09 Apr Show Me the Money! Protect Your Lien Rights and Get Paid
By Chris Holder
If you are a general contractor or a subcontractor in the building industry in Middle Tennessee, you know business is booming. You also know that no matter how good your business is in your industry, inevitably things are going to go sideways on a project you are working on. Inevitably, this leads to a dispute regarding who gets paid and whether they get paid at all. Don’t be on the short end of who gets paid when these issues arise. Using Tennessee’s statutory lien law (Tenn. Code Ann. §66-11-101 et. seq) is key in enforcing your rights and recovering the money due on your project.
Tennessee law divides potential lienors into two camps: prime and remote contractors (Tenn. Code Ann. §66-11-101). Prime contractors are those who supervise or perform work on an improvement by contract directly with the owner of the improved property. Remote contractors are those who provide work or labor or who provide materials and services in furtherance of an improvement under a contract with someone other than the owner. This distinction is important as the timelines and procedures are different in some ways for perfecting a lien depending on whether you are a prime or remote contractor on a project. Fortunately, lien rights are available to all general and subcontractors who have performed work on the subject property. (Tenn. Code Ann. §66-11-102). While a prime contractor is generally not restricted as to filing liens on differing types of property, remote contractors may not lien 1-4 family residential occupied building. (Tenn. Code Ann. §66-11-146).
Prime contractors may file liens on improved property within one (1) year. A proper Notice of Lien including the information required by statute must be served and duly recorded in accordance with the statutory requirements in order to be enforceable. Such filing should be made within ninety (90) days of the project’s completion in order to preserve its priority as to competing claims (Tenn. Code Ann. §66-11-112). A lien properly filed continues for a period of one (1) year, or until the final hearing in any lawsuit filed based upon enforcement of the lien (Tenn. Code Ann. §66-11-106). Therefore, it is imperative to file suit for enforcement before expiration of the one-year period to leverage the effect of the lien in your lawsuit.
Remote contractors may file liens on projects as well; however, the statutory timelines and requirements differ somewhat from prime contractors. Remote contractors are required to serve a Notice of Nonpayment upon the owner and the general contractor detailing the amounts due and the last date work was performed on the property. (Tenn. Code Ann. §66-11-145). This makes sense, as an owner may not be aware money is owed to a subcontractor and such Notice will at least bring this to the owner’s attention. Owners are most often displeased to receive such Notices and will certainly let the general contractor know it. Often this resolves the issue as the Owner will likely put pressure on the general contractor to resolve the claim to avoid lien issues. The requirements as to the contents and the Notice of Nonpayment and the service thereof are strictly construed, and noncompliance may well void any subsequent lien. (Tenn. Code Ann. §66-11-145(b)). The timing of such service is also widely misconstrued, as it is not ninety days as per other timelines in the lien statutes, but ninety days from the last day of the month in which work was performed. (Tenn. Code Ann. §66-11-145). Further, the obligation is continuing in nature as to the provision of such Notice for each month work is performed for which a lien may be claimed.
In my practice, I have found most building contractors and subcontractors do not adequately understand the timelines and practices necessary to adequately protect their investment in a project and properly utilize the Tennessee statutory lien framework in their favor. If the proper procedures and notices are not timely taken, lien rights are lost. Liens are a key tool in collecting amounts due, and it is imperative for every building contractor and subcontractor to have legal counsel that are well versed in application of the statutory lien framework and are responsive to your business.