At the beginning of a construction project, paperwork is key. Getting the project contracts reviewed, negotiated and signed are important in ensuring all the project participants understand what work is going to be done and for how much. Other documents, like change order requests, payment requisitions, and certified payroll can be just as important during the course of the project to ensure that payments are flowing and changes to the original work are documented. All of these documents are drafted to notify the parties of certain events and project requirements, and without them, all the parties may not be on the same page, potentially creating confusion that may end in a problem.
As part of the initial documents that are exchanged prior to or soon after a project begins, preliminary lien notices are a must. In the same way a contract ensures certain legal rights are preserved and defined prior to work commencing, a prelien notice preemptively locks in the legal right to file a construction lien in the event payments are not made for work performed.
More than that, in many states a preliminary notice of lien is required in order to file a mechanics lien, or to maximize the amount of the lien that can be filed. This makes a prelien notice one of the most important documents prepared and sent at the beginning of a project.
The process of preparing and sending out a preliminary lien notice vary by state, which we cannot cover in one blog post. But below we will discuss some of the most common types of notices and the usual processes that are used to make them effective.
What is the Purpose of a Preliminary Lien Notice?
For the most part, the main point of a prelien notice is to notify the owner of the project of who you are, that you are performing work for their construction project, and that you have and may assert certain legal rights should payment not be made to you. Most of the different types of notices (prelien notice, notice of furnishing, notice to owner and preliminary notice, for instance), are sent at the beginning of the project so that the owner can monitor who has or hasn’t been paid for the work. Monitoring payments downstream to subcontractors and suppliers is much easier when the owner actually knows everyone who is providing services or materials. The same is true with regard to prime contractors who are trying to monitor payments to sub-subcontractors and suppliers.
There are also other types of prelien notices that serve a different purpose: to inform the owner and prime contractor that a lien is about to be filed. These notices (notice of intent to lien, for instance) are generally filed a few days prior to a mechanics lien being filed and are a last warning before the property is encumbered by a lien.
Knowing Which Notice to Send Can Be Crucial
Want to be confused? Just think of all the different names prelien notices go by. Here’s a few: Preliminary Lien Notice, Notice to Owner, Prelien Notice, Notice of Intent to Lien, Notice of Furnishing. What is it with all these variations and how do you know what you should be sending or filing and when? The answer is that it all depends on where the project is located. Florida requires a Notice to Owner be sent within 45 days from the commencement of work or delivery of materials, but California requires a 20 Day Preliminary Notice, which is sent within 20 days of the start of work. Pennsylvania requires that a Formal Notice to Owner be filed 30 days before filing a lien claim, and in some cases, PA requires a Notice of Furnishing of Labor or Materials at the beginning of the project, as well as a Notice of Non-Payment when payment isn’t made.
As you can see, each state has different names, different timing, and, yes, different forms for the prelien notices. We can’t cover each state in this blog, but we can refer you to LienItNow’s great Resource Center, which provides a State by State rundown of prelien requirements.
Who Can Send One?
Because of the potential importance of the preliminary notice, it is recommended that everyone send one at the commencement of services or delivery of materials. The upside to sending one is potentially securing your right to payment through a lien claim. The downside to not sending one is a reduction in the potential amount of the lien claim or being barred from claiming a lien at all.
Generally, contractors, subcontractors, suppliers, and anyone who performs work on a project can send a notice to owner. Preliminary lien notices and notices of furnishing, as well as prelien notices can similarly be sent by most anyone who performs work on a project. In the case of a Notice of Intention to Lien and other prelien documents that are sent to warn that a lien will be filed if payment is not made, they can only be sent or filed by those who are actually owed money for work performed and who have the right to file a construction lien.
What Are the Steps Involved in Providing a Prelien Notice?
As with most things regulated by statutes, process is everything when sending out a notice to owner. There are several important steps involved in providing a prelien notice, including when to send them, how to send them, and who to send them to. These requirements vary by state, but generally speaking, the below is an outline of how most notices are properly prepared and provided.
- Prepare the notice to owner or prelien notice at the beginning of the project.
- Use the correct form! Many states have required language and specific forms that are required in order for the notice to be valid.
- Send out the notice via regular and certified mail, and make sure it goes to all the project owners (there may be more than one property owner or tenant) and the prime contractor.
- Make sure you get the certified mail green cards back so you can prove delivery.
If you need help finding the correct form or are overwhelmed by the process, LienItNow makes filing prelien notices clear and simple. You complete our online form based on your information, the project information and the owner’s information. Our website will then generate the preliminary lien form you need for you to review, sign and return the documents to be sent out.
Additionally, in some states, like Colorado, a Notice of Intention to Lien must be filed with the clerk for them to be effective. In all cases, they must be sent to the owner to take full effect.
It is important that subcontractors are familiar with their specific state laws regarding the sending and filing of prelien notices. Deadlines vary from state to state, and if the notice is not provided within a specific time frame, the contractor or suppliers may lose their right to a lien.
When Should a Notice Be Sent?
For the most part, prelien notices should be sent at the beginning of the project, usually within 20 days of beginning work. In many cases, not sending out a preliminary notice on time is not fatal, but it may reduce the amount you can lien. The reason for this is that the owner may not be able to monitor the amount the contractor is being paid, and therefore is not in a position to ensure payments are being properly made from the prime contractor. Once the notice is received, the owner, in theory, is in a position to review the payments being made downstream.
In the case of notices that are required to be sent to give a warning that the filing of a lien is imminent, such as a notice of non-payment, these should be sent anywhere from 30 to 10 days prior to the filing of the lien.
Why Send a Preliminary Lien Notice?
Ultimately, prelien notices, when sent correctly, lock in mechanics lien rights. The notice provides you with insurance that, if something goes wrong and the contractor or owner doesn’t pay, the construction lien rights are secured. It’s a great thing to do, even if it is only for some peace of mind. In the case of a notice of non-payment or notice of intent to lien, filing them is enough to motivate the owner to make payment. If construction contractors and suppliers simply make sending out a prelien notice a routine at the commencement of the project, they will find that it is a simple, quick way to maximize the ability to enforce a legal right that is indispensable when trying to collect payment for work performed.