Preventing Mechanics Liens and Should I be worried this?

[David S.]

Hi BP Community!

I want to see if Developers, Rehabbers, BRRR'ers, Contractors and anyone else in this community could offer any advice about this situation.

I hired a design-build Contractor to retrofit the garage of an apartment building to comply with new soft story laws. Due to growth in the Contractor’s business and because one of his in- house engineers went on vacation, the Contractor entered into a contract with a reputable engineering firm to do the engineering and design work on many buildings, including mine. Let’s say my contract provided for a $7,000 fee for the design and engineering phase which would include getting the city’s approval of the plans. The plans were approved and the Contractor sent me an invoice for the $7,000. At the same time, the Contractor said that he was under water because the engineering firm also charged him an additional $4,000 fee, on top of the $7,000, for expediting the approval of the plans.

The Contractor told me that I would only have to pay him $7,000 per our contract and that the extra $4,000 is between him and the engineering firm and that he would be negotiating this with them since their contract with the engineer provides for them to do many more of the Contractor’s buildings.

Since this is a fairly big project for me, I have been reading about Contractors and Mechanics Liens in California and learned that if the Contractor does not pay his subcontractors, and I consider the engineering firm in this case a sub-contractor, any sub-contractor could file a lien on my property.

The good news is that I had the Contractor get a lien release from the engineering firm for the $7,000. However, and while I want to believe that the Contractor will be able to resolve the $4,000 issue with the engineer, I am wondering if there is anything else I should be doing to protect against a potential lien. For example, I am thinking that when I pay the Contractor for the $7,000, I should have the Contractor indemnify me for any claims the engineer may bring if he isn’t paid. Or should I require that the Contractor pay the extra $4,000 before I make the $7,000 payment and get a another lien release, eventhough this may impair the Contractor’s ability to negotiate with the engineer?

Thanks for reading. I look forward to any advice you may have.

[Manolo D.]

David S. The engineering firm should issue YOU Unconditional contract lien waiver and the Contractor should issue YOU conditional lien waiver upon progress payment. The 4k is not your problem. You concern yourself in paying what is your contract, not anything else. Indemnity and Sub-contractor clause should be in the contract, it is not a letter, you have to amend and revise the whole contract for it to he fully binding, but this is overkill. Another option if the engineering firm will NOT issue the Unconditional (since this is only done if and only if the contractor paid the firm) LW, you will offer a joint check to the contractor AND the firm for the 7k in exchange for CLW upon Final Payment from the firm AND CLW upon Progress Payment, they both need to sign it and once it is cashed out, you are free from lien obligation for that particular line item.
http://www.cslb.ca.gov/Consumers/Legal_Issues_For_Consumers/Mechanics_Lien/Conditional_And_Unconditional_Waiver_Release_Form.aspx