A Refresher on “Prelims” — Part 2 Where Does a Notice of Nonresponsibility Fit In?

Yes, serving a valid and timely Preliminary Notice to the correct
individuals is the single most important thing a competent materials
supplier or subcontractor can do to protect its investment in labor and
materials. But what if one of the correct individuals rejects your
Preliminary Notice and denies responsibility for the project?

Oftentimes tenants construct improvements in the spaces they occupy.
Usually the work is done with the owner’s knowledge and approval. Often
the owner pays for the improvements as part of his or her lease
obligations. But on rare occasions, tenants undertake construction
projects without the owner’s knowledge or approval. When that occurs,
the legislature provides the owner with a mechanism to disavow any
obligations to pay for the work.

Notice of Nonresponsibility

Within 10 days of receipt of a Preliminary Notice, an owner who did
not contract for the work or improvement may post a “Notice of
Nonresponsibility” at the construction location, as well as record the
notice with the local County Recorder. (California Civil Code provides
that within 10 days of the owner learning that construction will take place on its property, it must post and record the notice.)

Protection from a Mechanic’s Lien Not Guaranteed

The Notice of Nonresponsibility is critical, as it may protect
the owner from having a mechanic’s lien foreclosure action. We say “may
protect” because many owners post Notices of Nonresponsibility, but
most owners are actually responsible and Notices of Nonresponsibility
very rarely protect them.

Lease Contract is Key

Owners should be aware that a Notice of Nonresponsibility is invalid
in California where the owner “ordered” or “caused” the improvement work
such as through the lease contract. If the owner knew the work was
going to be done before it was commenced, the notice will not protect
the owner. Many times the lease provides that tenant improvements will
be undertaken or paid for by the owner. Sometimes the lease only
provides that the tenant will use the property for a specific purpose,
but both parties to the lease understand that construction will be
required in order for the property to be used for that purpose. In
almost all situations, the owner benefits from the improvements, if for
no other reason than the tenant can pay its rent.

Take Away for Owners & Suppliers/Contractors

In our years in practice, we have not seen a Court enforce a Notice
of Nonresponsibility, but that could change. Even if an owner fails in
defending itself with a Notice of Nonresponsibility, it can still attack
a Preliminary Notice and later a Mechanic’s Lien if the Preliminary
Notice did not provide the owner with adequate notice of the project.
Regardless, owners should become familiar with the rules for use of a
Notice of Nonresponsibility and when it will and will not protect them.

For a supplier or contractor who does not get paid on a project for
which the owner posted a Notice of Nonresponsibility, the supplier or
contractor should always include the owner on a mechanic’s lien that it
records. Let the owner prove that he or she is truly not responsible.

Coming Up in Part 3 — Problems with the Preliminary Notice

We continue to stress that Preliminary Notices help protect your lien
rights. In the last installment in this Preliminary Notice refresher
course, we will discuss what happens when the Prelim does not accurately
state how much value the project will be.

Let me know if you have questions or comments about California’s Preliminary Notice requirements or the rules for

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James R. Wakefield, P.C.

Licensed since 1981

Member at firm Cummins & White, LLP

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James R. Wakefield, P.C.

Licensed since 1981

Member at firm Cummins & White, LLP

AWARDS

AV Preeminent

RECENT POSTS

  • Disadvantaged Business Enterprises: Potential Opportunities or Disasters
    Posted on July 28, 2016
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