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Law & Business · Module 1

Payment Rules and Lien Remedies

Lesson 3 of 7~20 minFree previewCurrent as of September 2026Leer en español

How money is supposed to move on a California job, and what the law gives you when it does not. You will learn the home improvement down payment and progress payment limits, the prompt payment rules for owners and subcontractors, the current retention rules, lien waiver forms, and an overview of the three payment remedies: the preliminary notice, the mechanics lien, and the stop payment notice, with their key deadlines.

Key Takeaways

  • Home improvement down payment: no more than $1,000 or 10 percent of the contract price, whichever is less; after that, no payment may exceed the value of work performed or material delivered (B&P 7159.5).
  • When the owner asks, you must furnish an unconditional lien release for each portion paid, and the owner may hold further payments until you do (B&P 7159.5(a)(6)).
  • On private works, an owner pays an undisputed progress payment within 30 days after a demand, unless otherwise agreed in writing; the penalty for wrongful withholding is 2 percent per month (Civil Code 8800).
  • A prime contractor pays its subcontractors within 7 days after receiving a progress payment, unless otherwise agreed in writing; the penalty is 2 percent per month and CSLB discipline (B&P 7108.5).
  • For private contracts entered into on or after January 1, 2026, retention may not exceed 5 percent, with exceptions including residential projects that are not mixed use and not over four stories (Civil Code 8811).
  • Lien waivers must be on the four statutory forms; never sign an unconditional waiver until you are actually paid (Civil Code 8132 to 8138).
  • Preliminary notice is due within 20 days after you first furnish work; a late notice covers only work from 20 days before it was given (Civil Code 8204).
  • Record a lien within 90 days after completion; if a notice of completion or cessation is recorded, 60 days for a direct contractor and 30 days for everyone else (Civil Code 8412, 8414). Sue to foreclose within 90 days after recording (Civil Code 8460).
  • A stop payment notice makes the owner or construction lender withhold funds; a bonded notice to a lender needs a bond of 125 percent of the claim (Civil Code 8520, 8532).

Why This Matters

Getting paid is the point of the job, and California law sets specific rules for how and when money moves. CSLB's Law and Business study guide lists payments, and liens and other remedies, among the exam's major sections. This lesson covers the payment rules first, then gives you an overview of the three remedies the law provides when payment does not come. The next lessons go deeper on liens.

Home Improvement Payment Rules

On a home improvement contract (residential, contract price over $500), B&P 7159.5(a) controls payments:

  • Down payment: it may not exceed $1,000 or 10 percent of the contract amount, whichever is less (B&P 7159.5(a)(3)).
  • Progress payments: if the contract calls for payments before completion, it must include a schedule of payments in dollars and cents, each tied to specific work or materials (B&P 7159.5(a)(4)).
  • No payment ahead of the work: except for the down payment, you may not request or accept payment that exceeds the value of the work performed or material delivered (B&P 7159.5(a)(5)). The contract itself must say, in 12-point boldface, that it is against the law to collect payment for work not yet completed or materials not yet delivered (B&P 7159(d)(9)).
  • Lien releases on request: after any payment, and before any further payment, you must, if asked, get and furnish a full and unconditional release from any lien claim for the portion of the work that was paid for. The owner may withhold all further payments until you do (B&P 7159.5(a)(6)).

Violating the written contract, down payment or payment-ahead rules is a misdemeanor, with a fine of $100 to $5,000, up to one year in county jail, or both (B&P 7159.5(b)). A contractor who furnishes an approved performance and payment bond or equivalent is exempt from the down payment and progress payment limits (B&P 7159.5(a)(8)).

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