You’re about to start work for a privately-owned project. You have negotiated the best possible contract terms, studied the plans, and are ready to send your best people to the job. All that remains is to perform quality work and submit the necessary paperwork, right?
Only if you have a plan in place to protect your lien rights.
Liens are your best tool for securing payment for work performed on private property. Unlike many of the legal issues contractors face, implementing a lien strategy is relatively simple. However, it is all too easy to fall into the common trap of waiting for a problem to appear before addressing this critical item on your project checklist.
Meeting the Threshold
Statutory liens (such as construction or mechanic’s liens) serve the same purpose on private projects as payment bonds serve on public projects—to allow those who provide labor or materials used to improve real property to secure their right to payment.
You generally need two things in order to make a lien claim:
First, there needs to be an improvement to private property. State statutes typically define what would be considered an improvement, but the main thrust is that your work must have contributed to the real property or any permanent fixtures, whether your work involved architecture, engineering, construction, landscaping, repairs, or maintenance.
Second, you need to be eligible to make a claim under the state statute where the improvement is located. The types of eligible persons vary from state to state, but most states allow any individual or company to claim a lien if they:
- furnished skill, labor, and/or material;
- were under a contract with the owner or its agent, contractor, or subcontractor; and
- improved the building, land, or structure in question.
Don’t Be Late!
Assuming you and your project both meet the threshold requirements, the strategy for securing a lien is all about timing. This chart summarizes the types of deadlines in four states that should be embedded into your systems to ensure that they are strictly followed on every eligible project in each state:
|Pre-lien / Notice||Filing Deadline||Enforce in Court|
|Minnesota||Required||120 days||One year|
|Iowa||Required||90 days||Two years|
|North Dakota||Required||90 days||Three years|
|South Dakota||Required||120 days||Six years|
Pre-lien / Notice
Before starting your work on a new project, your lien strategy should minimally include giving notice to the right people at the right times. In Minnesota, for example, subcontractors on many projects must serve “pre-lien” notice when they start work. Other states’ notice requirements are tied to later events, but nonetheless lie on the critical path to the next deadline.
The clock for this deadline starts the day you complete your last item of work, which everyone responsible for collecting payment should be tracking. Meeting this deadline requires careful planning to ensure work is documented and invoiced in time to allow payment to arrive. Your plan should also spare enough time to prepare a lien and record it with the deed for the property before the deadline if normal processes won’t secure payment.
Enforce in Court
Finally, the deadline to enforce a lien in court serves double duty as your deadline to secure payment through negotiation without filing a lawsuit. Different events can trigger the start of this period in each state. For example, this period might start following the expiration of the previous deadline, or on the date the last item of work was completed. You should also be prepared for this period to be accelerated significantly. The property owner can demand that you take action, leaving you with only a few weeks to either start a lien foreclosure lawsuit or forfeit the lien.
Keep It Simple: Embrace Strict Enforcement
With few exceptions, courts will strictly enforce lien statutes. Just last year in Snider v. Brinkman, the North Dakota Supreme Court rejected a contractor’s attempt to file a second lien after the contractor lost its first lien for failing to file all the necessary documents with the county recorder. The lesson from Snider is simple: failure to strictly adhere to all the requirements in the lien statute can strip an otherwise savvy contractor of its best tool to secure payment.
There is nothing to fear as long as your project checklist includes a well-informed lien strategy. Although requirements vary from state to state, creating one strategy for each state and implementing it on every eligible project will pay off the first time an owner or higher-tier contractor unexpectedly cannot—or will not—pay its bills.
Service. Integrity. Quality.
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