BILL ANALYSIS                                                                                                                                                                                                    



                                                                  SB 189
                                                                  Page 1

          Date of Hearing:   June 15, 2010

                           ASSEMBLY COMMITTEE ON JUDICIARY
                                  Mike Feuer, Chair
                    SB 189 (Lowenthal) - As Amended:  June 2, 2010

                                  PROPOSED CONSENT

           SENATE VOTE  :   35-0
           
          SUBJECT  :  MECHANICS LIENS

           KEY ISSUE  :  SHOULD THE MECHANICS LIEN STATUTES BE REORGANIZED  
          AND RECAST TO MODERNIZE AND CLARIFY THE LAW FOR THE BENEFIT OF  
          CONTRACTORS, OWNERS AND CONSUMERS?

           FISCAL EFFECT  :  As currently in print this bill is keyed fiscal.

                                      SYNOPSIS
          
          This non-controversial mechanics lien bill reflects the good  
          work undertaken by the California Law Revision Commission at the  
          request of this Committee some years ago to review and consider  
          this venerable area of the law that according to many observers  
          has become unduly complex and impenetrable as the result of  
          piecemeal amendments over the years.  This bill would
          among other notable achievements streamline, reorganize, clarify  
          and re-codify these statutes; it would modernize terminology and  
          eliminate inconsistencies in language; make provisions more  
          readable and easier to use; place provisions that apply  
          exclusively to private or public work in separate titles, and  
          place jointly applicable provisions in a common third title.   
          These revisions are largely technical.  To the extent they are  
          substantive they have been widely vetted by the Commission and  
          are not controversial with any stakeholder group.  

           SUMMARY  :   Updates the mechanics lien statutes.  Specifically,  
           this bill  :  

          1)Reorganizes, restates, and modernizes the language of the  
            existing mechanics lien statute.

          2)Standardizes those requirements for all notices given under  
            the mechanics lien statute, except as expressly otherwise  
            noted.  








                                                                  SB 189
                                                                  Page 2

           
          3)Increases that notice period to ten days, if the notice is  
            given by mail.

          4)Clarifies that a general contractor must give preliminary  
            notice to a construction lender on a private work.  

          5)Deletes the vague term "acceptance by the owner" as an event  
            deemed to constitute completion of a private work of  
            improvement.  
           
           6)Requires continuous cessation of labor for 60 days or more to  
            constitute completion of those public works.  

          7)Allows an owner or public entity 15 days after completion of a  
            work of improvement to record a notice of completion.  

          8)Recasts the statutory forms for clarity, and would make those  
            procedural requirements applicable to subcontractors as well.
           
           9)Adds procedural rules relating to the proceeding, and would  
            allow for an award of reasonable attorney's fees to the  
            prevailing party.
           
           10)Reduces the required amount of certain bonds to 125% of the  
            recorded lien claim.
           
           11)Requires public entities to provide notice of all specified  
            events that trigger the commencement of the time period for  
            enforcement.  

          12)Allows any person to post a release bond, requires those  
            bonds to be issued by an admitted surety insurer, makes the  
            expedited proceeding also available to the owner involved in  
            the dispute, clarifies that the bond must be recorded prior to  
            commencement, and clarifies that such persons may make a claim  
            against the payment bond provided by the general contractor at  
            the outset of the project.  

          13)Makes the limitation period also applicable to an action  
            against the principal on the bond.

          14)Clarifies that such persons are permitted to make a claim  
            against the general contractor's payment bond.  









                                                                  SB 189
                                                                  Page 3

          15)Expands that provision to also require notice of the  
            nonpayment to the owner on the project.  

          16)Adds licensed landscape architects to the identified list of  
            design professionals.   
           
           EXISTING LAW  : 

          1)Provides that mechanics, persons furnishing materials,  
            artisans, and laborers of every class have a lien upon the  
            property upon which they bestowed labor or furnished material  
            for the value of such labor done and material furnished.   
            (Cal. Const., art.14, Sec. 3.)

