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California Civil Code Section 3110.5

May 01, 2002

By Robert M. Keane, Jr. and John F. Simonis

As of January 1, 2002, California law requires certain owners (and in some cases, even lessees) of real property, who contract directly with contractors for works of improvement costing in excess of specified sums, to provide security for payment to contractors in the form of a payment bond, letter of credit or secured cash escrow. The full ramifications of this new law, A.B. 1534, codified as California Civil Code Section 3110.5, are not clear, but, in addition to creating confusion over what exactly is required of owners, contractors, and lenders by this new law, the effects could have a significant impact on the costs of developing and/or financing the development of construction projects in the State of California.

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