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DIRECTORY AND CAPABILITIES

Will a Notice of Non-Responsibility Prevent Enforcement of a California Mechanics Lien?

March 05, 2015 — William L. Porter – Porter Law Group, Inc.
The “Notice of Non-Responsibility” is one of the most misunderstood and ineffectively used of all the legal tools available to property owners in California construction law. As a result, in most cases the answer to the above question is “No”, the posting and recording of a Notice of Completion will not prevent enforcement of a California Mechanics Lien. The mechanics lien is a tool used by a claimant who has not been paid for performing work or supplying materials to a construction project. It provides the claimant the right to encumber the property where the work was performed and thereafter sell the property in order to obtain payment for the work or materials, even though the claimant had no contract directly with the property owner. When properly used, a Notice of Non-Responsibility will render a mechanics lien unenforceable against the property where the construction work was performed. By derailing the mechanics lien the owner protects his property from a mechanics lien foreclosure sale. Unfortunately, owners often misunderstand when they can and cannot effectively use a Notice of Non-Responsibility. As a result, the Notice of Non-Responsibility is usually ineffective in protecting the owner and his property. The rules for the use of the Notice of Non-Responsibility are found in California Civil Code section 8444. Deceptively simple, the rules essentially state that an owner “that did not contract for the work of improvement”, within 10 days after the owner first “has knowledge of the work of improvement”, may fill out the necessary legal form for a Notice of Non-Responsibility and post that form at the worksite and record it with the local County Recorder in order to prevent enforcement of a later mechanics lien on the property. What commonly occurs however is that early in the process the owner authorizes or even requires its tenant to perform beneficial tenant improvements on the property. This authorization is often set forth in a tenant lease or other written document. The dispositive factor for determining whether the Notice of Non-Responsibility will be enforceable though is that the owner knows that these improvements will be made to the property and intends that they be made, usually long before the work begins. Indeed, the owner has usually negotiated these very terms into the lease contract. The owner then mistakenly believes that once work on the property commences it has 10 days to post and record a Notice of Non-Responsibility and thereby protect itself from a mechanics lien. The usual error is two-fold. First, the statute states that the Notice is available when the owner “did not contract for the work of improvement”. The fact though is that the owner did contract for the work of improvement. It did so through the lease contract. This is true even though the owner’s contract was not with the contractor or supplier directly. Secondly, the 10 day period to post and record the Notice begins when the owner first “has knowledge” of the work of improvement. This knowledge was of course gained when the lease was negotiated and signed, providing knowledge typically many days before the work has begun. Thus, the 10 day period can also seldom be met. The Notice of Non-Responsibility will therefore fail both rules because the owner has in fact contracted for the improvement and because he does not act within 10 days of gaining this knowledge. The next event in the typical scenario occurs when the tenant does not pay its contractor. The contractor then has nothing to pay its subcontractors. Material suppliers also go unpaid. Mechanics liens are then recorded by the unpaid claimants, followed by foreclosure actions within ninety days thereafter. Owners will typically point to the Notice of Non-Responsibility they posted and recorded, claiming its protection. Claimants then in turn point to the lease or other evidence that the owner knew of the pending improvements and contracted in some way that the improvements be performed, often also more than 10 days before they posted the Notice. Judges generally agree with the unpaid mechanics lien claimants and the Notice of Non-Responsibility is deemed ineffective. The fact that the Court does not enforce the Notice of Non-Responsibility under these circumstances is not an unfair result. Since the owner authorized the work to be performed and it received a substantial benefit in the form of those improvements, it is not unfair that the owner should pay for those benefits. It would be inequitable for the owner to obtain the benefit of the improvements which it authorized but for which it did not pay, while allowing those who provided the benefit to go unpaid. Moreover, without such a system in place the door would be open to owners setting up sham “tenants” who would enter into contracts to have work performed, only to disappear when the work is completed, leaving the contractor without a source of payment. The system in place as described above prevents such duplicity. Owners would do well to arm themselves with proper knowledge of when the Notice of Non-Responsibility will and will not protect them and then responsibly use the Notice of Non-Responsibility. For the legal eagles among you, the following cases illustrate the view of the courts, consistent with the above: Baker v. Hubbard (1980) 101 Cal.App.3d 226; Ott Hardware v. Yost (1945) 69 Cal. App.2d 593 (lease terms); Los Banos Gravel Co. v. Freeman (1976) 58 Cal.App.3d 785 (common interest); Howard S. Wright Construction Co. v. Superior Court (2003); 106 Cal.App.4th 314 (participating owner). William L. Porter of Porter Law Group, Inc. located in Sacramento, California may be contacted at (916) 381-7868 or bporter@porterlaw.com Read the court decision
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Providing Your Insurer Prompt Notice