          2)Sets forth obligations and rights of contributors, owners,  
            construction lenders, and persons otherwise involved in an  
            improvement to real property, in what is informally known as  
            the mechanics lien statute.  (Civ. Code Sec. 3082 et seq.)

          3)Requires many different types of notices under the mechanics  
            lien statute, with most notices subject to unique provisions  
            governing content, manner of service, location of service,  
            proof of service, and the like.  (See, e.g., Civ. Code Sec.  
            3103.)

          4)Requires the giving of five days notice of a hearing to  
            summarily adjudicate a public work stop notice.  (Civ. Code  
            Sec. 3201.)

          5)Contains an ambiguity relating to whether a general contractor  
            must give preliminary notice to a construction lender on a  
            private work.  (Civ. Code Sec. 3097(b).)

          6)Provides that "acceptance by the owner" of a private work of  
            improvement is one of several events deemed to constitute  
            completion of that work of improvement.  (Civ. Code Sec.  
            3086(b).)

          7)Provides that a continuous cessation of labor for 30 days or  
            more on specified public works of improvement constitutes  
            completion of that work.  (Civ. Code Sec. 3086.)

          8)Allows an owner or public entity to record a notice of  
            completion within 10 days after completion of a work of  
            improvement.  (Civ. Code Sec. 3093.)








                                                                  SB 189
                                                                  Page 4


          9)Allows an owner to record a notice of completion of a portion  
            of a private work of improvement governed by a separate  
            contract within 10 days after that contract has been  
            completed.  (Civ. Code Sec. 3117.)

          10)Provides procedural requirements, including the use of  
            specified statutory forms, which must be followed by owners or  
            general contractors to obtain a waiver and release of most  
            claims under the mechanics lien law.  (Civ. Code Sec. 3262.)

          11)Allows a reduction or release of a stop notice given to an  
            owner to be made on other than a statutory waiver form.  (Civ.  
            Code Sec. 3262(b)(2).)

          12)Allows an owner to seek release of a recorded lien claim that  
            has not been timely prosecuted in a summary proceeding, and  
            allows an award of attorney's fees not to exceed $2,000 to the  
            prevailing party in the proceeding.  (Civ. Code Sec. 3154.)

          13)Allows an owner, general contractor, or subcontractor to  
            release a recorded lien claim by posting a release bond in the  
            amount of 150% of the recorded lien claim.  (Civ. Code Sec.  
            3143.)

          14)Allows a stop notice claimant on a public work to pay $2.00  
            to the public entity in order to be notified when the latest  
            of several specified events occur that trigger the  
            commencement of the time period in which the claimant must  
            file suit to enforce the stop notice.  (Civ. Code Sec. 3185.)

          15)Provides that only an owner, construction lender, or  
            contractor on a work of improvement may post a stop notice  
            release bond.  (Civ. Code Sec. 3171.)

          16)Allows a statutory payment bond on a private work and a stop  
            notice release bond to be issued by a non-licensed surety.   
            (Civ. Code Secs. 3096, 3143, 3171.)

          17)Makes an expedited proceeding available to a general  
            contractor to resolve a stop work notice dispute.  (Civ. Code  
            Sec. 3260.2(d).)

          18)Contains an ambiguity relating to whether a private work  
            payment bond must be recorded prior to commencement of a work  








                                                                  SB 189
                                                                  Page 5

            of improvement in order to limit an owner's lien claim  
            liability.  (Civ. Code Sec. 3235.)

          19)Contains an ambiguity relating to whether persons  
            contributing to a public work pursuant to a supplemental  
            contract may make a claim against the payment bond provided by  
            the general contractor at the outset of the project.  (Civ.  
            Code Sec. 3247(b).)

          20)Provides that an action against a surety to enforce a claim  
            against a statutory private work payment bond recorded before  
            commencement of the work of improvement must be commenced  
            within six months after completion of the work of improvement.  
             (Civ. Code Sec. 3240.)

          21)Provides that an action against a surety on a public work  
            payment bond must be commenced within six months after the  
            period in which a stop payment notice may be given.  (Civ.  
            Code Sec. 3249.)

