STOP NOTICES- WHAT TO DO WHEN YOU ARE NOT GETTING PAID

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.
http://www.m3-publisher.com/preliminary-notice-language.html

Litigation Expense

The Costs Of Litigation Of Mechanics Liens or Stop Notices
The Real Consideration

We just finished what should have been a 4 to 5 day trial on a Stop Notice/Breach of Contract action. Instead of being done in that time though, the case went on for nearly 3 weeks. This was not because the case became more complicated or because there was a lot more evidence to get in then we originally thought. There was that too, but the problem was that the court could not accommodate us for a full day of trial. Instead we were only allowed to be in court from 8:45 until 1:15, with no lunch but with a ten minute break every hour. It was very nice to have the afternoon to prepare for the next day’s testimony, but it also dragged the proceeding on for a lot more time than we, or our client, expected.

The point is that with the State budget cuts and the impact on the courts the time that is available, and the courtrooms and the court personel that are available, are very limited these days. This means that your budget for litigation, if you choose to litigate (or are forced to litigate) will need to increase, sometimes significantly. The time that it takes in court is only part of the time that you need to be accounting for when you consider trying a case. The usual rule of thumb for relatively simple cases is that a trial day is figured as 10-12 hours per day.

This is because while attorneys are usually well prepared, the testimony that comes out at trial will require adjustments to the trial plan as the trial proceeds. When the court day is done the attorney will head back to his/her office and review notes, review exhibits, tweak and/or develop questions for the next day. The better prepared the attorney is, the better chance your case will have. But it all comes at a cost and that cost is going to come in the form of a bill to you.

If you decide to take a case to trial, be prepared for the expense. Trials are not cheap and any attorney worth his/her salt is going to want to be as ready as they can be for the information that will come out at the trial. These cost considerations need to be taken into account when you are considering what to settle the case for or whether to settle the case. If the case is not an especially high dollar matter, then settlement, as difficult and distasteful as it may be, is sometimes the best decision you can make.

Do not use the courts to get even or to cause the other side financial pain. Unless there is an attorney fees provision in the case that might, and that is a very big might, allow you to recover your fees, then whatever is awarded as damages to you may just cover your legal expenses- maybe. Litigation is expensive and if you are in for a penny, you are in for a pound.

Discuss with your attorney what he/she estimates will be the cost of the trial. For the most part, in construction cases an attorney will not take the case on contingency. You, the client, will pay the full freight and will take the whole risk. Make sure you know what that risk is before you take it.