An Owner’s Guide to Notices of Completion, Cessation and Non-Responsibility

An Owner’s Guide to Notices of Completion, Cessation and Non-Responsibility

By Garret Murai,

Wall of notices

We talk a lot about contractors on the California Construction Law Blog.

Owners?

Not so much.

So, owners, this one’s for you.

Why are Notices of Completion, Cessation and Non-Responsibility Important to Owners?

California recognizes three types of statutory notices on construction projects available to owners:

  • Notices of completion;
  • Notices of cessation; and
  • Notices of non-responsibility.

Notices of completion and notices of cessation reduces the time for contractors, subcontractors, material suppliers and equipment lessors to record a mechanics lien, serve a stop payment notice and make a payment bond claim.

Notices of non-responsibility are used by property owners, as opposed to project owners, to prevent contractors, subcontractors, material suppliers and equipment lessors from recording a mechanics lien effecting the property owner’s (but not the project owner’s) interests in the underlying real property and are typically used when a construction project consists of tenant improvements (e.g., build out of leased store space in a retail building).

What is a Notice of Completion and Notice of Cessation and How Do They Work?

A notice of completion and notice of cessation are legal documents which, when recorded and served, shorten the time for contractors, subcontractors, material suppliers and equipment lessors to record a mechanics lien, serve a stop payment notice and make a payment bond claim:

Notices of Completion, Cessation and Non-Responsibility - New Page

When Can You Record and Serve a Notice of Completion?

A notice of completion may be recorded by a project owner on or within 15 days after completion of a work of improvement. “Completion” is deemed to occur upon 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; or
  4. If a work of improvement is subject to acceptance by a public entity, on acceptance by the public entity.

What Information Must be Contained in a Notice of Completion?

A notice of completion must:

  1. Be signed and verified by the project owner;
  2. Include the name and address of the property owner, direct contractor, and, as applicable, construction lender;
  3. Include a description of the site sufficient for identification including street address, if any;
  4. Identify the date of completion; and
  5. Include a proof of notice declaration indicating how the notice of completion was served.

Note: If there is more than one direct contract, a notice of completion may be recorded following completion of each contract provided that the notice, in addition to providing the name and address of the direct contractor, also include a general statement of the work provided under the completed contract. Moreover, if a notice of completion is signed by a project owner’s successor in interest, the notice must also include the name and address of the transferor.

When, to Whom and How do You Serve a Notice of Completion?

A notice of completion must be served by a project owner within 10 days of the date the notice of completion is filed for recording and must be served on the following:

  1. The direct contractor(s); and
  2. Anyone who has served the project owner with a preliminary notice.

Note: Residential property owners do not need to serve a notice of completion so long as the property being improved is a dwelling unit of four or fewer residential units.

A notice of completion must be served by one of the following means:

  1. Personal delivery;
  2. Registered, certified or express mail;
  3. Overnight delivery; or
  4. Service by a process server.

When Can You Record and Serve a Notice of Cessation?

A notice of cessation my be recorded if there has been a continuous cessation of labor for a continuous period of 30 days.

What Information Must be Contained in a Notice of Cessation?

A notice of cessation must:

  1. Be signed and verified by the project owner;
  2. Include the name and address of the property owner, direct contractor, and, as applicable, construction lender;
  3. Include a description of the site sufficient for identification including street address, if any;
  4. Identify the date on or about which labor ceased;
  5. Include a statement that labor ceased from the date indicated through the date of recordation of the notice; and
  6. Include a proof of notice declaration indicating how the notice of completion was served.

When, to Whom and How do You Serve a Notice of Cessation?

A notice of cessation must be served by a project owner within 10 days of the date the notice of cessation is filed for recording and must be served on the following:

  1. The direct contractor(s); and
  2. Anyone who has served the project owner with a preliminary notice.

Note: Residential property owners do not need to serve a notice of cessation so long as the property being improved is a dwelling unit of four or fewer residential units.

A notice of cessation must be served by one of the following means:

  1. Personal delivery;
  2. Registered, certified or express mail;
  3. Overnight delivery; or
  4. Service by a process server.

What is a Notice of Nonresponsibility and How Does it Work?

A notice of nonresponsibility (or non-responsibility) is a legal document which, when recorded and posted, protects a property owner’s interests in its real property from mechanics liens. So, for example, if a retail tenant improves its leased retail space in a mall, the mall owner may record and post a notice of nonresponsibility to protect its interests in the mall from mechanics liens.

Note: While a notice of nonresponsibility may protect a property owner’s interest in real property, a mechanics lien claimant may still record a mechanics lien, but it would only affect the project owner’s interest in the real property (e.g., a commercial tenant’s leasehold interest).

When Must You Record and Post a Notice of Nonresponsibility

A notice of nonresponsibility must be recorded and posted within 10 days after the property owner has knowledge of the work of improvement.

Note: The “knowledge” requirement is important not only for timing, but as well, the validity of a notice of non responsibility all together. Civil Code section 8444 provides that only a property owner “that did not contract for the work of improvement may give notice of nonresponsibility,” and courts have broadly construed this requirement by creating a “participating owner” doctrine, whereby any owner who participated in the work of improvement whether directly or indirectly cannot rely on a notice of nonresponsibility to protect itself from mechanics liens. Thus, for example, if a property owner’s lease requires or provides for the construction of improvements by a tenant, as many retail leases, the participating owner doctrine would preclude a property owner from hiding behind a notice of nonresponsibility to shield itself from mechanics liens.

What Information Must be Contained in a Notice of Nonresponsibility?

A notice of nonresponsibility must:

  1. Be signed and verified by the project owner;
  2. Include a description of the site sufficient for identification including street address, if any;
  3. Identify the nature of the property owner’s title or interest in the site;
  4. Identify the name of the tenant, or if the property is being purchased, the name of the purchaser; and
  5. Include a statement that the property owner is not responsible for claims arising from the work of improvement.

Where Do You Post a Notice of Nonresponsibility?

A notice of nonresponsibility must be posted in a conspicuous location at the site.

Note: It is good practice to take a photo of where the notice of nonresponsibility was posted. Likewise, as an owner, it is important to include in your lease a provision permitting the owner to enter onto the tenant’s property to post a notice of non-responsibility.

Categories: Notices of cessation, Notices of completion, Notices of nonresponsibility

Tagged: Notice of cessation, Notice of completion, Notice of non-responsibility, Notice of nonresponsibility

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