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2012 California Construction Law Update

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With the New Year comes a host of changes to laws impacting the construction industry in California. Addressed below are some of the most important new laws to be aware of. Unless otherwise noted, all of these laws take effect on Jan. 1, 2012:

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Changes to Mechanics Lien Laws

SB 189 (Passed in 2010) & SB 190 (Passed in 2011). SB 189 and SB 190 were passed as part of an effort to modernize and simplify California’s mechanics lien laws spearheaded by the California Law Revision Commission. The majority of the changes brought by SB 189 and 190 are minor and are intended to be non-substantive, but a few key changes warrant discussion. These changes take effect on July 1, 2012.

Much of the terminology regarding mechanics liens has changed. For example, under the new laws, “direct contractor” is used in place of the somewhat ambiguous “original contractor,” and is defined as “a contractor that has a direct contractual relationship with an owner.”

Other changes include: All notice requirements have been standardized and relocated to a new subdivision; the new laws create new waiver and release forms, which must be used; the new laws make several changes with respect to completion and owners will now have 15 days to record the Notice of Completion instead of the previous 10-day period; direct contractors are required to give preliminary notice only to construction lenders; mechanics lien release bonds are only required to be equal to 125% of the claim, rather than 150%, as they previously were; provide a new procedure for judicially releasing liens, which was not previously included; a requirement that at least 10 days before petitioning for a release of lien the owner gives the claimant notice and demands a release of lien; and formal burden of proof requirements and the elimination of a cap on the recovery of attorney’s fees for petition for a release of lien.

Contractor’s Licenses for Limited Liability Companies (LLCs)

Passed in 2010, SB 392 requires that the Contractors State License Board (“CSLB”) begin processing applications by LLCs for contractor’s licenses before Jan. 1, 2012. Although the CSLB is not currently accepting applications for LLC licenses, we expect that it will do so shortly. SB 392 also sets out several additional requirements for LLCs wishing to obtain contractor’s license, including a $100,000 surety bond in addition to the $12,500 contractor bond, and liability insurance with the minimum aggregate limit of $1 million and an aggregate limit as high as $5 million, depending on the number of personnel of record. 

Prompt Payment, Payment Bonds, Public Contract Retention

SB 293 mandates a number of important changes, including reduction from 10 to 7 the number of days by which a prime contractor or upper tier subcontractor must pay a subcontractor after receiving a progress payment, unless otherwise agreed in writing. This rule applies to public and private contracts.  

SB 293 also requires that preliminary notice be given before making claims on payments bonds. SB 293 also impacts public contracting by capping retention at 5%. 

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