A recent case highlights the necessity to serve a preliminary 20-day notice on the construction lender. In Shady Tree Farm v. Omni Financial, Shady Tree delivered mature trees for the landscaping of a development known as Granite Park. Omni had provided an $18 million construction loan secured by a deed of trust on the property. Omni’s DOT was recorded in January 2006. Omni recorded a modification to this DOT March 2007.
On August 11, 2008, Shady entered into a contract with a third-party to sell trees to the owners of Granite Park. Shady agreed to deliver 1,879 trees for a price of approximately $3.2 million. Between August 2008 and November 2008, Shady delivered 959 trees to the Granite Park development.
Except for a $25,000 deposit, Shady was not paid for the trees. In February 2009, Shady recorded a materialman’s lien against the property. In April 2009, Shady filed suit to foreclose the materialman’s lien. Shady further requested a declaration that its lien had priority over Omni’s DOT.
Unfortunately for Shady, its materialman’s lien was dead out of the gate because Shady did not serve a preliminary 20-day notice upon Omni, the construction lender.
What is a mechanic’s lien? Mechanic’s liens are purely statutory. A mechanic’s lien is a claim against the real property upon which the claimant has bestowed labor or furnished materials. It is perfected by filing a claim of lien within certain time limitations and by meeting other statutory requirements. One such statutory requirement is the service of a preliminary 20-day notice. (See, Civil Code § 3097.)
A claimant must serve a preliminary 20-day notice “not later than 20 days after the claimant has first furnished labor, service, equipment, or materials to the jobsite.” If a preliminary 20-day notice is required, a claimant shall be entitled to enforce a lien only if that preliminary 20-day notice has been given.
Section 3097 provides, in relevant part:
“‘Preliminary 20-day notice (private work)’ means a written notice from a claimant that is given prior to the recording of a mechanic’s lien … and is required to be given under the following circumstances:
“(a) Except one under direct contract with the owner …, every person who furnishes labor, service, equipment, or material for which a lien … otherwise can be claimed under this title …, shall, as a necessary prerequisite to the validity of any claim of lien, … cause to be given to the owner or reputed owner, to the original contractor, or reputed contractor, and to the construction lender, if any, or to the reputed construction lender, if any, a written preliminary notice as prescribed by this section.
“(b) Except the contractor, … all persons who have a direct contract with the owner and who furnish labor, service, equipment, or material for which a lien … otherwise can be claimed under this title, … shall, as a necessary prerequisite to the validity of any claim of lien, … cause to be given to the construction lender, if any, or to the reputed construction lender, if any, a written preliminary notice as prescribed by this section.”
Why did Shady lose? The court held the ordinary and usual meaning of the words used in section 3097 supports requiring that both subdivisions be met. Section 3097 states that a preliminary 20-day notice “is required to be given under the following circumstances.” (Italics added.) The plain meaning of the phrase “under the following circumstances” is that all of the following circumstances apply, as opposed to one of the following circumstances or any of the following circumstances.
In sum, construing section 3097, subdivisions (a) and (b), so as to give the words their ordinary and usual meaning and to avoid surplusage, Shady was required to give Omni a preliminary 20-day notice. Subdivisions (a) and (b) are not alternatives. If either one is met the 20-day notice must be given. Further, persons who have a direct contract with the owner are not “the contractor” under section 3097, subdivision (b), based solely on that relationship.
I consult with clients and accept cases involving the service of the necessary 20-day notice, and the perfection and foreclosure of materialmen and mechanics liens. For other types of cases I accept, please scroll my “Home” and “My Practice” pages. If you are seeking a legal consultation or representation, please give me a call at 818.971.9409. – Michael Daymude