The last major changes to the Tennessee mechanics lien law took place in 1990. In that year, the Legislature enacted major modifications to the existing Tennessee mechanics’ lien law, with numerous miscellaneous changes made since 1990. The
1990 modifications are encapsulated within the following two major categories:
1. The Tennessee lien law provided more protection against mechanics liens to residential property than commercial property.
2. The “Notice of Nonpayment,” which is applicable to commercial property only.
The Tennessee legislature has eliminated all mechanics lien rights for residential real property for lower tier contractors. By statute, residential real property is defined as a building consisting of one dwelling unit in which the owner of the real property intends to reside, or resides as the owner’s principal place of residence, including improvements to or on the parcel of property where the residential building is located. By statute, residential property also includes buildings consisting of two, three, or four dwelling units where the owner of the real property intends to reside or resides in one of the units as the owner’s principal place of residence.
The residential real property lien exclusion applies only to lower tier contractors. It does not apply to any contractor contracting directly with the owner or who is in privity with the owner. Therefore, residential real property lien rights still exist when the owner contracts directly with the contractor. As a practical matter, many trade contractors who would normally be involved as a subcontractor now refuse to perform any work unless such trade contractor contracts directly with the owner in order to preserve its lien rights.
The lien rights of a contractor contracting directly with the owner continue for one year after the date the improvement is complete or is abandoned and until the final decision of any lawsuit properly brought within that period of time for its enforcement. Any action to enforce the lien rights of a contractor contracting directly with the owner on a residential property project must be initiated within such one year period from date of completion of the improvement.
The time for the filing of a lien by one contracting directly with the owner may be accelerated by the filing of a Notice of Completion designating the date of completion by the owner or owner’s representative in the office of the Register of Deeds in the county where the real property is located. This has the practical effect of decreasing the time in which a lien may be filed. The Notice of Completion must contain:
1) the legal name of the owner or owners of
the real property;
2) the name of the prime contractor/contractors;
3) the location and description of the real property; and
4) the date of completion of the improvement. The Notice of Completion date designated therein shall not be less than ten days after the date of the recording of the Notice of Completion. Thus, the lien claimant must file its lien within such 10-day period. In the case of commercial real property, the expiration date for lien claimants to file their Notice of Lien shall be at least thirty days after the date of the recording of the Notice of Completion in the Register’s Office.
Every remote contractor or supplier not in privity with the owner with the respect to any improvement other than residential property must serve a Notice of Nonpayment within ninety days of the last day of each month within which labor or materials was provided and for which the remote contractor or material supplier was unpaid and intends to claim a lien. The Notice of Nonpayment must contain:
1) the name of the remote contractor and the address to which the owner and/or the prime contractor in contractual privity with the remote contractor may send communications to such remote contractor;
2) a general description of the work, labor and materials, etc. provided;
3) the amount owed as of date of the Notice;
4) a statement of the last date that the remote contractor or supplier performed work and/or provided labor, materials, services, etc., in connection with the improvement; and
5) a description sufficient to identify real property against which a lien may be claimed.
Any remote contractor or supplier who fails to provide the Notice of Nonpayment shall have no right to claim a lien under the mechanics’ lien law except for any retainage which may be held by the owner or prime contractor. This provision brings Tennessee in line with numerous other States that require pre-lien or preliminary notices prior to the filing of a lien. The basic purpose is to notify the owner/prime contractor of any potential lien claims. Without this provision, an owner is likely to be unaware of potential lien claims prior to the filing of such lien claims. In most instances, notice to the owner/prime contractor of potential lien claims will force resolution of such claims without suit.
After compliance with the Notice of Nonpayment provisions, a Notice of Lien may be filed within ninety days after completion of the work or within ninety days after substantial completion of the project. An action to enforce the lien must be brought within ninety days after completion of the project.
