General Contractor Has No Mechanics’ Lien Rights for Providing Design Services

D'Orsay v. Superior Court (10/29/04) __ Cal.App.4th __;4 C.D.O.S. 9721.

D'Orsay held title to land in Long Beach upon which it intended to build a new hotel/retail development. D'Orsay entered into an agreement with Summit, a licensed general contractor, for construction of the project. Summit provided approximately $850,000 in design related services, both by performing design and planning services, and by hiring design professionals. However, Summit never turned over a shovel full of dirt or drove a single nail into the project.

A prerequisite to the start of construction was the securing of adequate financing. D'Orsay attempted to obtain financing, without success. No building permit was issued for the project. No building materials were delivered to the project site. No actual visible construction or other work was conducted at the project site by Summit or by anyone else.

Summit eventually recorded a mechanic's lien against D'Orsay's real property in the amount of $846,434.26 and filed their suit alleging various causes of action, including breach of contract and seeking foreclosure of its mechanic's lien.

D'Orsay filed a motion for release of the mechanic's lien contending that because Summit never made any actual improvement to the property, as a matter of law, Summit had no basis for maintaining the lien. In opposition, Summit argued that a lien for design services is specifically authorized under Civil Code § 3081.2, and it was immaterial that design services were performed by a licensed contractor, rather than by a design professional such as an architect, engineer, or land surveyor. Summit also contended that its lien was proper despite the lack of work on the ground because an owner cannot defeat a lien by refusing to go ahead with construction.

The trial court granted D'Orsay's motion to release the bond conditioned upon D'Orsay posting a $1,270,000.00 bond. D'Orsay filed a writ with the Court of Appeal. The Court of Appeal reversed the trial court and ordered the mechanic's lien unconditionally released.

In reaching its decision, the court noted that Summit's reliance on the design professional lien statute was misplaced. California recognizes the right of a "design professional" to record a lien against real property for which a work of improvement is planned to be constructed, notwithstanding the absence of commencement of actual construction of the planned work of improvement, if the landowner contracted for the design professional's services and is also the owner of the real property at the time of recordation of the lien.

Here, the court noted that it was undisputed that Summit had recorded a mechanics' lien and not a design professional's lien. Although unstated, Summit could not have filed a design professional's lien based on the simple fact it was a general contractor and did not fall within the definition of a design professional as set forth by statute.

The court further noted that because no actual work "on the ground" ever occurred, Summit could not assert its mechanics' lien. The "general rule is that [a mechanic's lien] does not attach unless and until construction has been undertaken by the doing of actual visible work on the land or the delivery of construction materials thereto...The rationale for the groundwork requirement is twofold. First, under section of the California Civil Code 3128, a mechanic's lien attaches to the work of improvement and the land on which it is situated; if no work of improvement has commenced, there is nothing upon which the lien can attach. Second, actual visible work on the land notifies potential lenders that mechanic's liens have arisen."

Here, it was undisputed that no materials had been delivered to the project and that no work had been performed. Thus, Summit's purported mechanics' lien rights never attached.

The result of the D'Orsay case appears harsh but is not necessarily inconsistent with the statutory scheme and case history of the mechanics' lien and design professional lien statutes.

- James E. Sell