“Substantial completion” is the point in a construction project in which the contemplated premises have been completed to the point where the owner can move in and use the premises for their intended purposes. Not everything needs to have been completed for substantial completion to apply. In a typical construction contract, certain legal rights and duties kick in at the point of substantial completion, which is why the term needs to be defined clearly.

The Contractual Consequences of Reaching “Substantial Completion”

Substantial completion of a construction project usually triggers certain legal consequences, depending on the specific wording of the construction project. Typical consequences include:

  • The statute of limitations period for filing a lawsuit begins with respect to any legal claims contemplated by the contractor under the contract.

  • Specified warranty periods commence.

  • The owner may take over liability for certain matters such as insurance coverage and utilities.

  • The date of substantial completion typically determines when the contractor is entitled to payment of the remainder of the contracted compensation (although certain retainage funds are usually withheld pending final completion of the project).

Contractual Ambiguities

A common problem in a construction project occurs when the term “substantial completion” is not defined or it is not defined clearly enough – fueling a dispute. As an example, the contractor may file a lawsuit, the validity of which depends on whether or not he beat the statute of limitations deadline, which in turn depends on the date of substantial completion, which in turn depends on the interpretation of ambiguous wording in the construction contract. 

“Substantial Completion” and Mechanic’s Lien Law

A mechanic’s lien is a lien upon a construction project that essentially turns the property into collateral for the payment of the direct contractor as well as subcontractors. The liability goes against the owner, and that remains true even if the owner has already paid the direct contractor and only subcontractors are demanding payment that the direct contractor owes them.

Unlike the contractually created legal consequences described above, the right to a mechanic’s lien is guaranteed by law and is even enshrined in the California state constitution. The date of substantial completion is important, because a claimant has 60 or 90 days (depending on the circumstances) after substantial completion of the entire project to file a mechanic’s lien to enforce payment of the claim, even if the claimant only worked on an early part of the project.

The California Legal Definition of “Substantial Completion”

Under Section §8180(a) of the California Civil Code, “substantial completion” for the purpose of filing a mechanic’s lien requires:

  • Actual completion of the work;

  • Occupation or use by the owner after the labor has been completed;

  • 60 days after all labor on the project has ceased; or

  • As soon as all work on the project has completely ceased for at least 30 days and a notice of cessation is filed.

Despite the formal statutory definition, significant ambiguity remains when it is applied to real world construction projects.

Contact Us ASAP

If you are in the process of negotiating a construction project contract, or if you need to know how to interpret or execute it with a minimum of legal risk, telephone CKB Vienna today or contact us online to schedule a consultation where we can discuss your concerns and answer your questions. We serve clients in Rancho Cucamonga, San Bernardino County, Los Angeles County, Orange County, and Riverside County.