The Tennessee lien law requires that whenever any contract for the improvement of real property provides that a certain amount or percentage of the contract price is retained (retainage), the retained amount shall be deposited in a separate interest bearing escrow account with a third party for the use and benefit of the contractor to whom such funds are owed. The funds held in escrow are subject only to the rights of the person withholding such retainage in the event of default by the contractor to whom such funds are owed. This provision of the lien law is applicable to all contracts or subcontracts for the improvement of real property when the contract price stated in the contract or subcontract is $500,000.00 or greater. This provision of the law is mandatory and may not be waived by contract.
Massachusetts has extended mechanic’s lien rights to architects, engineers and other design professionals. The law, which was signed by Mass. Gov. Deval Patrick on January 5, 2011, becoming effective on July 1, 2011, allows architects, other design professionals, and project managers to place a mechanic’s lien on property if they are not paid for their services. The elements of the new Massachusetts mechanics lien law include:
• The professional must record a notice of contract and a statement of account in the local registry of deeds. Deadlines are the same as those required for contractors, subcontractors and suppliers. The filings must be completed within 60 days after recording a notice of substantial completion or within 90 days of last providing professional services, whichever is earlier.
• Consultants that do not have a contract with the owner must have been approved in writing by the property owner.
• If there is a distribution after a property sale to satisfy more than one lien, the contractor and subcontractor lien claimants are to be satisfied before distributions to designer lien claimants.
According to an article entitled Design professionals may file mechanic’s liens in Massachusetts written by Stanley A. Martin, Esq. of the law firm Duane Morris, “the new law was promoted by the Boston Society of Architects and American Institute of Architects / Massachusetts, and was reportedly negotiated by subcontractor and lender groups at the table. Proponents of the law have told the construction community that, when placing liens, they would become ‘the canary in the coal mine’ for the benefit of contractors and subcontractors, and that may be the situation. However, an owner-architect dispute leading to a lien claim by the architect may also stop the flow of construction funds, potentially adding a new wrinkle to the process. That may give rise to issues in implementing the new lien rights.”
If the past few years of chasing down money has served as a constant reminder, getting paid first –or sometimes at all– may require getting the property owner involved, especially when your contract is only with the general contractor or one of the subcontractors. A recent blog entitled Construction Contractors: Dotting Your “I”s and Crossing Your “T”s by OC Legal Buzz outlines these requirements:
Most contractors, and hopefully their attorneys, know that certain, timely notice and filing procedures can make the difference in asserting all available rights to ensure payment after the work has been done or the materials supplied. The typical scenario occurs where a debtor contractor/subcontractor has robbed Peter to pay Paul. However, one can also be an unwitting victim to issues between the lender and owner or owner and general contractor.
That said, the contractor/supplier is expected to be proactive when it comes to holding the property owner liable for one’s work and materials.
The California Civil Code requires a preliminary notice to be served on an owner within 20 days of beginning work or supplying materials. In short, if you fail to do so, you risk losing part or all of your claim against the property owner, based on the dates you provide work/materials and the date you serve the preliminary notice. This does not affect your legal claims against your direct debtor.
his is still the standard method for notice…but send it certified mail, return receipt requested.
The 90-90 Rule
Post-project rules of enforcement can be easily remembered as the “90-90 Rule.”
After the project is completed, you typically have a 90-day window (30 days in some instances) in which to record a mechanic’s lien against the property at the County Recorder’s Office. However, where only recording used to be sufficient, you must now also service a Notice of Lien to the owner and/or the construction lender or general contractor (Civil Code Sec. 3084). Failure to do so will deem your mechanic’s lien unenforceable. Just remember that, if you were the owner, you’d want to have up-front notice rather than being blind-sided.Assuming you properly record and serve your lien and notice, you then have 90 days in which to file suit against the property or your lien effectively goes stale and must be withdrawn. However, as of January 1, 2011, you must also record with the County Recorder what’s called a “lis pendens,” or action against the property, within 20 days of recording (Civil Code Sec. 3146). This is intended to put all purchasers and lenders on notice of your claim against the subject property. Though this recording used to be optional (any attorney worth his salt recorded them every time), it is now mandatory and any delay, even within the 20-day period, can cause your claim to become subordinate to a sale or encumbrance that occurs prior to this lis pendens recording. Failure to comply may result in seemingly unfair consequences.
