In Tennessee, construction clients can no longer write clauses into a contract that will relinquish a subcontractor’s rights to a mechanic’s lien.
If a clause of this sort somehow makes it into a contract, it is no longer enforceable — so said Gov. Phil Bredesen — when he signed House Bill 743 into law.
A mechanic’s lien is a claim made by a contractor, subcontractor or materials supplier on the property. If enforced, the contractor could force a sale of the property to pay the claim.
Robert Lee Jr., owner of Lee Masonry Inc., of Nashville, TN, and government relations chairman for the American Subcontractors Association of Middle Tennessee (ASAMT), said this is a simple piece of legislation and its tenet goes back a long way.
“Lien laws date back to the days of Thomas Jefferson and they address the fact that a person supplying materials or labor are not in the same position of power as the owner,” Lee said.
According to an ASAMT news release, the law amends Section 66-11-124 of the Tennessee code to state that, “Any contract provision that purports to waive any right of lien under this chapter is void and unenforceable as against the public policy of this state.”
In an article published on ASAMT’s Web site titled “Tennessee Lien Law in Plain English,” David N. Garst, a Nashville attorney wrote, “Under Tennessee law, the right to assert a mechanics’ and materialmen’s lien is granted by statute to persons who have performed work or provided materials to improve real estate. This statute allows such persons to assert claims against the land itself to secure payment of their fees. For the purposes of this law, buildings or structures erected upon land are considered a part of the land and the lien applies to these improvements as well.”
Some Tennessee construction contractors wishing to remain anonymous agreed the new law may improve subcontractors’ chances of securing delinquent payment.
“We have always had protection, but before, there were lots of hoops to jump through,” said one source. “You had to use an attorney, and you needed a lot of experience to follow it through properly.”
Lee said that prior to the legislation being passed, subcontractors were at risk of unknowingly becoming victims of unscrupulous property owners or general contractors.
“There could be a clause in a contract calling for a contractor to waive their lien rights and if the subcontractor didn’t have access to the contract or simply failed to read the fine print, their lien rights would also be waived,” Lee said.
One company representative confided that many clients have financial trouble and very often there are difficulties in obtaining payment.
“There are lots of issues out there today,” he said. “Bankruptcies are rampant.”
Under Tennessee state law, if a person has performed work or made improvements to property or real estate, that person has the right to assert a so-called mechanics’ lien on said property.
“By state law, subcontractors can’t lose their rights to file mechanics’ liens just by agreeing to take on work,” Lee said. “Tennessee subcontractors wanted to put an end to that abusive practice, which totally denied them their rights. Legislators agreed that contractors and subcontractors were being manipulated out of the security that mechanics’ liens provide.”
Some states still permit contractual lien waivers or contract provisions that eliminate a contractor’s or subcontractor’s ability to file a mechanic’s lien — even when the client refuses to pay.
“The Tennessee legislation levels the playing field for subcontractors,” Lee said. “Even if a lien waiver clause is slipped into a contract, it is deemed null and void according to the Tennessee state legislature.”
Mechanic’s liens cannot be placed on public property in Tennessee, Garst’s primer stated, and the Tennessee mechanic’s and materialmen’s law is much more restrictive about liens on residential projects.
Garst said for single-family residences and duplexes in which the owner intends to reside, liens may be asserted only by the “general contractor” who contracts directly with the owner. All other liens are expressly prohibited, including architects’ and engineers’ liens. Where the general contractor is the owner of such one and two family residential projects, liens may be asserted by subcontractors and suppliers who contracted directly with the general contractor.
Tips on Getting Paid
Garst provided the following valuable information as step by step directions for subcontractors who perform work on commercial property and who have no direct contact with the property owner:
• Step 1: Serve a notice of nonpayment upon the owner and the general contractor. This notice must be served by registered or certified mail within 90 days of the last day of the month within which the claimant provided work, services or materials for which it was not paid. The statute provides details about exactly what must appear in this notice.
• Step 2: File a notice of lien claim. This notice must be filed in the county register’s office and served on the owner and others having an interest in the property by certified mail within 90 days of the last day on which work, services or materials were provided on the project, or within 90 days of the date on which the claimant’s contract expired or was terminated.
• Step 3: Note that two windows of opportunity to file this notice may exist on a single project. Upon the filing and serving of this notice, the lien takes effect and continues for a period of ninety days.
If payment is not received, suit must be filed within this 90 day period to enforce the lien. The suit must be filed under oath, and a writ of attachment issued within the 90-day period.
If a notice of completion is filed by the owner or the contractor, any person wishing to assert a lien must serve on the owner a claim notice as discussed above so as to be received within 30 days of the filing of the notice of completion.
• Step 4: Rather than both serving a claim notice and filing a notice of lien claim, the better practice typically is to file and serve only the notice of lien claim within the 30-day period permitted for serving the claim notice.
If a notice of nonpayment has been served upon the owner on or before the date the notice of completion is filed, the owner is required to notify the party who gave the notice of nonpayment of the filing of the notice of completion, and must send this notice by registered or certified mail on the day the notice of completion is filed.
Lee said the new law means that regardless of what the contract says about lien waivers, the contractor, material supplier and subcontractor still have lien rights.
“A lien is the strongest animal you have for collecting your money,” Lee said. “It’s not a guarantee of getting what is owed you, but it is the strongest protection you can get.”
Garst advised subcontractors to consult an attorney immediately if involved in a situation in which their lien rights need to be asserted or protected. CEG