Texas is one of the most debtor-friendly states in the country and, not surprisingly, it also has some of the most complicated mechanic’s lien laws. The complicated nature of these laws often serves as a trap for an unwary subcontractor with a legitimate claim for payment.
Lien requirements are different for each different tier of contractor so it is extremely important to know which tier you fall in. If your contract is directly with the owner, you are a first-tier contractor; if your contract is with the general contractor, you are a second-tier contractor; if your contract is with another subcontractor; you are a third-tier contractor. In addition to different lien requirements for each different tier, the requirements are also different for residential verses commercial projects and private verses public projects. This post will discuss third-month notice requirements on private (non-government) commercial projects.
A second-tier contractor on a commercial project must file a third-month notice either prior to or simultaneously with filing a mechanic’s lien. When a subcontractor performs work on a project during a particular month, it has until the 15th day of the third month after the month in which work was performed to send a notice for that work. In other words, if work is performed in January, the contractor has until April 15 to send a notice letter for this work. These deadlines are not dependent on when or whether the subcontractor invoices for the work.
The purpose of these notices are to put the owner on notice that a subcontractor has performed work for which it has not been paid. If the notice is sent prior to the owner releasing the pertinent month’s payment to the general contractor, the owner is then allowed withhold more than the 10% statutory retainage from the general contractor. Therefore, it is imperative for a subcontractor to promptly notice for work performed. Best practice is to notices immediately when payment is due from the general contractor and not until the last statutorily-available day.
The notices must contain statutorily-requred language, must be sent to the owner and general contractor and must be sent by certified mail. The subcontractor must also be aware of any potential payment bonds on the project. If a notice is late or does not conform to the statute, the subcontractor cannot perfect a lien the property (for amount in the defective notice), and has no recourse for non-payment aside from expensive litigation.
If you haven’t been paid on a project, the best practice is to retain an attorney to assess your claim and make sure proper notices are sent and a proper mechanic’s lien is filed. The amount of money you spend up front securing a lien on all monies owed to you will pay for itself many times over in the long run.
This post was written by Justin Scroggs, General Counsel for Southwest Scaffolding and an attorney who practices construction and oil and gas law. Justin may be contacted at email@example.com.