          22)Contains an ambiguity relating to whether persons  
            contributing work to a second tier or lower subcontractor on a  
            work of improvement are permitted to make a claim against the  
            general contractor's payment bond.  (Civ. Code Sec. 3267.)

          23)Requires a contractor that fails to timely pay wages to  
            laborers employed by the contractor to provide notice of the  
            nonpayment to the laborer, to the laborer's bargaining  
            representative, and to the construction lender on the project,  
            or face discipline.  (Civ. Code Sec. 3097(k).)

          24)             Requires that an owner notify the general  
            contractor and construction lender of a change in the original  
            contract if the change increases the contract amount by five  
            percent or more.  (Civ. Code Sec. 3123(c).)

          25)             Allows licensed architects, engineers, and  
            surveyors to claim a "design professionals lien" for  
            pre-commencement design services provided for a work of  
            improvement.  Services that these design professionals provide  
            are also governed by selected provisions of the mechanics lien  
            statute.  (Civ. Code Secs. 3081.1 to 3081.10.)

           COMMENTS  :  The California Constitution grants laborers and  
          materials suppliers a mechanics lien on any property improved by  








                                                                  SB 189
                                                                 Page 6

          their labor or material.  The mechanics lien law in the Civil  
          Code generally specifies the obligations, rights, and remedies  
          of those involved in a construction project.  Mechanics liens  
          are not available on public works of improvement.  However, the  
          mechanics lien law provides claimants on public works projects  
          with other statutory remedies, including stop notices and claims  
          against payment bonds.

          In 1999, this Committee requested the California Law Revision  
          Commission (CLRC) to provide a comprehensive review of mechanics  
          lien law and make suggestions for possible areas of reform.   
          Following initial efforts to substantively revise specific  
          provisions of existing law, the CLRC began studying a general  
          revision of mechanics lien law in 2004.  The CLRC believed that  
          the mechanics lien statute had "become increasingly difficult to  
          use, generating litigation over confusing provisions, and often  
          leaving participants unsure of their rights and obligations."   
          Therefore, the CLRC decided that its primary objective would be  
          to revise the statute in a way that would make it easier for all  
          practitioners to use and understand.  It placed its highest  
          priority on drafting a "nonsubstantive reorganization of the  
          existing mechanics lien statute that would modernize and clarify  
          existing law."  

          This bill is based upon the February 2008 recommendations of the  
          CLRC resulting from its study of mechanics lien law.   
          (California Law Revision Commission, Recommendation, Mechanics  
          Lien Law, February 2008.)  It is also based upon working group  
          discussions with stakeholders and other interested parties.

          In general, the CLRC included substantive changes to existing  
          law only if the proposed reform fell into one of two categories:  
          1) substantive reforms that were believed to bring about an  
          overarching improvement to the statute as a whole, thereby  
          benefiting all affected persons; and 2) substantive reforms  
          that, although primarily benefiting one group of persons  
          affected by the statute more than others, were perceived not to  
          unduly burden any other group.  (See California Law Revision  
          Commission Memorandum 2009-45, October 13, 2009.) 

          The CLRC writes:

            The existing mechanics lien statute contains archaic language  
            dating back to 1872.  Since the last recodification of the  
            statute in 1969, individual provisions have been amended more  








                                                                  SB 189
                                                                  Page 7

            than 70 times.  Over time, the statute has become increasingly  
            difficult to use, generating litigation over confusing  
            provisions, and often leaving unsophisticated participants  
            unsure of their rights and obligations.

            This bill would modernize terminology and make it more  
            uniform; clarify or eliminate inconsistencies and ambiguities  
            throughout the statute; divide longer provisions into shorter  
            and more readable provisions; and organize all provisions in a  
            functionally coherent order.  This clarification of the law  
            should reduce litigation and reduce the risk that important  
            rights will be inadvertently lost through misunderstanding of  
            the law.  This bill would also make a small number of  
            substantive improvements to existing law that would result in  
            an overall benefit to practitioners and persons affected by  
            the mechanics lien statute, with no significant detriment.

