Mechanics lien rights are a powerful tool, and one unique to construction — there’s nothing quite like them in any other industry. The term “lien rights” refers to rights given to construction project participants to file a mechanics lien in the event they aren’t paid. But who has lien rights? And what do you need to do to protect them?
In this article, we’ll explain the basics of lien rights, including how to figure out if you have them and the steps you need to take to preserve them.
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Lien rights refer to the legal authority to file a mechanics lien against the owner’s property — or, in the case of a government project, the right to make a bond claim. If you are not paid for the work or materials to provide on a construction project, you can use a lien as a form of security to force payment. A lien is a legal claim on the property title, which is very difficult to get rid of without paying the debt.
This right helps reduce financial risk for contractors, subs, and suppliers — all of whom are required to put up significant sums of their own money in advance.
A mechanics lien can be filed by unpaid parties who furnished labor or materials on a private construction project (residential or commercial). Filing a mechanics lien provides the claimant a security interest in the improved property. If the claimant remains unpaid, they can enforce a foreclosure action on the property and receive payment from the proceeds of the sale of the property.
A bond claim serves a parallel function on public (federal, state, county, or municipal) projects. When the property in question is owned by the government, claiming an interest in the property is not an option. Instead, bond claims are filed against the surety’s payment bond, which is a sum of money reserved to protect against payment disputes on a project.
Lien rights are available in all 50 states, though they are limited by specific rules that vary from one state to the next.
Generally, direct contractors, subcontractors, material suppliers, equipment lessors, design professionals (architects and engineers), and laborers all have lien rights. While suppliers-to-suppliers do not typically have lien rights, every state’s lien law is different. There are exceptions to these general rules.
While these parties are granted lien rights just by virtue of working on or contributing materials to a construction project, the right to lien will expire without the correct steps to preserve it. Because liens are so powerful, states require contractors, suppliers, and others to take specific actions to preserve their lien rights. If you fail to take the right steps at the right time, you will lose your right to file a mechanics lien.
Generally speaking, mechanics liens are only available on private construction projects. If there’s a payment issue on a public construction project (either state or federal), then a payment bond claim is usually the appropriate remedy.
But whether the project is public or private, the same principle applies — contractors and suppliers must follow the steps to preserve their right to make a claim.
There are a lot of factors that impact whether any single individual, company, or participant on a construction project will have the right to file a lien or not.
In the vast majority of states, sending a preliminary notice is a required step in order to maintain your lien rights. A preliminary notice is sent close to when you begin working on the project. For example, California’s mechanics lien law requires a notice within 20 days of furnishing labor or materials in order to preserve lien rights.
If you’re working on a project located in a state where it’s required and you did not send a preliminary notice, there is a very good chance that your lien rights will be invalidated.
Even if preliminary notice is not required, it is a good idea for sub-tier parties to send one anyway because it can build stronger relationships with clients and speed up the payment process.
Some states don’t require a notice at the beginning of work on a project, but they do require one before you actually file a lien. This is known as a Notice of Intent to Lien, and serves as a warning to the property owner that you’re about to file a claim if you aren’t paid.
Again, even if your state doesn’t require a Notice of Intent (NOI), it is still a good move to send one — even if you already sent a preliminary notice. An NOI gives the general contractor and owner one last chance to pay you before they put the property in jeopardy. And they have a vested interest in doing whatever they can to avoid a mechanics lien.
The process to preserve your lien rights is driven by very strict deadlines: Notices must be sent and liens must be filed within the timeframe allowed by state law. If you miss a deadline, you very well may have just lost your lien rights.
To make sure you don’t lose your lien rights on a project, enter a few details (project zip code, start & finish date, etc.) into the Lien & Notice Deadline Calculator to confirm your timeline for sending documents or filing a claim.
It’s a frequent scenario in the construction marketplace that parties working on a construction project are based in multiple states. The prime contractor may be based in Nevada, with supplies being shipped from Oregon and Texas, and with subcontractors from Washington, Wisconsin, and Virginia. It’s just a fact of business.
Determining which state’s lien laws to follow is actually very simple: The lien laws of the state where the project is located apply. Every time, without any exception.
So, if you’re working on a project in Texas, it doesn’t matter where you’re based or where anyone on the project is based. It doesn’t even matter if everyone working on the project is from California, and the property is owned by a Michigan corporation. The property is located in Texas and therefore, Texas lien law applies. Period.
The lien laws of the state where the project is located apply. Every time, without any exception.
