If you’re in the construction business long enough, it’s almost inevitable that at some point you’ll provide labor, services, materials or equipment to a project, only to be slow-paid or threatened with nonpayment.
California construction law includes a procedure that enables subcontractors, materials suppliers and laborers to assert their right to be paid: the stop notice.
A stop notice places a hold on a portion of the owner’s money. A stop notice disrupts project funding by requiring the owner to withhold the amount owed you from construction funds going to the general contractor or to subcontractors until your claim is resolved.
The stop payment notice is an incentive for the owner, general contractor and other subcontractors to fix the nonpayment issue.
Stop notices can be served in both private and public works projects.
Differences between stop notices and mechanics liens
A stop notice freezes only the money the owner has not yet paid on the project. So if the owner has already paid other contractors and suppliers in full, a stop notice has no effect.
A stop notice doesn’t attach to the property as a mechanics lien does. A stop notice freezes money, while a mechanics lien essentially freezes the property, meaning the property can’t be sold or refinanced without the lien claim being resolved.
A mechanics lien becomes public record, while a stop notice does not.
In some California construction situations, both a mechanics lien is filed and a stop notice is sent to the owner, affecting the property as well as the funding for the project.
It should be noted that when prepared and filed properly, both stop notices and mechanics liens can be very effective tools in payment disputes.