How can a contractor, subcontractor, or supplier secure payment for its work? One solution is to file a mechanics’ lien against a project’s property.
Lien laws vary widely from state to state and time to time because contractors and subcontractors frequently seek to change them – California is no exception. One particularly significant rule is that a subcontractor must send a pre-lien notice to the property’s owner, the general contractor, and the construction lender within 20 days after commencing work. Assuming the savvy sub or contractor files its pre-lien notice, a contractor or subcontractor will want to ask its legal advisor about what can be claimed in a lien notice.
In California, a lien claimant can recover for the reasonable value of its provided labor, services, equipment, or materials or the work’s contract price. Moreover, a lien’s amount can exceed the contract price – costs based on modification are allowed, via written agreement or a person’s word (and a firm handshake).
However, a lien claimant cannot include delay damages or attorneys’ fees.
In Lambert v. Superior Court, the California Court of Appeal held that delay damages are not allowed in a mechanics’ lien, whether or not the contract describes them as extra work. It reasoned that they are a form of “consequential damages” outside of a lien’s scope and allowing them would give claimants unfair leverage in arguing over who breached the contract. You might be thinking, “Aren’t overtime costs the same ‘hour’ as regular labor costs, though they are paid at time and a half?” While that’s true, California state and federal courts have squarely held that delay damages are not allowed in a mechanics’ lien.
Similarly, California courts don’t allow attorneys’ fees in a mechanics’ lien because they don’t add to the property’s value.
Still, if a lien claimant includes impermissible items, it doesn’t forfeit the entire lien (per the California Court of Appeal in Basic Modular Facilities, Inc. v. Ehsanipour). Instead, a court will reduce the lien to its proper amount, unless a claimant willfully includes items that it didn’t actually provide.
A mechanics’ lien is a useful tool for securing payment. But a claimant must save its delay damages and attorneys’ fees claim for a breach of contract action rather than a mechanics’ lien.