Intro to Stop Notices
Stop Notices are an effective and necessary way to secure the money that you are owed, but they do not actually get you that money for some time. In fact, just the opposite will happen; when you file a Stop Notice with the Owner or construction lender, you are all but guaranteeing that you will not get paid. A Stop Notice is just that- it stops the money from the Owner or lender to the contractor that owes you that money.
Stop Notices are not constitutional rights the way that Mechanics Liens are. A Stop Notice is a statutory right that attaches to the funds that are available to the project, not the project itself. Unlike the Mechanic Lien you cannot force the sale of the property to pay your bills, but whatever available funds will be withheld if you do the Stop Notice correctly. Unlike Mechanics Liens, the Stop Notice right is available on public works and on private works; the Mechanics Lien is only available on private works.
The same prerequisites that applied for Mechanics Liens apply to Stop Notices- for the most part.
First you need to be properly licensed at all times that you are performing the work. As we discussed in the Mechanics Lien posts, the licensing requirement is stringent and unforgiving. If you are not properly licensed the entire time that you are performing work on the project, not only will you not have any Stop Notice or Mechanics Lien rights, but you will not have any rights at all. Worse yet, if you get paid for work and the Owner or contractor wants that payment back, you need to give it back- all of it. California is very serious about licensing; you should be too.
The second criterion is the need to serve a Preliminary Notice on the appropriate parties. Again, this is done by sending the Notice by registered mail return receipt requested, certified mail, or personal delivery. Send it by mail so that you have a receipt and you also take the potential issue disputing receipt off the table.
The Preliminary Notice on a private works project needs to be sent to the Owner, General (Prime or Direct) Contractor, and the construction lender by any subcontractor at whatever tier and by any supplier. If you are a General (Direct or Prime) Contractor, you need to send the construction lender a Preliminary Notice.
It’s a little different for public works projects. If the work is public, then the Owner and the General get notice. If you are a first tier subcontractor, that is you have a contract with anyone that has a contract directly with the Owner, you are not required to provide the Notice. Do yourself a favor though, send it to the Owner and General regardless of your relationship to any other contractor on the project. If you know the surety that issued the payment bond (there is always a payment bond on public works projects) then it is prudent, but not necessary, to send the Notice to the surety as well.
The Preliminary Notice secures your rights to payment for the work that is done 20 days before the notice is served and thereafter. Don’t wait to send the Notice and don’t forget to send it. If you receive a contract, send the Preliminary Notice then and there.
If you are using a standard form that you purchase at a stationary store, make sure it is acceptable for use in California and make sure it is also appropriate for both Public and Private works. It should say so at the top of the form. Most forms are set up this way, but just be sure that yours is appropriate for the type of project that you are doing. There is also some required language for the Preliminary Notice. Click on the link below to see the language needed.