Contractor Not Paid in California: Lien Deadlines and the Demand Letter

What can a contractor do if they are not paid in California?

A contractor who is not paid in California can send a written payment demand, record a mechanics lien, give a stop payment notice in some situations, and sue for breach of contract. The lien and notice tools are strict: miss a step or a date and they can be lost.

Which tools apply depends on your position on the job:

• Direct contractor: you contracted with the owner. You can record a lien and claim prompt payment penalties against the owner.
• Subcontractor or supplier: you contracted with the general contractor or another sub. You can record a lien, give a stop payment notice and claim penalties against the contractor who paid you late.
• Laborer: you worked for wages on the project. Laborers are not required to give preliminary notice (Civil Code section 8200(e)).

This guide is for the builder's side. If you are the owner trying to get money back from a contractor, see the contractor refund demand letter guide.

Does a contractor need a license to sue for payment?

Yes. Business and Professions Code section 7031 bars anyone acting as a contractor from suing to collect pay for work that requires a license unless they were duly licensed at all times during the work, regardless of the merits of the claim.

The same section lets a person who used an unlicensed contractor sue to recover all compensation paid, and it makes a security interest taken for that work unenforceable. If licensure is disputed, the contractor must prove it with a verified certificate from the Contractors State License Board showing a license in the proper classification for the whole job.

Before any demand goes out, check your license status and classification for the full period of the job. A mid-project lapse is a problem to discuss with a lawyer first.

What are the California mechanics lien deadlines?

A mechanics lien is a claim recorded with the county recorder against the property you improved. It runs on three clocks, and a demand letter does not pause any of them.

"Completion" has a legal meaning. Under section 8180 it includes actual completion, owner occupation or use with labor stopped, 60 days of continuous cessation of labor, or a recorded notice of cessation after 30 days of stopped work. An owner who records a notice of completion must generally send you a copy within 10 days, or it does not shorten your deadline (section 8190). That copy rule does not apply to an owner who lives in a dwelling of four or fewer units.

What do California prompt payment laws require?

California sets payment deadlines and a 2 percent monthly penalty for money withheld without a good faith dispute.

• Owner to direct contractor (Civil Code 8800): unless otherwise agreed in writing, the owner must pay an undisputed progress payment within 30 days after a notice demanding payment under the contract. With a good faith dispute, the owner may withhold no more than 150 percent of the disputed amount. Violations carry a penalty of 2 percent per month, and the prevailing party in a collection action gets costs and a reasonable attorney's fee.
• Retention (Civil Code 8812, 8814, 8818): an owner that withholds retention must pay it to the direct contractor within 45 days after completion of the work of improvement, and a direct contractor must pass each sub's share on within 10 days after receiving it, with the same 2 percent monthly penalty.
• Contractor to subcontractor (B&P Code 7108.5): a prime contractor or sub must pay a subcontractor within seven days after receiving each progress payment, unless otherwise agreed in writing, with a 2 percent per month penalty, attorney's fees for the prevailing party and possible license discipline.

Because section 8800 runs from a notice demanding payment under the contract, a written demand that follows your contract's payment terms, and is delivered by a method the mechanics lien law's notice rules allow (Civil Code section 8100 and following), can be the step that starts that clock.

When does a stop payment notice help?

A stop payment notice tells the owner or construction lender to hold back funds to cover your claim. It reaches money that has not been paid out yet, so it is most useful while the project still has funds.

• Anyone with lien rights, other than a direct contractor, may give the owner a stop payment notice (section 8520). Anyone with lien rights may give one to a construction lender (section 8530).
• It must be signed and verified and may claim only amounts due for work provided through its date (section 8502).
• It is valid only if you gave any required preliminary notice and served it before the lien recording deadline ran out (section 8508).
• A lawsuit to enforce it can be filed 10 days after giving it and no later than 90 days after the period for giving it expires (section 8550).

Overstating the claim carries risk. Willfully demanding money for work not provided forfeits the stop payment claim and the lien (section 8504), and willfully including unfurnished work in a lien forfeits the lien (section 8422).

Home improvement jobs: rules the owner may raise

On residential remodels, the owner may answer your demand with your own contract. Business and Professions Code section 7159.5 sets rules for home improvement contracts with owners or tenants:

• The contract must be in writing and state the agreed contract amount in dollars and cents.
• A down payment cannot exceed $1,000 or 10 percent of the contract price, whichever is less.
• Except for the down payment, you cannot request or accept payment that exceeds the value of work performed or materials delivered.
• On request after any payment, you must provide an unconditional lien release for the paid portion, and the owner may withhold further payments until you do.

Tie each figure in your demand to the payment schedule and to the work actually performed or materials delivered.

How to write a contractor payment demand letter

1. Identify the project address, the contract date, your license number and your role on the job.
2. List the contract price, approved change orders, payments received and the exact balance.
3. Attach the unpaid invoices, the payment schedule and proof of completion or progress.
4. State that you served preliminary notice, with the date, if it was required.
5. Cite the payment term and, where it applies, Civil Code section 8800 or B&P Code section 7108.5.
6. Set a payment date that falls well before your lien recording deadline.
7. State that you reserve your lien and stop payment notice rights.

Example (hypothetical): a remodeler is the only contractor on a kitchen job, finishes the whole project on June 2, and is owed a final $12,000. No notice of completion is recorded, so the 90-day recording deadline under section 8412 falls on August 31. If the lien is recorded on August 10, section 8460 requires a foreclosure lawsuit by November 8.

Not sure which entity owes you? Our guide to finding the legal name of a business in California helps you address the letter correctly. For general invoice demands, see the unpaid invoice demand letter guide.

When an attorney-written payment demand makes sense

Lien and stop payment deadlines set construction collections apart from an ordinary unpaid bill. An attorney's letter is worth considering when those deadlines are close, when you are a sub chasing payment through a general contractor, when the owner claims defective work, or when the balance is beyond small claims limits: $12,500 for a natural person, including a sole proprietor, and $6,250 for a business entity (Code of Civil Procedure sections 116.221 and 116.220).

Through Talk to My Lawyer, a licensed California attorney writes your letter from your contract, invoices, change orders and notices, and sends it on your behalf. Recording a lien or filing suit involves separate steps, so talk to a lawyer about your facts and deadlines.