Dispatch #25 - Protecting Lien Rights During COVID-19 Job Site Shutdowns

A California contractor asked me a good question earlier this week: “Do we have to ‘extend’ our preliminary lien notices on projects that have been shut down, since we might be off the job for 60 days or more?

I posed the question to LevelSet, one of the lien service companies, and here is their answer (courtesy of attorney Matthew Viator):

According to California Civil Code § 8180(3), "completion" occurs when there is a "Cessation of labor for a continuous period of 60 days." However, this would require that no work was done on the project for the 60 day period. Plus, considering the current state of the world, it wouldn't make much sense to consider all delayed projects "complete." What's more, if work picked back up after the 60 day period, obviously the job isn't complete. Still, to be the best prepared, it might be useful to request a formal notice of delay due to the coronavirus outbreak and confirmation that the stoppage of work should not be construed as a "completion" of the project under § 8180(3). In the event that a 60+ day total stoppage of work occurs, it is possible (though seemingly unlikely) that "completion" has occurred as a matter of law. So, it'd be wise to check in to see whether any work is being done on the site, plus it'd be smart to request some formal notice of the delay.

Here's what I'm recommending to our California clients who don’t yet have a COVID-19 strategy with respect to protecting their lien rights:

1. Consider filing a notice of delay on applicable projects. LevelSet offers a template for such a notice, and they’ve adapted their page on Notices of Project Impacts and Delays to the present COVID-19 situation;

2. Get familiar with the COVID-19-relevant clauses in customer, subcontractor and supplier contracts, such as force majeure (for example, see article, article);

3. Confirm your lien rights strategy with your (construction expert) attorney.

I’m not recommending any particular lien rights service, or the mix of expertise a contractor should deploy to protect their lien rights (in-house vs. attorney vs. a lien service). But instead, passing along readily available, helpful information in this quickly changing, high risk environment for contractors.
 
For additional information and resources on lien rights and force majeure clauses see Dispatch #8 and Dispatch #14.

Need help with this or other financial matters faced by construction contractors? Let’s talk!

David Stern CFO makes every effort to provide useful and accurate information. This content, however, is not intended as a substitute for specific business-related financial advice. We disclaim all warranties and liabilities from its use.