What is the nature of the project? The laws are different depending on the nature of the project. Private commercial projects, public commercial projects, residential projects and homestead projects all have differing requirements. The types of projects may generally be classified as follows:
1. Private Commercial Project
As an original contractor, you will have a constitutional lien. There is no requirement to send any notices or file any lien affidavits. A constitutional lien is self-executing! Nevertheless, it is highly recommended that you do file a lien affidavit as soon as possible after the invoices become past due to prevent having your lien cut off by any of the following:
- “bona fide purchaser” - a purchaser of the property who does not know of your claim.
- “bona fide mortgagee” - a lender who without knowledge of your claim loans money to the property owner using the property as collateral.
Filing a lien affidavit gives everyone “constructive notice” of your claim, thus preventing them from “innocently” cutting off your lien foreclosure rights. Please note that if you do file a lien affidavit, a copy should be sent to the property owner within five days after filing.
If filed, the lien affidavit must be sworn and notarized and contain the information set forth in §53.054. Such an affidavit must either generally describe the materials and/or labor provided or have attached copies of invoices, draw requests or statements of account (describing the work in sufficient detail as to be understandable by the average person).
2. Private Commercial Leasehold Project
When contracting with a leasehold tenant, an original contractor has the same constitutional lien rights described above, however, unless there exists a contractual relationship with the property owner, the contractor’s lien only extends to the leasehold interest of the tenant, not to the property owner’s land and structures. A lien on the leasehold interest may not provide sufficient leverage to get the invoices paid. If the leasehold tenant is in default on the lease, you may a have a problem with the landlord in claiming his interest is superior to yours under the terms of the lease.
A general contractor does, however, have the right to remove all “removables” installed by the contractor or by any of its subcontractors (which may provide some leverage in getting paid).
There is no self-help removal. A contractor must get a court order allowing the removal of the proper items. Removables are defined as all installed improvements (attached to the structure) that can be removed without material injury to the land, the pre-existing improvements or the improvements themselves. It would be prudent to consult with an experienced attorney for advice as to which items may be considered removables and to obtain the necessary court order.
Materials that are not “incorporated” into the structure (attached in permanent manner) but are stand-alone (tables, chairs, etc.) or just plugged in (e.g. refrigerator, mixers, microwaves, etc.), do not fall under the mechanic's lien laws, and a contractor must protect itself with a security interest (UCC-1).
Once again, if in doubt as to the character of the materials provided, a contractor should seek the advice of an experienced construction law attorney.
3. Non-homestead Residential Project
Residential property is generally defined as any single-family house, duplex, triplex, quadraplex or a unit in a multi-unit structure (usually condominiums) owned by one or more adult persons and is used by one or more owners as a dwelling. The requirements to perfect a lien are as follows:
- Although the Constitution does not require it, §53.052(b) of the Texas Property Code requires that a lien affidavit be filed in the county in which the project is located not later than the 15th day of the third month after the date the contract is terminated, abandoned, completed or settled. The lien affidavit must be sworn and notarized and contain the information set forth in §53.054.
Of particular note, any affidavit must either generally describe the materials and/or labor provided or have attached copies of invoices, draw requests or statements of account (describing the work in sufficient detail as to be understandable by the average person). There is no requirement to attach anything else such as the contract or change orders. Since filings are charged by the page, including unnecessary documents is not recommended.
- Before any written contract is signed, a contractor must provide the owner(s) with the disclosure statement set forth in §53.255 of the Texas Property Code.
- Finally, if the written contract does not contain the proper “waiver” language (see §53.256(d) of the Texas Property Code), before work is commenced, a contractor will be required to give the owner(s) a complete list of subcontractors the contractor intends to use.
4. Homestead Residential Project
In Texas, protection of a person’s homestead is long-standing and extensive. Homestead is usually one’s primary residence, and a person may claim only one residential homestead. As a general rule, if someone is living at the property and they own it, it is probably homestead. If the property where you are to perform work is homestead, there are special requirements to establish a lien in Texas:
First, there is a significant difference between “new” construction and “repair or renovation” work. (see Texas Constitution, Art. 16, §50(5)). If the construction work is repair or renovation, then in addition to the below requirements, you must do the following: (A) the contract must be in writing and signed by both spouses (apparently even if one spouse has no ownership interest) and acknowledged (notarized signatures); (B) if the owners are applying for credit to finance the work, the contract cannot be signed until after the fifth day after the credit application has been submitted; (C) the contract must provide the owners an unconditional right to rescind the contract without penalty within three days of execution; and (D) the contract can only be executed at the offices of any lender involved, an attorney or a title company.
- The contract must be executed before any material is delivered or labor performed. This usually means both spouses, but could include others living in the home if they have an ownership interest. The contract must be filed for record in the county in which the project is located. §53.254 of the Texas Property Code. No county will record a document unless the document is sworn to or acknowledged before a notary public.
- Although the Constitution does not require it, §53.052(b) of the Texas Property Code requires that a lien affidavit be filed in the county in which the project is located not later than the 15th day of the third month after the date the contract is terminated, abandoned, completed or settled.The lien affidavit must be sworn and notarized and contain the information set forth in §53.054 of the Texas Property Code.
Of particular note, the affidavit must either generally describe the materials and/or labor provided or have attached copies of invoices, draw requests or statements of account (describing the work in sufficient detail as to be understandable by the average person). There is no requirement to attach anything else such as the contract or change orders. Since filings are charged by the page, therefore including unnecessary documents is not recommended.
- Before any written contract is signed, a contractor must provide the owner(s) with the disclosure statement set forth in §53.255 of the Texas Property Code.
- Finally, if the written contract does not contain the proper “waiver” language (see §53.256(d) of the Texas Property Code), before work is commenced, a contractor will be required to give the owner(s) a complete list of subcontractors the contractor intends to use.
5. State Public Work Project
Claims on state public work projects in Texas are governed by the Texas Government Code, Chapter 2253, (formerly known as the “McGregor Act”). Enforcing a state public works contract can be tough from the Original Contractor’s perspective. There is no lien or bond protection for the Original Contractor. The bonding statute is provided for downstream subcontractors and suppliers. A public work by definition is for a governmental entity that has sovereign immunity and cannot be sued without legislative consent. The Texas legislature has provided a limited administrative remedy to allow an Original Contractor recourse against a governmental agency under Chapter 2260 of the Texas Government Code. There are a number of limitations and restrictions, and you should consult with an attorney if you need to pursue such a claim.
6. Federal Public Work Project
Claims on a federal public work anywhere are governed by 40 U.S.C. Section 270b (the “Miller Act”). Enforcing a federal public work contract is also rather burdensome for an Original Contractor. Again, the bonding provisions are not designed for the benefit of the Original Contractor. There is no lien or bond protection for the Original Contractor. Unlike state public work projects, the federal government has waived sovereign immunity and provides an administrative claims process, but additionally provides a legal process once all administrative remedies have been exhausted. There are a number of limitations and restrictions, and it is better to consult with an attorney if you need to pursue such a claim.