Not all churches have tenants, and those that do may not have tenants that desire to make some sort of capital improvement to the church property. However, this article is not limited to churches with tenants but rather all churches and preventing mechanic’s liens. At some point or another, all buildings require some sort of repair or maintenance. What comes to mind is a new roof, but this article also applies to any repairs commenced on the property from the roof all the way down to getting the toilet unclogged.
Mechanic’s Liens
When someone, namely a contractor, is hired to complete some project on real property, that contractor often hires others. This may include labor, delivery drivers, materials, or equipment necessary to complete the project. If the property owner does not pay that contractor, or that contractor fails to pay anyone who provides those materials, equipment, or labor, a mechanic’s lien can be recorded against the property, creating a cloud on title that limits your ability to borrow against or sell it.
Mechanic’s liens take priority over other liens (excluding certain governmental liens), mortgages, deeds of trust, or other encumbrances that attached after the time when the building, improvement, or structure was commenced, work was done, or materials were furnished to the job site; also over any lien, mortgage, deed of trust, or other encumbrance of which the lienholder had no notice and which was unrecorded at the time the building, improvement, or structure was commenced, work was done, or materials were furnished.
Protections Against Mechanic’s Liens
According to the California Contractors State License Board, you can protect yourself from unwarranted liens by carefully selecting your contractor and responsibly managing your construction project.
Investigate your prime contractor before you sign a contract and do the following: hire only licensed contractors and check the contractor’s license status on the California Contractors State License Board’s website; make sure your contractor hires only licensed subcontractors, and check their licenses too; check with your local courthouse to see if the prime contractor has a history of litigation; get a list of all subcontractors, laborers, and on-site materials suppliers and delivery drivers to be used by your prime contractor; and check with suppliers and workers about the payment history of the prime contractor.
Get a written contract that includes a schedule demonstrating when specific construction activities will start and end (such as the framing, sheetrock work, or painting) and the projected payments tied to the contract price of these activities, along with identification of the subcontractors and on-site workers performing these activities and the suppliers and drivers delivering materials for them.
Preliminary Notice and Mechanic’s Liens
Most, but not all, prime contractors, subcontractors, workers, and suppliers will provide property owners with a Preliminary 20-Day Notice, required under Civil Code Section 8200. This notice is nothing more than that — a notice that a subcontractor or supplier has provided or will be providing goods and services to improve your property and could file a lien claim if they are not paid. However, most prime contractors will not give you a Preliminary 20-Day Notice, because they have a direct contractual relationship with you and, as such, are not required to (although the prudent ones often do).
Subcontractors and suppliers must provide you with this notice in order to maintain their right to file a lien. If they don’t provide you with the notice, they lose the right to file a lien.
These notices allow you to track who has a potential claim against your property, but you must watch the timing. A subcontractor or supplier can give you the Preliminary Notice before delivering supplies or starting work, and up to 20 days after delivering supplies or starting work.
Preventing Mechanic’s Liens
Prior to paying your prime contractor, assume the worst-case scenario and plan to deal with the possibility of a lien. This can be done by keeping track of the Preliminary 20-Day Notices you have received, so you are aware of those who may file a lien against you. If you haven’t received any, ask your prime contractor about any they may have received.
Staff should be trained to recognize and maintain a daily log of all such work and delivery companies, including the names of all subcontractors, workers, and delivery drivers, and another log maintained of all Preliminary 20-Day Notices and their significance, so that correct preventative action may be taken.
In addition to tracking the notices, pay your prime contractor with a joint check. When the contractor presents a bill for materials or labor, compare it to the schedule of payments in your contract and the Preliminary Notices you’ve received. Make sure the work was provided as described, and then make out the check to both the contractor and the supplier, or the contractor and the subcontractor. Both parties will have to endorse the check, which will help ensure that the subcontractors and suppliers get paid, and get you a conditional release from the possible lien claimants.
If you ask for one, the prime contractor is required to get this release for you. Once you receive the conditional releases, make the appropriate payment for the work that was done. After you pay, the contractor should get you an unconditional release signed by each claimant for the portion of work being released. Make sure the actual claimant signs it. Most importantly, you may withhold the next payment until you get the unconditional releases for the previous payment.
Once the project has been completed on your property, you can reduce the amount of time a contractor, subcontractor, or supplier has to record a claim against your property by filing a Notice of Completion with the County Recorder’s office, per Civil Code Section 8182. This notice reduces the amount of time a contractor has to record a mechanic’s lien from ninety (90) to sixty (60) days, and reduces the time a subcontractor or materials supplier has to record a mechanic’s lien from ninety (90) days to thirty (30) days.
Tenant Improvements
When a tenant, as opposed to the property owner, wishes to begin a capital improvement or other project on the property, the property owner may — and is advised to seriously consider — recording what is known as a Notice of Non-Responsibility under Civil Code Section 8444. This is a written notice recorded with the County Recorder’s office by the property owner, intended to let subcontractors, workers, suppliers, and anyone else know that the owner disclaims responsibility for paying for the project, and it must be filed within certain time constraints. Remember, the key to filing a Notice of Non-Responsibility is when the owner is not the contracting party, or is not otherwise deemed to have “caused” the improvement work.
The California Civil Code has several requirements that must be met in order for the Notice of Non-Responsibility to be effective. In some circumstances, a Notice of Non-Responsibility will not protect against the recording of a mechanic’s lien. In particular, such a notice will not have effect where the property owner caused the improvement by requiring the work as a condition of a lease agreement.
There are other precautions an owner can take to lessen the filing of mechanic’s liens, even when the owner is not the contracting party, and reviewing them with legal counsel before any tenant improvement project begins is the safest course.
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