An Owner’s Guide to Notices of Completion, Cessation and Non-Responsibility

[This article was written by Wendel Rosen’s Construction Practice and appeared in The Wendel Report: Construction and Infrastructure Update, January 2017.]

Why are Notices of Completion, Cessation and Non-Responsibility Important to Owners?

California recognizes three types of statutory notices on construction projects available to owners:

• Notices of completion;
• Notices of cessation; and
• Notices of non-responsibility.

Notices of completion and notices of cessation shorten the time period in which contractors, subcontractors, material suppliers and equipment lessors may record a mechanics lien, serve a stop payment notice and make a payment bond claim.

Notices of nonresponsibility are used by property owners, as opposed to project owners, to prevent contractors, subcontractors, material suppliers and equipment lessors from recording a mechanics lien effecting the property owner’s (but not the project owner’s) interests in the underlying real property and are typically used when a construction project consists of tenant improvements (e.g., build out of leased store space in a retail building).

What are Notices of Completion and Notices of Cessation and How Do They Work?

Notices of completion and notices of cessation are legal documents that, when recorded and served, shorten the time for contractors, subcontractors, material suppliers and equipment lessors to record a mechanics lien, serve a stop payment notice and make a payment bond claim:

On What Types of Projects May a Notice of Completion and Notice of Cessation be Recorded?

A notice of completion and notice of cessation may be recorded on both public and private works of improvement.

When Can You Record a Notice of Completion?

A notice of completion may be recorded by a project owner on or before 15 days after completion of a work of improvement.

For private works of improvement, “completion” is deemed to occur upon any of the following events:

1. Actual completion of the work of improvement;
2. Occupation or use by the owner accompanied by cessation of labor;
3. Cessation of labor for a continuous period of 60 days; or
4. If a work of improvement is subject to acceptance by a public entity, on acceptance by the public entity.

For public works of improvement, “completion” is deemed to occur upon any of the following events:

1. Acceptance of the work of improvement by the public entity; or
2. Cessation of labor for a continuous period of 60 days.

What Information Must be Contained in a Notice of Completion?

A notice of completion must:

1. Be signed and verified by the project owner;
2. Include the name and address of the property owner, direct contractor, and, if applicable, construction lender;
3. Include a description of the site sufficient for identification including street address, if any;
4. Identify the date of completion; and
5. Include a proof of notice declaration indicating how the notice of completion was served.

Note: If there is more than one direct contract, a notice of completion may be recorded following completion of each contract provided that the notice, in addition to providing the name and address of the direct contractor, also include a general statement of the work performed under the completed contract. Moreover, if a notice of completion is signed by a project owner’s successor in interest, the notice must also include the name and address of the transferor.

When, to Whom and How do You Serve a Notice of Completion?

A notice of completion must be served by a project owner within 10 days of the date the notice of completion is filed for recording and must be served on the following:

1. The direct contractor(s); and
2. Anyone who has served the project owner with a preliminary notice.

Note: Residential property owners do not need to serve a notice of completion so long as the property being improved is a dwelling unit of four or fewer residential units.

A notice of completion must be served by one of the following means:

1. Personal delivery;
2. Registered, certified or express mail;
3. Overnight delivery; or
4. Service by a process server.

When Can You Record a Notice of Cessation?

A notice of cessation may be recorded if there has been a cessation of labor for a continuous period of 30 days.

What Information Must be Contained in a Notice of Cessation?

A notice of cessation must:

1. Be signed and verified by the project owner;
2. Include the name and address of the property owner, direct contractor, and, if applicable, construction lender;
3. Include a description of the site sufficient for identification including street address, if any;
4. Identify the date on or about which labor ceased;
5. Include a statement that labor ceased from the date indicated through the date of recordation of the notice; and
6. Include a proof of notice declaration indicating how the notice of completion was served.

When, to Whom and How do You Serve a Notice of Cessation?

A notice of cessation must be served by a project owner within 10 days of the date the notice of cessation is filed for recording and must be served on the following:

1. The direct contractor(s); and
2. Anyone who has served the project owner with a preliminary notice.

Note: Residential property owners do not need to serve a notice of cessation so long as the property being improved is a dwelling unit of four or fewer residential units.

A notice of cessation must be served by one of the following means:

1. Personal delivery;
2. Registered, certified or express mail;
3. Overnight delivery; or
4. Service by a process server.

What is a Notice of Non-Responsibility and How Does it Work?

A notice of non-responsibility (or nonresponsibility) is a legal document that, when recorded and posted, protects a property owner’s interests in its real property from mechanics liens. So, for example, if a retail tenant improves its leased retail space in a mall, the mall owner may record and post a notice of nonresponsibility to protect its interests in the mall from mechanics liens.

Note: While a notice of nonresponsibility protects a property owner’s interest in real property, a mechanics lien claimant may still record a mechanics lien that would affect the project owner’s interest in the real property (e.g., a commercial tenant’s leasehold interest).

On What Types of Projects May a Notice of Nonresponsibility be Recorded?

Private works projects only.

When Must You Record and Post a Notice of Nonresponsibility?

A notice of nonresponsibility must be recorded and posted within 10 days after the property owner has knowledge of the work of improvement.

Note: The “knowledge” requirement is important for both the timing and validity of a notice of nonresponsibility. Civil Code Section 8444 provides that only a property owner “that did not contract for the work of improvement may give notice of nonresponsibility,” and courts have broadly construed this requirement by creating the “participating owner” doctrine, whereby any owner who participated in the work of improvement whether directly or indirectly cannot rely on a notice of nonresponsibility to protect itself from mechanics liens. Thus, for example, if a property owner’s lease requires or provides for the construction of improvements by a tenant, as many retail leases do, the participating owner doctrine would preclude an owner from using a notice of nonresponsibility to shield itself from mechanics liens.

What Information Must be Contained in a Notice of Nonresponsibility?

A notice of nonresponsibility must:

1. Be signed and verified by the project owner;
2. Include a description of the site sufficient for identification including street address, if any;
3. Identify the nature of the property owner’s title or interest in the site;
4. Identify the name of the tenant, or if the property is being purchased, the name of the purchaser; and
5. Include a statement that the property owner is not responsible for claims arising from the work of improvement.

Where Do You Post a Notice of Nonresponsibility?

A notice of nonresponsibility must be posted in a conspicuous location at the site.

Note: It is good practice to take a photo of where the notice of nonresponsibility was posted. Likewise, as a property owner, it is important to include in your lease a provision permitting the property owner to enter onto the tenant’s property to post a notice of nonresponsibility.