Defining what constitutes completion on construction projects in California can be a complicated process. This is because what constitutes completion differs depending on the reason this question is asked. This article will cover the nuances of defining completion for the purposes of mechanic’s liens, stop payment notices, and statute of limitations.
What Constitutes Completion for the Purposes of Mechanic’s Lien Deadlines?
For the Purposes of Mechanic’s Lien deadlines, completion is defined as any of the following events:
(1) Actual completion of the work of improvement.
(2) Occupation or use by the owner accompanied by cessation of labor.
(3) Cessation of labor for a continuous period of 60 days.
(4) Recordation of a notice of cessation after cessation of labor for a continuous period of 30 days. (Civil Code § 8180.)
But these definitions create further questions. We will cover those questions and the answers below.
What Completion Date Establishes the Earliest Date a Mechanic’s Lien May be Recorded?
In general terms, the earliest a contractor may record a mechanic’s lien is after the contractor in question will perform no further work. Performing further work after recording a mechanic’s lien will invalidate the lien in question. It is important not to confuse this earliest date to record a lien with the deadline from which the final date to record a mechanic’s lien runs. The latter is governed by the last date of work for everyone on the project as whole rather than the contractor’s work.
What is the Earliest Date that a Direct Contractor May Record a Mechanic’s Lien?
A direct contractor may not record a lien until it completes its work under the direct contract. (Civil Code § 8412.) So effectively the completion date governing the earliest that a direct contractor may record a lien is the completion of their work on the project that they have contracted for. It is important to note that completion of work under the contract may not mean actual completion of the work, but merely the last day that the direct contractor is obligated to perform work under the contract – and does so. Lack of payment or other issues may excuse the direct contractor from performing further work, which would allow the direct contractor to record a lien. But the direct contractor would need to refrain from any further work until the lien claim is resolved. Performing further work would invalidate the lien.
What is the Earliest a Subcontractor, Material Supplier, Equipment Lessor, or other Party Without a Contract with the Owner May Record a Mechanic’s Lien?
Any one other than a direct contractor may not record a mechanic’s lien until they cease to provide work on the project in question. (Civil Code § 8414.) Thus, the completion date governing the earliest a party without a contract with the owner may record a mechanic’s lien is the cessation of that party’s work. As with a direct contractor, the reason for cessation of work could be completion of the claimant’s scope of work or another reason such as non-payment. And similarly, the claimant would need to refrain from any further work until its mechanic’s lien claim is resolved. Performing further work would invalidate the lien.
What Completion Date Governs the Deadline to Record a Mechanic’s Lien?
As noted above, the deadline to record a mechanic’s lien runs from either actual completion, a cessation of labor that lasts for 60 continuous days or is accompanied by occupation or use by the owner, or from the recording of a notice of completion or notice of cessation. Which ever date the deadline runs from, that date is uniform for all parties on the project. So while the earliest a particular contractor may record a mechanic’s lien will depend on their own work, the deadline to record a mechanic’s lien runs from a uniform project completion date.
What Does Actual Completion Mean?
Actual completion means completion of all contract work (both original & change order) on a project by all trades other than maintenance, warranty, or corrective/repair work. Importantly, actual completion does not mean substantial completion or issuance of a certificate of occupancy. If contract work is not complete, mechanic’s lien deadlines will not begin to run until a cessation of labor for 60 continuous days, or cessation of labor coupled with occupation or use by the owner, occurs. As a practical matter, actual completion can be a fact intensive issue and thus it is always recommended to error on the side of recording a mechanic’s lien as soon as work has stopped and payment is overdue.
What is a Continuous Cessation of Labor?
A continuous cessation of labor for the purposes of completion means a cessation of labor of all work on the project, by all trades – not just by the party desiring to record a lien. If all work stops for a continuous period of 60 days, the project is considered complete for mechanic’s lien deadline purposes and the 90-day deadline to record a mechanic’s lien begins to run from the end of the 60 day cessation. An owner can further accelerate mechanic’s lien deadlines triggered by a cessation of labor by recording a notice a cessation after a continuous cessation of labor for 30 days. (Civil Code § 8188.)
What Is Occupation or Use by Owner?
Whether or not occupation or use by the owner has occurred for the purposes of mechanic’s lien deadlines can be another factually intensive issue. Some cases such as an owner moving back in are clear cut. But other steps by an owner such as bringing items back in to the property, or purchasing new items, can be characterized as use or mere preparation for use. Again the safest thing to do is to record a mechanic’s lien as soon as work has stopped and payment is overdue. But if you are waiting on a response or negotiations from an owner or higher tier contractor, it is important to pay attention to how occupation or use may shorten your lien deadlines.
When Is May a Notice of Completion Be Recorded?
Owners may reduce some of the risk associated with the factually intensive inquiry and uncertainty around actual completion, by recording a notice of completion. A notice of completion may be recorded within 15 days of the completion of the project. (Civil Code § 8182.) While there still may be a question regarding actual completion when determining whether or not the notice of completion is valid, owners have some wiggle room as even if they get the date wrong, the notice of completion is considered effective as long as the true actual completion date is within the 15 day window.
When May a Notice of Cessation Be Recorded?
A notice of cessation may be recorded after a continuous cessation of all work on the project in question for 30 days. This notice will reduce the deadlines to record a mechanic’s lien to 60 days from the date of the notice for direct contractors and 30 days from the date of the notice for everyone else. (Civil Code § 8188.)
What Constitutes Completion for the Purposes of Stop Payment Notice Deadlines?
The completion dates governing Stop Payment Notice Deadlines differ depending on if the project is private or a public works project.
Private Project Completion Dates Affecting Stop Payment Notice Deadlines
On private projects stop payment notice deadlines for many of the following events:
(1) Actual completion of the work of improvement.
(2) Occupation or use by the owner accompanied by cessation of labor.
(3) Cessation of labor for a continuous period of 60 days.
(4) Recordation of a notice of cessation after cessation of labor for a continuous period of 30 days. (Civil Code § 8180.)
Public Works Project Completion Dates Effecting Stop Payment Notice Deadlines
On public works projects stop payment notice deadlines run from either:
(1) Acceptance of the work of improvement by the public entity.
(2) Cessation of labor on the work of improvement for a continuous period of 60 days. (does not apply to state agency projects)
(3) Recordation of a notice of cessation after cessation of labor for a continuous period of 30 days.
(4) Recordation of a notice of completion with 15 days of the true date of completion. (See Civil Code § § 9200; 9202)
Completion Dates for Defect and Warranty Claims
Unlike payment remedy deadlines, completion of the purposes of the statute of limitations for warranty and defect claims runs from substantial completion. An owner has one year from substantial completion to make a warranty claims, four years from substantial completion to make a patent defect claim, and 10 years from substantial completion (or four years from discovery of the defect) to make a latent defect claim. (See Civil Code §§ 895-945.5) and Code of Civil Procedure §§ 337.1; 337.15.)
How is Substantial Completion Determined?
Substantial completion is a factually intensive issue. Some contracts define what is considered substantial completion. But courts have ruled that this is not always determinative. As a general matter, substantial completion can be defined as completion to a point where a project is fit for use or occupancy as intended. But in practice, nailing down and exact date can be difficult.