Compliance with pre-lien notice requirements for private, non-residential construction projects.

Image courtesy of Flickr (Licensed) by LendingMemo.com
Image courtesy of Flickr (Licensed) by LendingMemo.com

On regular basis I find myself face-to-face with a subcontractor that hasn’t received payment for several months and is now afraid payment will never occur.  Most contractors know that they may enjoy some lien or bond rights.  Often clients just don’t know the steps needed to take advantage of this powerful tool or they misunderstand the rules and make a fatal mistake.

If  you have erred trying to secure a lien, rest assured that you are not alone.  Texas’ lien laws need a complete overhaul.  They are complex.  Decades of court interpretation and amendments have made things worse.  To quote the Texas Supreme Court,

these statutes are very lengthy, have been subjected to several revisions, and are not exactly a model of clarity.

Mistakes that subcontractors commonly make stem from:

  • Not understanding their legal relationship to the general contractor and owner.
  • Improperly relying upon invoice dates to calculate deadlines
  • Not recognizing their project type (e.g. public vs private)

Pre-Lien Notice Deadlines

A primary reason that contractors fail to perfect mechanic’s liens on non-government projects comes from missing a pre-lien notice letter deadline.  Mechanic’s lien statutes are “remedial” and therefore the courts interpret their requirements liberally in order to protect a subcontractor’s and material vendor’s rights.  However, the deadlines for providing notice of claims are strictly applied.  The good news is that mistakes concerning pre-lien notice deadlines can be avoided by understanding where you fit in the project scheme and remembering that the pre-lien notice deadlines are calculated using the month that you performed work or provided materials to the project.

Pre-lien notice deadlines are never calculated based upon when the contractor or material vendor sends their invoice.  Invoices are wholly irrelevant to determining deadlines related  lien or bond claims.

To determine a notice deadline, lien claimants really need to know answers to two questions:

Question 1: Where do I fit in the project’s contractual scheme? 

(1)   a general contractor (has a contract with the owner)

(2)   a “first tier” subcontractor (has a contract with the general contractor), or

(3)   a “lower tier” subcontractor (has a contract with a subcontractor but does not have an agreement with either the owner or the general contractor).

Question 2:  When did I last provide labor or materials to the project?

General Contractors do not have any pre-lien notice requirements.

Subcontractors must send pre-lien notices to the general contractor and the owner (all notices must and should be sent by certified mail) by not later than the 15th day of the 3rd month following EACH month in which they performed work or provided materials but haven’t received payment.

Lower tier subcontractors must send pre-lien notices to the general contractor by no later than the 15th day of the 2nd month following EACH month in which they performed work or provided materials to the project and pre-lien notice letters to both the general contractor and owner by no later than the 15th day of the third month following EACH month that they last worked or supplied materials.  Second and third month notices may be combined as long as the notice includes the correct information and is sent to both the general contractor by the 15th day of the second month.   It is worth reiterating that it is the month in which the work was performed and not the month invoiced that matters.

Complying with these deadlines is the tricky part.  Content is straightforward.  Identify the project, state how much you are owed and when you performed work or provided materials.  Notices to owners should include “funds trapping” language.  Specifically, you need to advise the owner that if the claim remains unpaid, he may be personally liable and his property may be subjected to a lien unless payment is withheld from the contractor to pay the claim OR the claim is otherwise paid or settled.

Early notice promotes satisfaction without litigation and unfairness to owners.  Fortunately, those with valid lien claims get frequently get paid once owners and general contractors receive timely pre-lien notices.  If payment isn’t forthcoming, know that you must still timely file a lien affidavit and file suit to foreclose your lien.