When is a Project Complete?

Law Talk

This article deals with completion on a construction project. However, it is not intended to be a complete analysis of mechanic's liens. For that, you need to seek the aid and advice of a competent construction attorney.

Contractors are one of the only professions that are allowed to record a lien against property, and tie up that property, securing their payment even before a lawsuit is filed. The right to a mechanic's lien is protected by the California Constitution. However, the Legislature has tried to balance the rights of the contractors against the rights of owners, and has set forth a number of limitations on enforcement of lien rights. One of those limitations is that a mechanic's lien must be recorded within a short period of time after "completion" of a project. If you are the "original contractor," which means the person under contract with the owner, you have 90 days from "completion" of the project to record a mechanic's lien, unless a Notice of Completion has been recorded, at which point, the original contractor has 60 days. A subcontractor's lien rights are shortened from 90 days to 30 days by the recording of a Notice of Completion. The Notice of Completion itself is required to be recorded within ten days of completion. If it is not recorded within ten days of completion, the statute provides that it is ineffective to shorten the lien period and then everyone has 90 days.

The Legislature has passed a law that would require any one who records a Notice of Completion or a Notice of Cessation of Labor, to send a notice to anyone who gave that owner a Preliminary Notice. The Notice of Completion must be sent by certified mail, within ten (10) days of recording the Notice of Completion.

The rule requiring notification of the recording of a notice of completion does not apply to a person who occupies the real property as a personal residence so long as the dwelling contains not more than four residential units. Thus, the rule essentially does not apply to owner-occupied homes.

As to completion, Civil Code section 3086 defines completion to be "actual completion of the work of improvement." However, the statute also provides for "equivalents" to completion: (a) the occupation or use of the work of improvement by the owner, or his agent, accompanied by the cessation of labor; (b) the acceptance by the owner, or his agent, of the work of improvement; (c) a cessation of labor for a continuous period of 60 days (or thirty days if a Notice of Cessation is recorded); or (d) if the work of improvement is subject to acceptance by a public entity, the date of such acceptance.

Despite what appears to be a fairly clear definition, there have been a number of cases on this subject. In one rather famous case, a contractor was working on a project and there was four soap dispensers that were required to be installed by the contract, which were on back order. The owner had contended that completion occurred before the soap dishes were installed. The Court of Appeal held that because there was work required under the contract that needed to be performed, that the project was not complete. Accordingly, in that case, the court held that the omission of the four soap dispensers that were part of the contract meant that the project was not complete, and a mechanic's lien that was recorded later in time from the date that the owner declared it to be complete, would be valid.

However, in other cases, the Court of Appeal has declared "trivial" or "punch list" work does not extend the time for completion. This becomes a factual question as to whether the work was merely to correct the work originally performed, or to perform work that was required by the contract that was never installed.