May 20, 2024 — David Adelstein - Florida Construction Legal Updates
Sometimes, when it comes to insurance, you may hear the argument that you breached your insurance policy by failing to provide your insurer with prompt notice as the insurance policy requires. Well, this is not such an absolute issue. With that said, you should absolutely provide your insurer with prompt notice of a claim or loss. No legitimate reason not to. But, if you don’t, it is not an absolute get out of jail free card for your insurer, but it does give them a good argument, which you don’t really want to deal with. In Gulfpoint Construction Co., Inc. v. Westfield Ins. Co., 2024 WL 1759228 (11th Cir. 2024), an insured appealed a trial court’s ruling that found it did not provide prompt notice to its property insurer as the policy required. In this case, notice was provided two years after a loss from a hurricane. The insurer denied coverage and, in doing so, relied on the insured’s failure to provide prompt notice. Although the trial court agreed, the appellate court found this was a genuine issue of material fact. Read the court decision
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Reprinted courtesy of David Adelstein, Kirwin Norris, P.A.
Mr. Adelstein may be contacted at dma@kirwinnorris.com

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Construction Workers Unearth Bones

June 28, 2011 — CDJ STAFF

While digging for a new steam line at Eastern Michigan University, workers unearthed some old bones. Experts have yet to determine if the bones are human or animal, however Walter Kraft, the EMU vice president of communications, noted that a handle also unearthed might have come from a casket. Cindy Heflin, reporting in AnnArbor.com notes that until 1900 a Catholic cemetery was located in the area. Although the bodies were relocated, these may have been left behind.

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Partner Denis Moriarty and Of Counsel William Baumgaertner Listed in The Best Lawyers in America© 2017

September 08, 2016 — Haight Brown & Bonesteel LLP
Partner Denis Moriarty and Of Counsel William Baumgaertner were selected by their peers for inclusion in The Best Lawyers in America© 2017. This marks the fifth consecutive year Mr. Moriarty has been listed for his work in insurance law, and this marks the eleventh year Mr. Baumgaertner has been listed for his defendants’ and plaintiffs’ work in personal injury and product liability litigation. Read the court decision
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Wall Failure Due to Construction Defect Says Insurer

October 09, 2013 — CDJ STAFF
A wall built by J. F. Smith Construction collapsed during Hurricane Isaac, and Bankers Insurance Group is blaming the builder not the hurricane. The insurer claims that if the wall had been built properly it would have withstood the storm. The suit is being filed in the Louisiana courts. Bankers Insurance is seeking $49,625.25 in damages. Read the court decision
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The Registered Agent Advantage

October 22, 2014 — Christopher G. Hill – Construction Law Musings
In the Commonwealth of Virginia, as in most states, all corporations, LLC’s or other corporate style entities are required to have a registered agent if they are to do business in the Commonwealth. The reasons for the requirement are many, but the main ones are taxation, service of process and communication from the Virginia State Corporation Commission (the “SCC”). Without such a registered agent, many rights, for example the right to prosecute a lawsuit, are not available to the unregistered entity. As a construction company that I hope is incorporated (if you aren’t you should do take this step), your registered agent can be an officer of the company, a company that meets the requirements of the SCC that allow it to act as a registered agent, or an attorney licensed in the Commonwealth of Virginia. It is this last category that you should carefully consider. Why do I think that a Virginia construction attorney is the best candidate for use as the registered agent of either a local or out of state contractor or subcontractor? As you might imagine from the title of this post, I’ll let you know. Read the court decision
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Reprinted courtesy of Christopher G. Hill, Law Office of Christopher G. Hill, PC
Mr. Hill may be contacted at chrisghill@constructionlawva.com

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Canada to Ban Foreigners From Buying Homes as Prices Soar

April 25, 2022 — Brian Platt & Ari Altstedter - Bloomberg
Canada will ban most foreigners from buying homes for two years and provide billions of dollars to spur construction activity in an attempt to cool off a surging real-estate market. The measures will be contained in Finance Minister Chrystia Freeland’s budget on Thursday, according to a person familiar with the matter, asking not to be named because the matter is private. The move signals that Prime Minister Justin Trudeau is becoming more assertive about taming one of the developed world’s most expensive housing markets -- and that the government is growing more concerned about the political backlash to inflation and the rising cost of housing. Reprinted courtesy of Brian Platt, Bloomberg and Ari Altstedter, Bloomberg Read the court decision
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Work without Permits may lead to Problems Later

September 10, 2014 — Beverley BevenFlorez-CDJ STAFF
According to the Los Angeles Register, “Southern California homeowners often have repairs or improvements done to their property without getting the required building permits,” which sometimes, may be fine, but other times it leads to disastrous problems. The Register used an example of a San Clemente couple who had issues selling their home when a building inspector found that weep screeds were covered up by a cement deck installed by a contractor. The contractor also failed to get building permits for the work that was done. The buyer stated that repairs needed to be done prior to the sale. According to Mac MacKenzie, an agent at Coldwell Banker in Irvine, the situation is not uncommon: “We’ve had (permit problems) kill deals before, and we’ve had them almost kill deals. If it’s serious enough, it can stop a transaction from closing.” Permits are generally required “for any alteration, major repairs or new construction,” according to the Register, while they are not necessary “for minor repairs, such as fixing leaky pipes, painting, new carpeting or new kitchen countertops.” Read the court decision
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