Release bonds are a specific area of construction law. Understanding them is an important way to help keep your project secure, whether you’re a developer working with contractors, a contractor using subcontractors, or another party invested in the construction project in some way.
Here are a few of the biggest questions surrounding the posting of release bonds, and what they could mean for your development or business goals.
What Does a Release Bond Do?
According to California law, anyone who provides services, labor, equipment, or materials to a construction project can serve a stop payment notice or record a mechanic’s lien. These “attach” to the fund for the project or the real property itself.
Release bonds are used to dispute the enforceability, validity, or correctness of the lien or stop payment, and can release the construction fund or real property.
In other words, the project can continue with the use of a release bond, because the funds will be available and there won’t be a lien on the real estate being developed. Understanding what happens when a release bond is posted, and how it affects the rights of everyone involved, is very important.
Who Can Post a Release Bond?
Only certain parties to the transaction can post lien release bonds. Most commonly the people who want to post these bonds are general contractors releasing liens from subcontractors, and property owners releasing liens that have affected their real property. If you’re not sure whether you have the legal standing to post a release bond, talking to an attorney is the right choice.
What is a Mechanic’s Lien Release Bond?
A mechanic’s lien release bond is designed to remove a lien on real property from a contractor or subcontractor. When this kind of bond is used the rights of all the parties to the transaction remain the same. The claimant remains limited to what they could have recovered under the original mechanic’s lien.
California’s courts have made rulings to ensure that non-labor expenses like attorney’s fees can’t be claimed, and that any damage from a delay due to the lien can’t be claimed, either. Anyone who has a mechanic’s lien on a property is owed only the amount of the lien, regardless of any additional issues that arise through the posting of a release bond by another party.
What is a Stop Payment Notice Release Bond?
A stop payment notice release bond should theoretically work the same way, but that’s not entirely accurate. Instead, it’s possible to recover attorney’s fees in these kinds of cases. Claimants can recover whatever was under the original notice to stop payment, and in 2002 a California court ruled that other expenses may be included.
Because the surety’s liability is the same as the liability of the bond principal, the surety should be liable for the same amount. That includes non-payment penalties and other fees.
Do you have additional questions about release bonds, or need legal representation in that area? Contact Lanak & Hanna today to get the support and information you’re looking for.