This post is the first of a series to highlight means and methods for businesses in the construction industry to protect their rights to payment for what they do. Follow along as we touch on issues of contracts, collections, construction liens and the corresponding interests of the developers and property owners who build. Although the author is writing from Minnesota the blog series focus will strive for a much broader application so that it can benefit a reader anywhere in the country.
What and Why are Construction liens anyway?
Protecting the right to get paid is central to any business. The construction industry is our Exhibit A. Building and development can be cyclical. Most construction bumps along to a successful conclusion, but sometimes projects fail. Nonpayment can then present existential problems to those who have not been paying close attention to protecting their right to payment. Sometimes that right involves a lien claim.
Construction liens, also called mechanic liens, are a kind of security interest created under state laws to give labor and material suppliers an enforceable claim against real estate they improve. Thomas Jefferson introduced the first examples in American law as an inducement to facilitate the construction of Washington DC. Often described as a “remedy” for the construction industry, liens also function as a credit granting device which greases the gears of an industry that runs on the substantial amounts of credit that the participants are willing to extend to build a project. The ability to invoke lien protection enables a contractor or supplier to say yes to new business, but the ability to invoke that lien is not self-executing. Every state requires steps and notices to claim and perfect that lien. In many cases those steps and notices redound to the protection of the property rights of owners and lenders in a balancing of interests developed during a century and more. But for the possibility of lien protection, however, the lending and construction industry would not function as we know it.
This blog series will explore the information and analysis that goes into any successful construction lien claim. It will also cover the importance of the various kinds of notice to owner reminding owners of the steps they should take to protect their property against liens not the least of which is careful attention to lien waivers for payment.
Construction liens pertain to private property. Public property is generally not subject to liens but since public construction involves same kinds of credit and payment issues we will also cover the use of surety bonds to provide comparable rights for public construction with their own set of protections and limitations.