           Overview of the bill's provisions.   The provisions of the bill  
          that would recodify the mechanics lien law are contained in  
          three sections of the bill, Sections 15, 16, and 20.

          Section 15 of the bill would repeal the existing law informally  
          known as the design professionals lien statute (Civ. Code Secs.  
          3081.1 to 3081.10) in order to incorporate these sections into a  
          new mechanics lien statute.

          Section 16 of the bill would repeal the existing body of law  
          informally known as the mechanics lien statute (Civ. Code Secs.  
          3082 to 3267).

          Section 20 of the bill would enact a modernized, clarified, and  
          better organized mechanics lien statute that would incorporate  
          the existing design professionals lien statute as well as all  
          provisions of the existing mechanics lien statute presently  
          applicable to both private and public works of improvement.  The  
          new statute would appear in a new statutory Part within the  
          Civil Code.  The first title in this Part would contain  
          provisions jointly applicable to both private and public work;  
          the next two titles of the Part would contain provisions  
          exclusively applicable to either private or public work,  
          respectively.

          Of the remaining 106 sections of the bill, 102 make  
          non-substantive conforming revisions to code sections that  
          contain a cross-reference to the existing mechanics lien  








                                                                  SB 189
                                                                  Page 8

          statute.  The conforming revisions correct the cross-references,  
          and in some cases, conform existing statutory language to  
          language used in the new mechanics lien statute.  For example, a  
          reference to a "20 day Preliminary Notice" has been revised to  
          read "Preliminary Notice."  In some instances, purely  
          non-substantive stylistic changes (unrelated to mechanics lien  
          law), generated by the CLRC or by Legislative Counsel, are also  
          made to these sections.

          Section 19.5 of the bill would renumber the heading of a Part in  
          the Civil Code unrelated to mechanics lien law to allow the new  
          mechanics lien statute to appear in the Civil Code in proper  
          numerical sequence.
          
          Section 105, which would be uncodified, contains the bill's  
          operative date provision.

          Section 106, which would be uncodified, provides that any  
          amendment or repeal that the bill would make to any section is  
          to be subordinate to any change made to that section by any  
          other bill enacted this session, other than the annual  
          Maintenance of the Codes bill.

          Section 107 is a statutorily required non-reimbursement section.

          Section 108, which would be uncodified, provides that the bill  
          is intended by the Legislature to be nonsubstantive in effect,  
          except as otherwise specified in Section 108.
          
           Proposed Substantive Changes To The Mechanics Lien Law.   The  
          bill's few substantive provisions appear to be modest,  
          thoughtful and harmonizing.

          Notices.  This bill would standardize the requirements for all  
          notices given under the mechanics lien statute, except as  
          expressly otherwise noted.  The standardization would reduce the  
          likelihood of confusion or inadvertent errors by unrepresented  
          or occasional practitioners whose rights under the mechanics  
          lien law often depend on compliance with these notice  
          requirements.

          This bill would increase the notice period for a hearing to  
          summarily adjudicate a public work stop notice from five to 10  
          days.  This would correct an apparent oversight in the existing  
          statute, as a notice of a hearing sent by mail five days before  








                                                                  SB 189
                                                                  Page 9

          a hearing date may not be received until on or after the hearing  
          date.

          Preliminary Notices.  This bill would clarify that a general  
          contractor must give preliminary notice to a construction lender  
          on a private work.  Giving of this notice would be consistent  
          with a basic policy reason underlying the giving of all  
          preliminary notice- identification of a contributor to a work of  
          improvement whose identity may otherwise be unknown to the  
          recipient of the notice.

          Completion of Private/Public Works of Improvement.  This bill  
          would delete "acceptance by the owner" as an event deemed to  
          constitute completion of a private work of improvement.  The  
          existing mechanics lien statute does not define the term  
          "acceptance by the owner," nor does it indicate how it must be  
          manifested, or to whom it must be conveyed.  The event does not  
          appear to be significantly relied upon in the industry, and may  
          be constitutionally suspect to the extent it serves to time bar  
          a lien claim of a claimant who was reasonably unaware that the  
          event had occurred.  The bill does continue a provision of  
          existing law (Civ. Code Sec. 3086(a)), which provides that  
          occupation or use of the work of improvement by the owner,  
          accompanied by cessation of labor, constitutes completion of the  
          work of improvement.

