Including a Proper Estimate in Your Preliminary Notice

California Case Highlights the Importance of Including a Proper Estimate in Your Preliminary Notice

It’s likely you have read this (or heard this) more than once from NCS: Statutory requirements for preliminary notices differ for each state and serving a preliminary notice may be the first step in securing mechanic’s lien rights.”  

We’ve previously discussed common mistakes with preliminary notices, and one of those common mistakes is leaving vital information off of the notice (i.e. neglecting to list the claim or contract amount, forgetting to include the material description, etc.).

Make Sure the Contact Amount Is a “Proper Estimate”

In Rental Equipment, Inc. v. McDaniel Builders, Inc., 91 Cal. App. 4th 445, 109 Cal. Rptr. 2d 922 (2001), the creditor remembered to include the contract amount, however, the amount listed was not a “proper estimate.”

In Rental Equipment, Inc. v. McDaniel Builders, Inc., the Second District Court of Appeal, Division 5, examined the requirement that a preliminary notice (in California) must include an estimate of the value of the materials or services provided.  The court looked to the meaning of the word “estimate.”

Rental Equipment, Inc. rented equipment to a subcontractor on a private project. Rental Equipment, Inc. sent out two preliminary notices, known as Preliminary 20-day Lien Notices, which both estimated the value of the rental equipment in the amount of $10,000.

The project was never completed, and the subcontractor did not pay Rental Equipment, Inc. Rental Equipment recorded a mechanic’s lien in the amount of $160,000, and later filed to foreclose on the lien.

The district court held the preliminary notices were fatally defective because the value of the lien was significantly higher than the estimate listed on the notice.

Then the Appeal

On appeal, the court upheld this decision for the following reasons: the estimate provided in a preliminary notice does not have to be exact; however, it cannot be based on merely a guess and the estimate must be derived by rational analysis.

Since the $10,000 estimates were not derived by “rational analysis”, the notices were fatally defective and the judgment in favor of McDaniel Builders, Inc. was affirmed.  Rental Equipment, Inc.’s failure to comply with California’s mechanic’s lien statutes caused its mechanic’s lien to be unenforceable.

Rental Equipment, Inc. should serve as an important learning lesson for all contractors, subcontractors, materialmen, and equipment providers: even a small mistake in a preliminary notice can greatly hinder your chances of recovery. If you are ever in doubt, seek a legal opinion.

Most Recent Resources

Blog

Will Safe Harbor Ever Exist for Florida UCC Filings? Zero Tolerance

Safe Harbor couldn't save this UCC. Florida's 'zero tolerance' policy means you must strictly comply with Article 9-503(a). Learn more here!
Read More
white paper
White Paper

NCS Credit Lien Index 2022 Q3

The Lien Index increased 4 points in Q3 2022, an 11% climb over Q2 2022. As expected, Q3 mechanic's lien activity rose 11% over Q2, and activity remained lower than Q1, which peaked at 43. We anticipate the Index will increase 2%-5% in Q4. Download the full report for details.

Read More
live webinars
Live Webinar

Understanding Lien Waivers

Lien Waivers generate a “check & balance” system for project payments in exchange for work or material provided. Does your company have a solid understanding of the basics of lien waivers?
Read More