or general contractor, for the acts of subcontractor

• Provide for procedures for recovery of defense costs and damages to owner, developer, or general contractor for subcontractor's failure to provide defense

• Insert clauses not prohibited by the statute, such as requiring subcontractor to name general contractor as additional insured on subcontractor's general liability policy
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ASA-PAC Prior Approvals – A Necessary Part of the Program

Note: This article about ASA-PAC refers to the ASA National PAC. ASA California has a separate Political Action Committee and does its own solicitations, (including the $50.00 voluntary line item on your membership invoice), under different rules.

The rules governing political action committees are extremely complicated. Who can be asked for contributions? Who can give? How much can one give? Add the differences between federal and state rules, and one’s head begins to spin. But there is one simple thing that can be done to help further ASA’s national political efforts — fill out a prior approval form for the ASA-Political Action Committee (ASA-PAC).

Federal law requires ASA to obtain signed prior approvals from members prior to soliciting them for contributions to the ASA-PAC. The prior approval forms merely give the ASA-PAC permission to request a contribution; they do not obligate the signators to make contributions. If the signators then decide to donate, the ASA-PAC uses donated funds to make contributions to candidates for federal office. 

The Federal Election Commission has set a few simple rules to follow in collecting prior approval forms:

• A company may only give prior approval to one trade association PAC per year. A firm may alternate authorizations between trade associations, but may not allow solicitations from multiple trade associations in a given year. This does not preclude a firm from soliciting contributions for its own political action committee or a state-level political action committee.

• The individual signing the prior approval must have the authority to make such approvals on the company’s behalf (i.e., president, CEO, COO, etc.).

• Prior approval must be given each year, but can be given for up to four years in advance. This means that the company’s representative must sign the form four times in order to authorize ASA-PAC to solicit its employees for four years.

• Prior approvals expire on Dec. 31 of each year, so companies must sign new forms before that date in order to continue receiving solicitations from the ASA-PAC.

ASA-PAC’s current prior approval form is available in the ASAC Newsletter, as well as available in the “Government Advocacy” section of the Chapter Toolbox on the ASA Web site, as well as the ASA-PAC page. For more information, contact
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YOU COULD BE KEY TO ASA LEGISLATIVE SUCCESS!!

Please fill in the "KEY CONTACT" INFORMATION FORM which can be found in the January 2009 Newsletter.
This sign-up sheet will ONLY be used to assist ASAC's Legislative Advocacy efforts. Our Key Contacts will be notified by our lobbyist when they are needed to visit their own State Senator or Assembly Member in their local offices, probably once or twice during the year. Key Contacts play a pivotal role, as constituents, in helping to influence the outcome of important legislation.
Please fax the completed form to (916) 791-3781 or email it to the ASAC as soon as you can.
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American Subcontractors Association California Inc. 
 P.O. Box 292867, Sacramento, CA. 95829-2867
Phone: 888-310-2722   Fax: 530-662-2865  Email