3- Using the Stop Work Option

How valuable is the right to stop work? For smaller contracts, probably not very. If you are not being paid, and if you have a good relationship with the Owner, because it’s a small contract and you are likely dealing directly with the Owner, then you will know when the Owner is having financial difficulty. If that is the case, you can probably work out some agreement to suspend the work rather than going through the effort of the Stop Work notification.

The more likely situation is on larger projects when the Owner stops making progress payments. On those types of projects, the Owner will always have some stated reason, however frivolous it may be, for not paying you. In that case, you cannot satisfy the key statutory element for stopping work; there’s no dispute over the entitlement to payment.

The stop work option is not something that should be done on impulse and without consultation with legal counsel. If it is done correctly, it can be effective. After all, if you are not being paid, you are financing the project for the Owner. If the Owner goes bust and there is no payment bond, you may be getting pennies on the dollar, if anything at all, and getting it long after you performed the work. Better to call the Owner’s bluff.

Conversely, from the Owner’s perspective, if you do not satisfy all the requirements in the statute, or if you don’t do the steps correctly, you may be in material breach if you pull off the project. The ball will then be in the Owner’s court and you will have an even bigger problem getting paid, if you get paid at all.



2- How It Works

If you have not been paid within 35 days after submitting your progress payment, and if there are no disputes with the Owner that would allow the progress payment to be withheld, the statute allows you to inform the Owner that if you are not paid within 10 days, you will stop work. After you have given 10 days written notice to the Owner, and all lenders and subs, you also need to post a further notice in a conspicuous place on the construction site 5 days ahead of the time that you will be stopping work.

In order to avail yourself of the stop work provision in the Code, there cannot be any dispute that the payment is due and owing. Typically the Owner will have some reason for not paying you, but assuming it is simply a cash flow issue that the Owner has and not a problem with your work, this stop work remedy is available. Plainly this factual prerequisite is going to be difficult to satisfy in most circumstances.

If you properly send the notice, and then properly post the notice on site, and if there is no dispute that you are owed the funds, you can stop work after the 10-day period. If you exercise this right, and do it properly, you have no liability for delays that the stop work may have caused. There is also a right to an expedited court hearing to determine whether you should be paid.

If the Owner pays you, or the situation is otherwise resolved, you need to provide notice that you will be returning to work. This notice is provided to the Owner, lender, and subs; all the folks that you informed in the first place that you would be stopping work on the project. The notice of your return to work and the cancellation or resolution of the dispute must be posted in a conspicuous place on the project.


1- The Stop Work Statute

Stopping work on a project can be dangerous. For one thing, it gives the other party to the contract a terrific defense to any claim that you may make. Any time work is stopped by one party, there will be the contention that it is unjustified, and therefore is a material breach of the contract that entitles the other side to suspend its own performance, demand your performance, or declare the contract breached and immediately sue for damages.

However, for private contract work, the Legislature has crafted a right that allows the contractor to stop work under certain circumstances. The right to stop work is actually a lot of work in and of itself, and it involves a fairly precise series of steps that need to be completed in the proper sequence or you may inadvertently find yourself in a breach situation, the very situation that you wanted to avoid by taking the proper steps to stop work.

The next series of blogs will tell you how the statute works and what you need to do to make it work for you.


7- Time Limits to File the Stop Notice Action

A lawsuit to perfect rights under the Stop Notice can be filed as early as10 days after the Stop Notice is filed, but no later than 90 days after the last day to file a Stop Notice. The last day to file a Stop Notice will be determined by whether the Owner’s records a Notice of Completion or Notice of Cessation. If the Owner does record the Notice, then a General/Prime has 60 days to file its Stop Notice and 90 days more to file suit; 150 days from completion. If no Notice is recorded, the General/Prime has 90 days to file the Stop Notice and 90 days to file suit.