          This bill would allow an owner to record a notice of completion  
          corresponding to a portion of a private work of improvement  
          governed by a separate contract up to 15 days after completion,  
          rather than the 10 days allowed under existing law.  This would  
          standardize the deadline for recordation of all notices of  
          completion, which should reduce confusion for both owners and  
          claimants that do not have substantial familiarity with  
          mechanics lien law.

          This bill would require continuous cessation of labor for 60  
          days or more to constitute completion of public works of  
          improvement.  On a modern public construction project, it is not  
          uncommon for a 30-day work stoppage to occur when the project is  
          far from complete.  Requiring a continuous cessation of labor  
          for 60 days or more would reflect the realities of modern public  
          work projects.  A 60-day requirement would also coincide with  
          the period of cessation of labor deemed to constitute completion  
          of a private work of improvement, thereby standardizing this  
          requirement for both private and public works of improvement. 








                                                                  SB 189
                                                                  Page 10


          This bill would allow an owner or public entity 15 days after  
          completion of a work of improvement to record a notice of  
          completion.  On more complex projects, 10 days may not be a  
          sufficient time to allow for an accurate determination of  
          whether completion has occurred.  Further, while the extra few  
          days could make a significant difference to an owner or public  
          entity, it would not significantly adversely affect a claimant,  
          as the claimant's time to pursue a remedy would continue to run  
          from the date of recordation of the notice of completion.

          Waiver and Release of Claims.  This bill would recast the  
          statutory forms relating to waivers and releases of claims for  
          clarity, and would make certain procedural requirements  
          applicable to subcontractors and construction lenders.  Current  
          statutory forms and procedural requirements already apply to  
          owners and general contractors.  The CLRC states that there does  
          not appear to be any sound public policy reason why this  
          protection of claimants intended by the Legislature should only  
          apply to a subgroup of entities on a construction project that  
          regularly seek waiver and release forms from claimants.

          Release of Lien.  This bill would add procedural rules relating  
          to the release of a recorded lien claim that has not been timely  
          prosecuted in a summary proceeding, and would allow for an award  
          of reasonable attorney's fees to the prevailing party.

          The inclusion in the statute of basic procedural guidelines for  
          these proceedings would assist litigants by reducing ad hoc or  
          inconsistent rulings on procedural issues by different trial  
          courts.  The CLRC and author also believe that it makes sense to  
          allow the court to award reasonable attorney's fees.

          This bill would reduce the required amount of a bond that can be  
          posted to release a recorded lien claim, from 150% of the amount  
          of the lien claim to 125%.  This change would reconcile the  
          required amount of a lien release claim with the required amount  
          of a stop notice release claim, and would appear to provide  
          sufficient security for lien claimants while making release  
          bonds more affordable to owners that need to rely on a release  
          bond to obtain an unencumbered title.

          Stop Notices; Payment Bonds; Fees.  This bill would increase a  
          specified $2.00 notice from public entity fee to $10.00, and  
          would require the public entity to provide notice of each  








                                                                  SB 189
                                                                  Page 11

          specified event that triggers commencement of the time period in  
                                                                                         which a claimant must file suit to enforce a stop notice.  The  
          $2.00 fee was established in 1969, and represents approximately  
          $10.00 of buying power today.  The revised notice would reduce  
          confusion as to deadlines on the part of occasional or  
          unrepresented claimants that do not have substantial familiarity  
          with the mechanics lien law.

          This bill would also allow any person to post a stop notice  
          release bond.  The CLRC and the author assert that it would be  
          unreasonable to preclude any person that seeks to release funds  
          withheld pursuant to a stop notice from posting an appropriate  
          bond to do so.

          This bill would require a stop notice release bond and a  
          statutory payment bond to be issued by an admitted surety  
          insurer.  This requirement would provide the bond recipient with  
          greater assurance of the solvency of the surety.

