MECHANIC'S LIENS ONLY ATTACH AFTER CONSTRUCTION COMMENCES WITH AN EXPLANATION OF THE DESIGN PROFESSIONAL'S LIEN by Sam K. Abdulaziz
A recent case of the California Court of Appeal Second District confirmed what had always been the law. In order for anyone other than design professionals, to have a right to a mechanic's lien, construction must start.
In April of 2001, the owner entered into an agreement with a licensed contractor for the construction of a project. In the next two years, the contractor provided approximately $850,000.00 in design related services. He did design, planning, and hired design professionals. The owner tried to obtain financing, without success. Therefore, construction never started. No building permit was every issued for the project. No actual visual construction or other work was conducted at the sight by anyone. Presumably, because the project never went forward, the contractor recorded a mechanic's lien with the County Recorder in the amount of approximately $850,000.00 against the property. The owner then filed a motion to release the property from the mechanic's lien. The reason for that motion was that the prime contractor never improved the real property and therefore had no lien rights. At the hearing, the court made an Order that the mechanic's lien could be released but a bond in the amount of approximately $1,300,000.00 would have to be posted. The trial court gave no indication as to its reasoning.
One of the major points argued was that design professionals under certain circumstances are allowed to record a mechanic's lien for the design services even before physical work on the project commences. This was one of the arguments that was put forward by the prime contractor, likening himself to a design professional. Secondly, the prime contractor alleged that it would be unfair to allow the owner to get around a mechanic's lien by refusing to go forward with the work.
A case dealing with the latter issue was cited by the contractor. That case held against the owner. A case from another state held that one who prevents commencement of construction should have to pay, because it was the owner that kept the contractor from going forward, and it would be unfair not to pay. The court said that this problem was substantially diminished by the creation of the design professional's lien which attaches prior to physical work commencing.
In 1990, the Legislature added a new section for design professionals. It allows that in cases where no actual construction of the planned work of improvement is commenced prior to the recordation of the notice of lien, the design professional may have a lien on that property. The design professional's lien is separate from the mechanic's lien. If the owner contracts for the design professional services and is also the owner of the real property, then the design professional has a lien prior to work beginning. However, for purposes of that chapter, a design professional means any certified architect, registered professional engineer, or a licensed land surveyor, who furnishes services pursuant to a written contract with a land owner for the design, engineering, or planning of a work of improvement. Once construction starts, the design professional's lien becomes a mechanic's lien.
In this case, the prime contractor did not fall within any of those categories. One other important issue in this decision is that the contractor recorded a mechanic's lien and not a design professional’s lien. Design professionals should be very careful to call their lien a "design professional's lien rather than a mechanic's lien.
Abdulaziz & Grossbart has been practicing construction law for 30 years. The California Construction Law book is published and updated annually. They represent numerous construction trade associations and contractors. Abdulaziz & Grossbart 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 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.
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