Whenever you start a new construction project you always run the risk that you won’t be paid for the services you are providing or the materials you are purchasing for that job. In the event that you are not paid, you may consider placing a lien on the job. It is very important that as a construction company, contractor, subcontractor, or supplier you know your lien rights as they can be very complicated and differ by state. Here are 6 things you need to know about your lien rights.
What is a lien and how does it apply to the construction industry?
According to Encyclopedia Britannica, the definition of a lien is “a legal claim that someone or something has on the property of another person until a debt has been paid back.” What this means for those in the construction industry is that you can have legal recourse to get paid for the work you have done and the supplies you have purchased for a project.
Lien rights are different in each state.
All 50 states extend lien rights to companies and individuals who provide labor or materials for a construction job making them eligible to place a claim against a property in the event they are not paid. Lien rights differ in each state on several items including the definition of improvements, the amount of time in which you can file, your method of filing, what information is needed, who needs to be notified, the type of projects that are covered, and more. It is critical that you are familiar with the specific lien laws in the states in which you are doing business.
There is a set amount of time in which you can file.
For each state, this is different and includes both the amount of time you have to file and what stage of the project that clock starts to run.
Who can file a lien?
Different states have different guidelines regarding who has the ability to file a lien. However, typically liens provide builders, contractors, subcontractors, suppliers, equipment renters, architects, engineers, and others who provide services or materials to a construction project with protection from not getting paid for work that has been completed and supplies that have been purchased for a project.
Not all projects qualify you for lien rights.
Not only do all projects not qualify for lien rights but the type of projects that do qualify differ in each state. In some states, public property does not qualify so that means if you are working on a state or federal project you may not be protected and in other states, it only applies to projects on buildings and structures. It is important that you know what projects qualify in the states in which you are doing business.
Documentation is key.
Make sure you collect proof of everything in order to protect yourself. From written proof that the work was agreed upon with the owner and/or general contractor, most often in the form of a written contract, to pictures documenting the progress of work and receipts for payment. Make sure you are documenting all the necessary items to protect your rights.
Lien laws are very complex and differ by state. It is very important that you work with a partner who can help you to identify and understand your rights in each state that you are doing business. The above information is just a general overview of your rights and should not replace information that can be provided directly by lien professionals.
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