What To Do If Your Construction Project Stops Or Is Suspended
By Larry Lubka
You may need to lien your project soon. Liens must be recorded upon completion. As a matter of California law “completion” also occurs after 60 days of no work on a project (known as a cessation of work) or after 30 days if there is a recorded notice of cessation. Civil Code §8180. If there is cessation, you have 90 days in which to record a lien. If there is a notice of cessation, subcontractors and vendors will then have 30 days in which to record a lien and general contractors have 60 days.
For all liens, you have 90 days in which to file a foreclosure action.
Similarly, if there is a termination for convenience or, arguably, an open-ended suspension of your work, this too is “completion”. In that event, you have 90 days in which to record a lien.
Finally, but less likely, an owner might file a notice of completion, which then has the same recordation deadlines as a notice of cessation.
Once a cessation has occurred, a project restart will be considered a new project, which will require a new preliminary notice.
Please keep in mind that a lien is not a panacea. A partially built project is only worth the highest bid at a lien foreclosure auction. Historically, a construction lender would likely bid at least the amount of its loan, but that is only if other bidders press the bid that high. In this market, only the lender may be interested and even that is not assured. Not only may the foreclosure bid be minimal, but everyone with a lien will have to share those funds, since they are all deemed to have started at the same time.
You should also consider use of a bonded stop notice. A bonded stop notice has the benefit of including an attorney fee provision on a commercial project. However, you will need a surety bond in the amount of 150% of the stop notice.
On a public contract a timely claim against the project payment bond claim is essential. If you are a lower tier subcontractor, check to see if the subcontractor also has a payment bond.
Please contact me if you would like to discuss your options.
Laurence P. Lubka
Lubka & White LLP
Tel: (626) 301-0700