HOW NOT TO MESS UP A NOTICE OF COMPLETION ... AND WHAT TO DO IF YOU GET ONE
This month we’ll discuss a few points about the notorious “Notice of Completion.” If you are in the construction business, you should understand this document. The California legislature made some changes to this statute in 2012, and there are a few nuances to using this procedure. So, let’s get familiar with the current rules. The basic idea is: a Notice of Completion can shorten the deadlines for contractors and material suppliers to use collection remedies like Mechanic’s liens and Stop Payment Notices. For that reason, project owners sometimes use it as a tool to protect against lien claims.
1. UNDERSTAND ITS PURPOSE:
A notice of completion is a document recorded against the property by its owner, that announces that the construction project has been completed. Normally, contractors have 90 days after “completion” of a project to record Mechanics liens or serve Stop Payment Notices. However, a valid Notice of Completion will accelerate the deadline for “direct” contractors (those that have contracted directly with the owner) to file liens or stop payment notices to 60 days, and it will shorten the deadline for “indirect” contractors (subs and suppliers) to 30 days.
In situations where a contractor has more than one separate contract for the same “work of improvement,” an owner can record separate Notices of Completion, which would start the time running for lien deadlines as of the time each separate notice is recorded.
2. PAY ATTENTION TO PROJECT “COMPLETION” AND DEADLINES:
As you might expect, the validity of a Notice of Completion depends upon the date when the project is, in fact, “complete.” In fact, the notice must state the date of completion. But what happens if the project isn’t really complete when the Notice is recorded, or the date of completion is in dispute? (Yes, it does happen…!)
First of all, “Completion” is defined by the code in a variety of ways. Completion occurs upon (a) actual completion of all work on the project, (b) occupation or use coupled with cessation of labor, (c) a cessation of labor for 60 continuous days (or 30 days after recordation of a notice of cessation), or (d) acceptance by a public entity in some cases. Most commonly, final inspection (i.e. permit signoff by the building official, or issuance of a certificate of occupancy) is the event that triggers “completion.” Prior to 2012, the code allowed “acceptance by the owner” as one of the events triggering “completion.” That section has been deleted, and owner acceptance alone is no longer enough to establish completion. However, owner “occupation or use” can operate to establish completion, if “coupled with a cessation of labor.”
Sometimes the question comes up as to whether “punchlist” work (a.k.a. warranty work or call back work) operates to extend the completion date. Theoretically, the answer is no, at least if the punchlist work involves correcting or repairing work that has already been installed. However, if a punchlist or call back includes work that was under contract but never completed, it arguably could extend the completion date. As you can imagine, the date of completion can be a fact-intensive determination that comes up regularly in lien claims.
Owners are required to record a Notice of Completion within a window of 15 days after actual “completion.” (This is another change from before 2012, when owners only had 10 days after completion to record the notice.) After that, the Notice may be held invalid. Also, if a Notice of Completion is recorded prematurely (that is, before the project is “complete” under the code) it may be held invalid. An invalid Notice of Completion means that the lien and stop payment notice deadlines return to 90 days. However, if a Notice of Completion incorrectly states the date of completion, it can still be valid as long as it was recorded no more than 15 days before the true date of completion.
3. WHAT IF WORK JUST STOPS ON THE PROJECT?
As you can see from the above definition of “completion,” it includes situations where work simply stops on a project. Basically when this happens, the project is deemed “complete” 60 days after a stoppage of all labor on the project. However, even in this situation an owner can accelerate completion, by recording a “Notice of Cessation of Labor” after labor has stopped for 30 continuous days. If properly done, this notice will cause the project to be deemed “complete” upon recording, and will operate just like a Notice of Completion, to accelerate the lien deadlines to 60 days after completion for direct contractors, and 30 days after completion for all others.
4. USE THE CORRECT FORM:
To be effective, a Notice of Completion must include all the information required by statute. There is no mandatory “form” that must be used. However, an owner should use a form that at a minimum includes the correct names of the owners of the property (or the owners’ successor in interest as of the date the notice is recorded), the correct property address (or other identification such as APN number, etc.), the date of completion, the contractor responsible for the project as a whole (unless it was an owner-builder job), and the form must be “verified,” meaning a sworn declaration by an authorized person as to the truthfulness and accuracy of the information supplied.
5. RECORD THE NOTICE:
A properly-filled out Notice of Completion which is verified by the owner does not have to be notarized, and must be accepted for recording by the Recorder’s office. (The same thing is true of Mechanic’s liens, which likewise do not require notarization for recording.)
6. SERVE THE NOTICE ON SUBS AND SUPPLIERS WHO SENT PRELIMS:
Within 10 days of recording a Notice of Completion, the owner must properly serve a copy of the Notice to any “Direct Contractor” (see above), or any “claimant who has given the owner a preliminary notice.” Proper service means either: 1.) personal delivery, 2.) mail (by registered or certified mail, express mail, or overnight delivery by an express service carrier), or 3.) leaving the notice and mailing it to the address where it was left. (Civil Code §§ 8106, 8110.) If the owner fails to serve the notice in an accepted manner, it is ineffective to shorten the lien and stop notice deadlines. The same service requirement applies to a Notice of Cessation of labor.
This requirement of serving the Notice of Completion is another one of the 2012 statutory changes, and it is perhaps one of the most significant changes for subcontractors, who previously had few options to find out whether a notice of completion had been filed. Today, a Notice of Completion is clearly invalid unless the owner timely serves it upon the affected contractors.
Well, that’s it for now. I’ll be back next month with another construction law topic. Until then, good contracting!
. Cal. Civil Code §§ 8412, 8414.
. Cal. Civil Code §§ 8412(c)(1), 8186.
. Cal. Civil Code § 8180.
. Cal. Civil Code § 8182.
. Cal. Civil Code § 8182(b)(4).
. Cal. Civil Code §§ 8180(c), 8412, 8414.
. Cal. Civil Code § 8182.
. Cal. Civil Code § 8184.
. Cal. Civil Code § 8190(a).
. Cal. Civil Code § 8190(c).
Mark Coffin is a construction attorney based in Santa Barbara, California. This article is intended to provide general information rather than specific legal advice, and is not intended to create an attorney-client relationship or serve as a substitute for a professional legal consultation.
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Copyright © Mark T. Coffin, Attorney At Law. All rights reserved.