June 2012
Number 31

Numerous changes to the California Civil Code on July 1, 2012, will affect the stop notice provisions, which allow a subcontractor to force a public agency owner to withhold funds from the general contractor when the subcontractor has not been paid. The following is a summary of the more significant changes to these procedures.

• Stop Payment Notices - As of July 1, "stop notices" will be referred to as "stop payment notices." This change more accurately reflects the nature of these procedures.

• Notice of Completion ("NOC") - After July 1, a NOC of the project may be recorded by the owner up to 15 days after completion of the project, which is longer than the current 10 days. (Civil Code § 9204(a).) If the owner timely records a valid NOC (or a valid Notice of Cessation), a subcontractor must give a stop payment notice to the owner within 30 days of the recording. If the owner does not timely record a valid NOC or Notice of Cessation, the time period in which the claimant may give a stop payment notice to the owner increases to 90 days after completion of the project or cessation.

• Definition of "Completion" - After July 1, "completion" will be defined as the date of the owner's acceptance of the project or the 60th continuous day of cessation of labor, whichever occurs first. (Civil Code § 9200.) Among other things, this two-prong definition affects the timing of (a) the deadline for recording a NOC, and (b) the expiration of the subcontractor's 90-day period for giving owner a stop payment notice.

• Notice Sent by Owner - Currently, if the subcontractor paid $2 when the stop notice was filed with the owner, the owner must send to the subcontractor a notice within 10 days after the recording of a NOC or other specified events, whichever occurs later. Effective July 1, 2012, Civil Code section 9362 will require the subcontractor to pay $10, and the owner then will have to send to the subcontractor a notice of the deadline to file a court action to enforce the stop payment notice. Owner will have to give this notice within 10 days of completion of the contract and within 10 days of any recording of a NOC or Notice of Cessation.

• Location of Statutes in the Civil Code - The stop notice provisions for public works are being moved from sections 3082-3106 and 3179-3214 in the Civil Code to sections 8000-8154 and 9000-9566. The renumbering may require updates to the public agency's construction-related documents, including notices sent to the subcontractor and general contractor.

These new statutes contain many changes that may affect the handling of stop payment notices and the recording of notices. For these reasons, be sure to consult with your construction counsel about the implications of these new statutes before and during closeout of your current projects.

If you have any questions regarding the changes to the stop notice provision related revisions to your contraction documents, please feel free to contact
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