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.

Previously published © Desktop General Counsel 2012 All Rights Reserved

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