This is the third in a series of posts on protecting the right to payment in the construction industry. In the last post we reviewed the information and analysis needed to identify the  protections  available in a given situation.  Collecting and acting on good and focused information are the key.

Next, however, comes the need to pay attention to whatever early notices a state may require in order to qualify for lien protections. These notice requirements are a matter of state laws.  They can vary quite a bit from no notice required to notice on all of your projects.  Missing a notice can mean no lien rights in as little as the first 20 days in some states.  The steps outlined in the last post will help you zero in on just what notice you may need for  the states where you do business.

Potential lien claimants experience these notice requirements as a hurdle.  In most cases, however, the legislation’s real purpose  is to protect  the property of an owner.  Unlike a mortgage, construction liens arise by statute without any express agreement by the property owner to grant the lien.  Historically, a lien claim might be coming from a subcontractor or a supplier the owner did not know about.  Judging that surprise to be unfair, state legislatures created various forms of required early notices to owners.  Most warn the owner that liens may apply and encourage owners to be careful to get lien waivers from  contractors and suppliers.  The incidental benefit for subcontractors and suppliers is that the waiver reflects a bill was paid.

There are too many variations in the notice requirements from state-to-state to cover them all in a blog post. We can pick several, however, as illustrations.  A simple example may be North Dakota where an early notice is optional giving an owner the ability to pay a potential claimant directly and take a credit against the main contract price.

Michigan takes a different approach. The statutes direct Michigan owners to record and post a Notice of Commencement with important project information for the benefit of subcontractors and suppliers.   The subcontractor or supplier in turn must serve a Notice of Furnishing to the owner and general contractor  within 20 days of first furnishing labor or materials to inform them of participation in the project.

Minnesota is an example of a more selective notice requirement aimed at informing the presumably “less sophisticated” owner of the risk of liens and the right to require lien waivers or pay directly. The notice is required within 45 days of first labor or materials for residential, agricultural and small commercial construction under 5000 square feet.

California is an example of a much more stringent notice requirement. California requires a notice on all public and private construction projects within 20 days of providing first labor or materials. The notice provides important information.   The recipients include the owner, the general contractor and the project lenders. The notice is mandatory and California licensed contractors can face discipline if they fail to give the required notice.  Missing the notice is fatal to a California lien claim.

Take a moment to think about what states you are or may soon be doing business in. Find out what the early notice requirements are for those states  and what form that notice should take.  The state statutes are generally available online and sometimes provide a sample of the preferred form with any  “magic words” that need to be included.  If those requirements seem opaque or DYI is not your thing a law firm can help you.

In the next post we will discuss what improvements are lienable and for what amount. The answers are not always obvious and  the stakes are too high to put it off.