A subcontractor’s time frame is slightly less if the Owner records the Notice. In that case, the sub has 30 days to file its Stop Notice and then 90 days to file suit. If no Notice is recorded, the sub has the same amount of time as the General/Prime; 90 days to file and 90 days to initiate the lawsuit. Review the discussion in the Mechanic Lien section about how the time limits apply, depending on whether the Owner does or does not record Notice, and depending on whether you are a General/Prime or a subcontractor. The same concerns are relevant for Stop Notices.

Within 5 days after filing the lawsuit, notice must be sent to all parties involved in the action informing them that the litigation has been commenced. The Notice of Commencement of action is ordinarily sent along with the lawsuit that is being served, but sometimes, and for tactical reasons, the lawsuit might not be immediately served on the other parties, so the Notice of Commencement is sent by itself. However you do it, be sure to serve the Notice of Commencement of Action on all parties involved in your Stop Notice action, especially on the Owner or lender. This is to assure that the lender and/or the Owner continue to hold the Stop Notice funds because they know there is a lawsuit related to those funds.

If there is a Stop Notice Release Bond in place, then the bond surety is the proper party to name in your foreclosure action. If there is a payment bond on the project, and the Owner or lender have relied on that bond and ignored your Stop Notice, then name the surety in the suit and provide notice to all of them; the Owner, the construction lender, and the bond surety. You want to be paid by one of these parties; you don’t care which one.

No Stop Notice action can come to trial before the conclusion of the 90-day period to file a Stop Notice. If you file your Stop Notice early, you still need to wait until the time period expires for filing Stop Notices on the project, and that time frame is dependent on the Owner’s recording (or not recording) a Notice of Completion or Notice of Cessation. If no Stop Notice action is brought within the applicable time frame, then the funds that were withheld must be released.

Be sure to monitor the recording of any Notice of Completion or Notice of Cessation. Be sure to calendar the time limits for filing your action. Do NOT miss this deadline. As we discuss later in the litigation section, you can file your action to preserve your rights, and then you can amend your lawsuit to bring in other claims. If you intend to bring the Stop Notice action, however, it must be brought within a specific time, so make sure you do.


6- The Stop Notice Foreclosure Action

In order to perfect your rights on the Stop Notice, you will need to file a lawsuit. The Stop Notice claim is typically part of a more involved and comprehensive lawsuit. It can be brought as a stand-alone litigation, but that is not typical. The Stop Notice foreclosure action is intended to determine your rights to the funds that are withheld. Unlike the Mechanic Lien foreclosure action, the Stop Notice lawsuit is not brought against the property but against the construction funds that are, or should be, available.

The parties to the Stop Notice foreclosure action are; 1- the lender or Owner, depending on whom you told to withhold the funds; 2- the party that you wanted the payment from in the first place, either the General or the Owner, whoever was not paying you; or 3, if there is a Stop Notice Release Bond or if there is a payment bond for the project, then the surety that issued the Bond is a required party. You do not need to name any other parties in the Stop Notice cause of action. The action is to determine your rights to the funds being withheld because of your Stop Notice.


5- The Stop Notice Option- How Do You Get Paid

You can serve your Stop Notice at any time during the course of a project but doing so just preserves the funds to pay you; it does not get you paid any sooner. It is also the case that if others serve Stop Notices on the project, then yours will just be one of the many that are on file with the Owner or Lender.

We will do a quick review of the timeframes for serving your Stop Notice because this is critical. As you know, you can serve the Stop Notice at anytime during the course of the work. Once the work completes though and depending on what the Owner does or does not do, you have different time limits to get your Stop Notice served.

For private works, if the Owner files a Notice of Completion or a Notice of Cessation and you are a subcontractor, the last day you can serve your Stop Notice is 30 days from the date the Notice is recorded. If you are a General and have filed a Stop Notice with a lender, then you have 60 days from the date the Notice of Completion is recorded.

