California Law Revision Commission makes tentative recommendations on builders liens and strata properties
June 9, 2016
BY Kevin Zakreski
As noted earlier this spring, the California Law Revision Commission is carrying out work on legal issues that arise from the intersection of builders-lien law and strata properties. The commission has just released its tentative recommendations for reform (PDF) of what California law calls mechanics liens in common-interest developments.
At bottom, the legal issues for this topic flow from one of the distinctive aspects of the strata-property ownership model. In British Columbia, this quality can be seen in section 66 of the Strata Property Act, which provides that strata-lot owners collectively own the strata’s common property and common assets as tenants in common, with each strata-lot owner holding “a share equal to the unit entitlement of the owner’s strata lot divided by the total unit entitlement of all the strata lots.” A similar rule appears to prevail in California, but, as the commission notes, some common-interest developments (a somewhat broader category than British Columbia’s strata property) may have other ownership arrangements for their common property.
One of the implications of this collective ownership model of common property is that, when a builder wants to assert a lien, that lien must be registered on title to strata lots. If the builder wants to proceed to enforcement of this lien in court, then it must serve each strata-lot owner. In large strata properties, this can amount to a burdensome and costly way to proceed.
The commission has made tentative recommendations that address two aspects of this concern. The tentative recommendations relate to distinctive rules in California law.
The first tentative recommendation addresses a rule that makes “the enforcement of a mechanics lien claim . . . contingent on the claimant having given timely ‘preliminary notice’ to the owner of the improved property.” If the lien relates to common property, this notice requirement could lead to the burdens and costs of notifying a large group of owners. The commission’s tentative recommendation for reform is “that the law be revised to designate the association as the agent for receipt of mechanics lien notices for work on the common area.” An “association” is California’s equivalent to a British Columbia strata corporation.
The commission also made a consequential tentative recommendation on this issue:
In order to prevent surprise to separate interest owners if the recordation of a claim of lien is imminent, the Commission also recommends that the association have the duty of notifying the separate interest owners when a claim of lien is served on the association.
The second issue concerns another distinctive California rule that provides “[c]laimants only have a valid mechanics lien right for work that has been authorized by the owner.” In this case, as the commission notes, “[i]f the common area is owned by separate interest owners as tenants in common, mechanics lien rights could be contingent on obtaining the express authorization of all separate interest owners (who can number in the thousands).” California already has an existing law that addresses this concern, but it only applies to residential condominiums and commercial and industrial common-interest developments. In California law, a common-interest development embraces a wider range of developments than condominiums (BC strata properties). It also takes in “community apartment projects, stock cooperatives, and planned unit developments.” The commission tentatively recommends that the existing provisions “be generalized to apply to all types of CIDs.”
The commission’s publication includes a draft of its proposed legislative changes. The tentative recommendations are open for public comment until 1 August 2016. As the commission observes,
[i]nput from knowledgeable persons is critical in the Commission’s study process, and may cause the Commission to substantially revise its proposal. Comments supporting the proposed approach are just as important as comments suggesting changes to that approach or expressing other views.