          This bill would make an expedited (stop work notice) proceeding  
          available, in addition to the general contractor, to the owner  
          involved in the dispute.  The CLRC and author do not believe  
          there is any policy reason not to provide an owner aggrieved by  
          a work stoppage the same procedural right to an expedited  
          resolution of the dispute that is available to the contractor in  
          the dispute.

          Clarifying Ambiguities Related to Bonds; Limitation Periods.   
          This bill would clarify that a private work payment bond must be  
          recorded prior to commencement in order to provide an owner with  
          statutory protection against lien claims that exceed the price  
          of the work of improvement.  Pre-commencement recordation would  
          allow all contributors to a work of improvement to learn prior  
          to contributing work, whether a constitutional lien right  
          attributable to the work may be restricted or precluded by  
          statute.  

          This bill would clarify that persons contributing to a public  
          work of improvement pursuant to a supplemental contract may make  
          a claim against the payment bond provided by the general  
          contractor at the outset of the project.  To the best of CLRC's  
          and the author's knowledge there is not any legislative history  
          suggesting an intent to preclude claimants providing work on  
          supplemental public work contracts from a payment bond remedy.   
          Such preclusion would severely limit the remedies available to  








                                                                  SB 189
                                                                  Page 12

          such claimants for unpaid work, since lien claims are not  
          allowed on a public work.  (See Civ. Code Sec. 3109.)

          This bill would make the limitation period for an action against  
          the principal on a private or public work payment bond the same  
          as that against a surety on that bond.  The principal on a bond  
          typically provides for joint and several liability of the  
          principal as to any claim made against the bond.  Conforming the  
          applicable limitation period for bringing such an action against  
          either named defendant would facilitate the joint and several  
          liability, and would standardize this procedural requirement.

          This bill would clarify that persons contributing work to a  
          second tier or lower subcontractor on a work of improvement  
          would be permitted to make a claim against the general  
          contractor's payment bond.  Neither the CLRC nor the author have  
          uncovered any legislative history suggesting an intent to  
          preclude claimants that provide work to subcontractors below the  
          first tier from a payment bond.  To the contrary, policy  
          considerations suggest an intent to allow such claims, as an  
          alternative lien claim is not available on a public work, and  
          may be restricted on a private work.  (See Civ. Code Sec. 3235.)  
           This ambiguity was analyzed by the court in Union Asphalt v.  
          Planet Ins. (1994) 27 Cal.Rptr. 2d 371, which reached the same  
          conclusion.

          Labor Issues.  This bill would expand the provision that  
          requires a contractor who fails to timely pay wages to provide  
          notice of nonpayment to not only the laborer, the laborer's  
          bargaining representative, the construction lender, but also to  
          the project owner.  Such notice would provide advance warning to  
          the owner that a lien claim from the unpaid laborer may be  
          forthcoming.

          Notification of Contract Change of Five Percent or More.  This  
          notification in existing law does not indicate when the  
          notification must be made, the manner of notification, or the  
          consequences of failure to notify.  Thus, the provision does not  
          appear to have any practical utility, is often ignored in the  
          industry, and appears more confusing than helpful.  For those  
          reasons the provision would be deleted in the bill.

          Licensed Landscape Architects.  This bill would add licensed  
          landscape architects to the current list of design professionals  
          (licensed architects, engineers, and surveyors) who may claim a  








                                                                  SB 189
                                                                  Page 13

          design professionals lien.  All four types of professionals are  
          licensed under the Business and Professions Code, and are the  
          only types of licensed design professionals that frequently  
          provide pre-commencement work on a work of improvement, often in  
          conjunction with each other.  Thus, it makes sense to afford the  
          same lien rights to all four categories of design professionals.
          
           REGISTERED SUPPORT / OPPOSITION  :

           Support 
           
          American Society of Landscape Architects, California Council
           
            Opposition (as amended) 
           
          None on file

           Analysis Prepared by  :    Kevin G. Baker / JUD. / (916) 319-2334