Garrett Murai | California Construction Law Blog | June 27, 2016
We talk a lot about contractors on the California Construction Law Blog.
Owners?
Not so much.
So, owners, this one’s for you.
Why are Notices of Completion, Cessation and Non-Responsibility Important to Owners?
California recognizes three types of statutory notices on construction projects available to owners:
- Notices of completion;
- Notices of cessation; and
- Notices of non-responsibility.
Notices of completion and notices of cessation reduces the time for contractors, subcontractors, material suppliers and equipment lessors to record a mechanics lien, serve a stop payment notice and make a payment bond claim.
Notices of non-responsibility are used by property owners, as opposed to project owners, to prevent contractors, subcontractors, material suppliers and equipment lessors from recording a mechanics lien effecting the property owner’s (but not the project owner’s) interests in the underlying real property and are typically used when a construction project consists of tenant improvements (e.g., build out of leased store space in a retail building).
What is a Notice of Completion and Notice of Cessation and How Do They Work?
A notice of completion and notice of cessation are legal documents which, when recorded and served, shorten the time for contractors, subcontractors, material suppliers and equipment lessors to record a mechanics lien, serve a stop payment notice and make a payment bond claim:
On What Types of Projects May a Notice of Completion and Notice of Cessation be Recorded?
A notice of completion and notice of cessation may be recorded on both public and private works of improvement.
When Can You Record and Serve a Notice of Completion?
A notice of completion may be recorded by a project owner on or within 15 days after completion of a work of improvement.
For private works of improvement, “completion” is deemed to occur upon any of the following events:
- Actual completion of the work of improvement;
- Occupation or use by the owner accompanied by cessation of labor;
- Cessation of labor for a continuous period of 60 days; or
- If a work of improvement is subject to acceptance by a public entity, on acceptance by the public entity.
For public works of improvement, “completion” is deemed to occur upon any of the following events:
- Acceptance of the work of improvement by the public entity; or
- Cessation of labor for a continuous period of 60 days.
What Information Must be Contained in a Notice of Completion?
A notice of completion must:
- Be signed and verified by the project owner;
- Include the name and address of the property owner, direct contractor, and, as applicable, construction lender;
- Include a description of the site sufficient for identification including street address, if any;
- Identify the date of completion; and
- Include a proof of notice declaration indicating how the notice of completion was served.
Note: If there is more than one direct contract, a notice of completion may be recorded following completion of each contract provided that the notice, in addition to providing the name and address of the direct contractor, also include a general statement of the work provided under the completed contract. Moreover, if a notice of completion is signed by a project owner’s successor in interest, the notice must also include the name and address of the transferor.
When, to Whom and How do You Serve a Notice of Completion?
A notice of completion must be served by a project owner within 10 days of the date the notice of completion is filed for recording and must be served on the following:
- The direct contractor(s); and
- Anyone who has served the project owner with a preliminary notice.
Note: Residential property owners do not need to serve a notice of completion so long as the property being improved is a dwelling unit of four or fewer residential units.
A notice of completion must be served by one of the following means:
- Personal delivery;
- Registered, certified or express mail;
- Overnight delivery; or
- Service by a process server.
When Can You Record and Serve a Notice of Cessation?
A notice of cessation my be recorded if there has been a continuous cessation of labor for a continuous period of 30 days.
What Information Must be Contained in a Notice of Cessation?
A notice of cessation must:
- Be signed and verified by the project owner;
- Include the name and address of the property owner, direct contractor, and, as applicable, construction lender;
- Include a description of the site sufficient for identification including street address, if any;
- Identify the date on or about which labor ceased;
- Include a statement that labor ceased from the date indicated through the date of recordation of the notice; and
- Include a proof of notice declaration indicating how the notice of completion was served.
When, to Whom and How do You Serve a Notice of Cessation?
A notice of cessation must be served by a project owner within 10 days of the date the notice of cessation is filed for recording and must be served on the following:
- The direct contractor(s); and
- Anyone who has served the project owner with a preliminary notice.
Note: Residential property owners do not need to serve a notice of cessation so long as the property being improved is a dwelling unit of four or fewer residential units.
A notice of cessation must be served by one of the following means:
- Personal delivery;
- Registered, certified or express mail;
- Overnight delivery; or
- Service by a process server.
What is a Notice of Nonresponsibility and How Does it Work?
A notice of nonresponsibility (or non-responsibility) is a legal document which, when recorded and posted, protects a property owner’s interests in its real property from mechanics liens. So, for example, if a retail tenant improves its leased retail space in a mall, the mall owner may record and post a notice of nonresponsibility to protect its interests in the mall from mechanics liens.
Note: While a notice of nonresponsibility may protect a property owner’s interest in real property, a mechanics lien claimant may still record a mechanics lien, but it would only affect the project owner’s interest in the real property (e.g., a commercial tenant’s leasehold interest).
On What Types of Projects May a Notice of Nonresponsibility be Recorded?
Private works projects only.
When Must You Record and Post a Notice of Nonresponsibility
A notice of nonresponsibility must be recorded and posted within 10 days after the property owner has knowledge of the work of improvement.
Note: The “knowledge” requirement is important not only for timing, but as well, the validity of a notice of non responsibility all together. Civil Code section 8444 provides that only a property owner “that did not contract for the work of improvement may give notice of nonresponsibility,” and courts have broadly construed this requirement by creating a “participating owner” doctrine, whereby any owner who participated in the work of improvement whether directly or indirectly cannot rely on a notice of nonresponsibility to protect itself from mechanics liens. Thus, for example, if a property owner’s lease requires or provides for the construction of improvements by a tenant, as many retail leases, the participating owner doctrine would preclude a property owner from hiding behind a notice of nonresponsibility to shield itself from mechanics liens.
What Information Must be Contained in a Notice of Nonresponsibility?
A notice of nonresponsibility must:
- Be signed and verified by the project owner;
- Include a description of the site sufficient for identification including street address, if any;
- Identify the nature of the property owner’s title or interest in the site;
- Identify the name of the tenant, or if the property is being purchased, the name of the purchaser; and
- Include a statement that the property owner is not responsible for claims arising from the work of improvement.
Where Do You Post a Notice of Nonresponsibility?
A notice of nonresponsibility must be posted in a conspicuous location at the site.
Note: It is good practice to take a photo of where the notice of nonresponsibility was posted. Likewise, as an owner, it is important to include in your lease a provision permitting the owner to enter onto the tenant’s property to post a notice of non-responsibility.