Why Construction Businesses Should Protect Lien Rights

With the current COVD-19 situation and the fact most businesses are shut down, despite construction being considered an essential business, we are noticing a frequency of situations where the owner has suspended payments on their construction projects. While understandable, it will only compound the financial problem. When this occurs the most important step to take as a contractor, subcontractor and/or vendor is to preserve your lien rights. 

  Protecting your lien rights may not get you paid any faster but having a valid lien will ensure eventual payment. Below are several necessitous steps to take to ensure your Lien Rights are protected.

The First Step in Protecting Your Lien Rights

  The first step in protecting your lien rights is a pre-lien notice. Specifics on the pre-lien notices depend on if the claimant is a “first-tier” subcontractor or a “second-tier” subcontractor or below.

  •   A “first-tier” subcontractor is one that has a contract with the general contractor. A “first-tier” subcontractor only has to give one pre-lien notice.  The notice must be sent to the Owner and general contractor informing them of the unpaid balance not later than the 15th day of the third calendar month following each month the labor and/or material was delivered.
  •   A “second-tier” subcontractor is one that has a contract with a subcontractor of the general contractor.  A “second-tier” subcontractor must give two pre-lien notices.  The first notice must be sent to the general contractor informing him of the unpaid balance not later than the 15th day of the second calendar month following each month the labor and/or material was delivered.  The second notice must be sent to the Owner and general contractor informing them of the unpaid balance not later than the 15th day of the third calendar month following each month the labor and/or material was delivered.

If you have a contract with the owner, you are considered an original contractor (general contractor) and no notice is required.

What to Include in the Pre-lien Notice

The notice to the owner should include the following “funds trapping” language:

“If this claim remains unpaid you may be personally liable and your property may be subject to a lien unless:

              1. you withhold payments from the contractor for payment of the claim, or

              2. the claim is otherwise paid or settled.”

The Second Step in Protecting Your Lien Rights

The next step is to file your lien affidavit in the county in which the project is located.  The lien affidavit must be filed not later than the 15th day of the fourth calendar month after the last day of the month in which you performed labor or supplied material. The statutory notices are deadlines. There is no penalty for sending the notices or filing the lien affidavit early.

What If the Claim is For Retainage?

If the claim is for retainage, a claimant must send the requisite notices and file the lien affidavit for retainage no later than the 30th day after the work was completed.

  The lawyers at Murray|Lobb Attorneys, PLLC are ready to help you with your lien perfection needs. Contact us for consideration of your specific needs. This notice is designed to be informative and no attorney/client relationship is created unless we enter into a formal agreement, hiring us as your attorney. This notice is intended to aid in guidance and is not necessarily authoritative in relation to your specific situation. Because special statutory rules apply to residential construction, this notice does not apply to residential contracts.