A stop payment notice, also known as a stop notice, is given to notify the property owner, general contractor, and/or lender that the claimant has not been paid for their services, materials, or equipment in a construction project.
The stop notice serves to put a stop to the funds of a project until due payment is received.
Much like mechanics liens and bond claims, stop notices are a resource in the construction industry to protect and facilitate payment. However, stop notices have their unique limitations, and they may not always be the best course of action.
Continue reading to learn how stop notices can be utilized.
Understanding How Stop Notices Work
Stop notices are a valuable tool for subcontractors that have not been paid for their services, usually by the general contractor.
A stop notice notifies either the prime contractor, property owner, or construction lender that payment is due and that they must withhold enough funds to pay your claim before payments continue to the general contractor.
Failure to pay you could result in you stopping work or filing a bond claim.
Stop notices are available on California public works and private projects, making them particularly useful since mechanics liens cannot be placed on public projects. However, before proceeding with a stop notice, you must first understand their restrictions.
Stop Payment Notice States
Stop payment notices are not available in every state. In fact, the majority of states don’t have stop notice laws, making it highly important to do research before sending a stop notice.
Sending a stop notice in a state without stop notice laws will render it ineffective and lead to wasted time and money.
This can be especially problematic when sent as a failsafe to a mechanic’s lien since it will offer no additional protection and could ultimately lead to you losing your lien rights.
Stop notices can generally be sent in Alaska, Arizona, California, and Washington.
At CNS, we offer California stop notice services. If you are working on a California public works project, a stop notice is a common way to protect payment.
Stop Payment Notices Are Only For Unpaid Funds
Unlike mechanics liens that attach to the property itself, stop payments are only effective against a portion of the construction funds that were allocated for the project.
Similar to an “unpaid balance” lien, the stop notice only requires payment of the funds that are due to you. It does not require the general contractor or property manager to issue additional payments.
Stop Notices Are Sent, Not Filed
Stop notices need only be sent to the necessary parties on the project — such as the owner, general contractor, or lender — they do not have to be filed in the property records.
Each state has its own rules set in place for sending a stop notice, but for the most part, a preliminary notice is a prerequisite. Failure to abide by all rules and steps could result in your stop notice being invalid.
One appealing aspect of a stop notice is that you do not have to wait until the completion of a project; they should be served during ongoing construction. However, if the general contractor is paid in full or the project is completed, sending a stop notice will no longer apply — making timeliness critical in the stop notice process.
Send a Stop Payment Notice
Stop payment notices usually need to be accompanied by other notices, such as a prelim, in order for them to be effective.
And while the stop notice does not expire in 90 days, lawsuits enforcing the stop must be filed within the state’s given deadline.
At CNS, we can help you send the necessary preliminary notice alongside your stop notice to ensure compliance and the protection of your payment.
Prefer to call? You can reach us at 800-366-5660.
Disclaimer: CNS is not an attorney, and if you need legal advice, please contact one.