Warning! Project Suspensions Caused by COVID-19 May Trigger Mechanics Lien, Stop Payment Notice, and Payment Bond Deadlines

03.30.2020

While COVID-19 has mired contractors and owners in a dizzying stream of government orders, project updates, and safety guidelines, it would be easy, perhaps even understandable, but no less fatal, to overlook statutory deadlines and related notices triggered by project and labor cessations. So it is important to know if and when a project suspension or cessation of labor constitutes “project completion” triggering mechanics lien, stop payment notice, or payment bond deadlines.

Short of actual completion, if a project has a 60-day continuous cessation of labor, with some exceptions, it would be considered complete. In addition, if a project has a 30-day continuous cessation of labor, coupled with the recording of a notice of cessation of labor, it would also be considered complete. Both of these “completion” scenarios trigger mechanics lien statutory scheme deadlines. Accordingly, the herein analysis may not affect the prevailing wage enforcement period for the Division of Labor Standards Enforcement, which is governed by “acceptance,” not “completion.”

Deadline to Record Mechanics Liens and/or Serve Stop Payment Notices

Claimants must record mechanics liens and serve stop payment notices within 90 days of completion of a project where there is no recording of a notice of completion or cessation. If a notice of completion or cessation is recorded, the direct contractor has 60 days, while a subcontractor has 30 days from the date of recording.

Accordingly, if a project is suspended and labor ceases for 60 continuous days and there is no notice of completion or cessation, claimants must record liens and/or serve stop payment notices 90 days after the 60-day cessation or a total of 150 days from the cessation. If, however, after a 60-day labor cessation, a notice of completion is recorded, direct contractors would have 60 days, while subcontractors would have 30 days from the recording of the notice of completion. Further, after a continuous cessation of labor for 30 days, coupled with the recording of a notice of cessation of labor, a direct contractor would have 60 days, while a subcontractor would have 30 days from the recording to lien or serve a stop payment notice on the project.

Deadline to Enforce Payment Bonds

In addition to stop payment notices, most public works of improvement require the direct contractor to obtain a payment bond for projects in excess of $25,000. A claimant must enforce a payment bond within 6 months after the time in which a stop payment notice may be given.

Accordingly, if a project is suspended and labor ceases for 60 continuous days and there is no notice of completion or cessation, a claimant must enforce a payment bond 90 days plus six months after the 60-day continuous cessation of labor. Further, after a continuous cessation of labor for 30 days coupled with the recording of a notice of cessation of labor, a claimant would have to enforce the bond 30 days plus six months after the recording.

What Happens If the Project “Starts Up” Again?

If a project “re-starts” after both labor cessation scenarios described above, it would be considered a “new” project. This means contractors would have to, once again, serve preliminary twenty-day notices. But be careful not to simply dust off the old one. Make certain your estimate of the labor, service, equipment, and material contribution to the project is adjusted for the work already performed on the “old” project before the cessation of labor. Also, make certain there have been no other changes; for example, a different direct contractor, owner, or lender because these parties must be properly served with the notice to enforce the statutory remedies discussed herein.

What should Owners Do?

To shorten the lien, stop payment notice, and bond filing deadlines, owners should record notices of completion or cessation where appropriate. But private owners must give notice to contractors of the recording of a notice of completion or cessation if the contractor served a twenty-day preliminary notice or the deadlines snap back to 90 days from the shortened 60 and 30 days.

And if a claimant includes $10 with its stop payment notice, the public entity must give notice to the claimant when the contract is completed, whether by acceptance or cessation and/or notice of the recording of a notice of completion or cessation. Also, the public entity must give notice of the time within which the claimant must file suit to enforce its stop payment notice. Failure to properly give this notice may preclude the public entity or direct contractor from raising a statute of limitations defense. These notices must be given in accordance with statutorily proscribed guidelines. Please consult your AALRR attorney before giving notice.

Conclusion

In short, if your project is suspended because of the events of COVID-19 and there is a continuous cessation of labor for 60 days or 30 days with a recorded notice of cessation of labor, that means you must act fast to preserve your statutory rights. If you are an owner, you should look to protect your project from liens and stop payment notices by recording notices of completion and/or cessation where appropriate. Please call your AALRR attorney if you experience a project suspension or shutdown to discuss relevant deadlines and notices.