If the Owner does not file either document but takes possession, or in some way indicates that the project is accepted, then regardless of your status, you have 90 days. By the way, these timeframes also apply to suppliers.

If the job just stops because it is for all intents complete, but the Owner does nothing, then after 60 days of continuous non-activity, you will have 90 days to serve the Stop Notice. If the work stops for that 60 day period, then the project is deemed complete. Therefore you have 150 days within which to serve the Stop Notice from the date the work stopped- 60 + 90. You can serve a Stop Notice anytime during the project and up until the last date that you could file a Mechanics Lien on the project.

It’s a little different for public works. First, only subs are going to file Stop Notices. Second, the same timeframes apply if there is a Notice of Completion or Cessation recorded- 30d to file your Stop Notice. It gets a little complicated if there is no of Completion or Cessation recorded.

If the work is stopped and not completed, then after 30 days it is deemed complete and you will have 90 days from that date to serve the Stop Notice; effectively 120 days (30 +90). However if the work is completed and the work is subject to acceptance by the public agency, and that Notice of Acceptance is provided, then you will have 90 days from that Notice of Acceptance date to serve your Stop Notice.

It is a confusing area of the law so be aware. Courts sometimes have difficulty with these different timeframes so be sure you understand what it happening and when you need to get the Stop Notice filed. One way to be sure to know when the last day to file a Stop Notice will be is to include $10 with your Stop Notice. This will require the public agency to let you know when a Notice of Completion or Notice of Acceptance is recorded.

You want to know this so that you can either serve additional and updated Stop Notices and/or you will know when the last day is for you to file your lawsuit. You have 90 days from the recording of either to file the litigation. If you pay the $10 but the public agency does not give you notice, then they cannot defend by asserting the statute of limitations has run. It is $10 well spent if you are working on a public project.


4- The Stop Notice Option- What To Include In Your Stop Notice

The Stop Notice must be reasonably accurate about the amount that is to be withheld. The Stop Notice must also refer to only one project. This is so even if there is an ongoing business relationship between the sub and the General, and they have done, or are doing, other projects and money is owed on another project. The Stop Notice can only apply to payments due on a particular project. If there are other projects where Private Works payments are not being made, then a separate Stop Notice for each project must be provided. You cannot add amounts from one project into the Stop Notice on another.

The Stop Notice can only hold funds for work that has been performed, not for work that may be performed or for costs that are anticipated in the future. For example, the Stop Notice should not include projected costs. It should not include amounts for work that has not been performed, or for delay and inefficiency costs that may be anticipated but that are speculative at the time of the Stop Notice.

If a Stop Notice is not accurate, and especially if it is grossly or willfully exaggerated, it may be declared invalid or void. When it comes time for a court to decide how much the claimant is entitled to, that determination may be zero if the Stop Notice was not reasonable in the first place. The claimant will not be entitled to any pro rata share of the funds if the court determines there was a willful misstatement of value in the Stop Notice.

The party impacted by the wrongful Stop Notice may also have a claim against the party that filed the Stop Notice for the cost of any Release Bond, and possibly other damages that might result from an improper or overstated Stop Notice. After all, the Stop Notice is stopping payments, and those payments are needed to pay other contractors and suppliers. If the Stop Notice claimant is using the Stop Notice process vindictively or punitively by grossly overstating the amount owed, there can be repercussions in the form of damages awarded to the General.

One interesting and unusual aspect of Stop Notices is the fact that an Owner can demand that all Stop Notices be filed at the beginning of the project. If the Owner makes this demand, then you must comply or you will lose your right to pursue Mechanic Lien rights, not your Stop Notice rights. How do you respond to this type of request? In a word- carefully. You must provide a Stop Notice with language that says that this is a conditional or preliminary Stop Notice, that it may change, and that if it changes in amount that you will advise the Owner. This is not something that an Owner will typically do, but be aware that an Owner has the right and, if they exercise that right, you need to comply. Yes, it is a bizarre rule.

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