Typically, your attorney will handle these timelines for you on the back end. However, most companies handle the preliminary notices themselves, so it’s important that company principals and their clerical staff handling the project files are aware of these changes. Don’t wait until Day 88, or 91 for that matter to contact your lien filing service or your attorney…they probably won’t be able to do anything for you at that point.
A County Recorder has determined a way to help owners determine what is being recorded on their property at any given time. Lorain County Recorder Judy Nedwick has launched a new system that will notify property owners by e-mail or text message whenever a document is filed regarding their property. Those interested in the service can sign up for free on the county’s website, LorainCounty.com/Recorder.
While the purpose of the new system is intended to help prevent real estate fraud, it could have many uses for people who are actually filing the liens. In many cases, the owner has no idea subcontractors are owed money until well after they file the mechancis liens. This new system would give owners immediate notification that money is owed to people and companies performing work on their properties.
An interesting article by the Ohio based Chronicle Telegram details the story. Nedwick said she was approached about helping develop PropertyCheck around the same time as her office was dealing with a fake mechanic’s lien that had been placed on an Elyria, Ohio home.
The owners never had any work done on their house and had never met the lienors. They had no idea about the lien until another man contacted them wanting to collect on the lien he claimed to have purchased from the lienor for $10,000.
By November 2009, construction employment in the state was off by 5,200 jobs when compared to a year earlier. A year later, construction remained in the doldrums.
But continued school building provided a welcome boost for many contractors.
In Natrona County, Groathouse Construction completed the CY Middle School last summer, which sent payroll and consumer-spending benefits rippling through the local economy.
John Griffith, Groathouse project manager, said the CY Middle School project involved 49 subcontractors, 24 of which were from Casper and 35 from the state generally. Of the final project cost of about $29 million, $21.5 million went to Casper-based firms and just under $25 million to Wyoming-based subcontractors. In all, 86 percent of the dollars spent on the project went to Wyoming subcontractors.
Casper-based companies did the mechanical, electrical and steel work — big parts of any such project. Wyoming firms also provided the polished concrete floors, the doors, windows, ceilings, and supplied specialty items like bathroom partitions.
Griffith said there were only a couple aspects of the project, like exterior sprayed insulation, that few Wyoming firms provide. He added that schools are not nearly as specialized as, for example, hospital projects.
On a Groathouse project, Griffith said it’s typical for 75 percent to 85 percent of the project dollars to be spent on Wyoming-based subcontractors.
“We’ve got a pretty extensive database of subcontractors from Wyoming that we market to do work for us in all corners of the state,” he said.
“Everybody always wants the best price, but what we also push is the best value,” Griffith added. “It doesn’t do anybody any good to get the best price if that subcontractor can’t perform the work.”
Griffith said the CY Middle School work force peaked at about 115 workers, but over time from start to finish, about 500 people were involved in the project.
In recent years, several new Natrona County schools in addition to CY have been built — Fort Caspar Academy, Cottonwood Elementary, Summit Elementary and Poison Spider School.
The future of school construction spending is a topic before this year’s Wyoming Legislature. In his State of the State address, Gov. Matt Mead rejected $62 million for school construction, which had been in former Gov. Dave Freudenthal’s budget.
“I remain skeptical that more dollars spent on buildings translates to a better education,” Mead said. He said that while he understands that the state is required by law to pay for school construction and maintenance, he wants a plan to demonstrate that the money is being spent for the maximum benefit of Wyoming.
Mead wants the Legislature to adopt a strong preference law for Wyoming contractors and to resolve other contract problems before he will approve the additional money for school construction.
The issue of out-of-state contractors doing capital construction projects like schools in Wyoming has been a sore spot with local contractors.
Josh Carnahan, president of Associated Builders and Contractors of Wyoming, said in-state preferences should not be afforded to anyone who simply establishes a local mailing address and claims to be a Wyoming business.
“I think that’s unfair to companies that employ people in the state, that are owned here in the state,” he said. “Many of my members don’t even leave the state to do work.”