SECOND QUESTION
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
You can only perfect a statutory lien under Chapter 53 of the Texas Property Code. There is no constitutional lien for you. The statutory lien is not self-executing! There are specific requirements, as to both content and time frames, for you to (1) send notices and (2) file lien affidavits with the county clerk of the county in which the project is located. You must understand that Chapter 53 of the Texas Property Code is a “trapping statute.” This means a properly perfected lien against the property only extends to (a) the amount money still owed by the Owner to the Original Contractor when notice is sent to the Owner and, (b) to the “statutory retainage”. These amounts are generally referred to as “trapped funds.” So a good rule of thumb is never wait till the last minute. Send your notices as soon as possible! The longer you wait, the less funds you trap. The requirements to perfect your lien are as follows:
- Notices
For a FIRST TIER Subcontractor or Supplier:
– one who contracts with the Original Contractor
You must send notice to the Owner and a copy of the notice to the Original Contractor not later than the 15th day of the third month following each month in which you performed labor or delivered material. To “trap” funds, the Owner’s notice must contain the special warning contained in §53.056(d) of the Texas Property Code. It is recommended to send the notices even sooner if you want to trap more funds. Remember, all notices must be sent by certified or registered mail, or delivered in person.
Tip: Send the notice by certified mail - return receipt requested because you will be alerted to any delivery problem sooner. You want the Owner to get notice quickly to trap funds and most likely obtain a quicker resolution.
For a DERIVATIVE Subcontractor or Supplier:
– one who contracts with a subcontractor, not the Original Contractor
You must give the Original Contractor notice of the unpaid balance not later than the 15th day of the second month following each month in which you performed labor or delivered material. You must additionally send notice to the Owner and a copy of the Owner’s notice to the Original Contractor not later than the 15th day of the third month following each month in which you performed labor or delivered material.
To “trap” funds, the Owner’s notice must contain the special warning contained in §53.056(d) of the Texas Property Code. It is recommended to send the notices even sooner if you want to trap more funds. Remember, all notices must be sent by certified or registered mail, or delivered in person.
Tip: You may combine the two notices into one notice as long as you send the notice to both the Original Contractor and the Owner not later than the 15th day of the second month following each month in which you performed labor or delivered material. - Lien Affidavit
You must file a lien affidavit in the county in which the project is located not later than the 15th day of the fourth month after the date the contract is terminated, abandoned, settled, or completed. 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, including unnecessary documents is not recommended.
You must certified mail a copy of the filed lien affidavit to both the Owner and the Original Contractor within five days of filing the lien affidavit.
As with notices, never wait too long. If your filing deadline expires before you file, you will lose your right to participate in the statutory retainage.
2. Private Bonded Commercial Project
The “Texas Property Code Payment Bond” (also called “Statutory Payment Bond”) is a payment bond posted by an Original Contractor meeting certain requirements. Payment bonds posted by subcontractors are not Statutory Payment Bonds, but you can still proceed against such bonds as long as you are protected under the terms of the bond. When a valid Statutory Payment Bond has been filed, subcontractors and suppliers cannot foreclose liens against the project or file suits against the Owner. The Owner is further relieved of any obligation to maintain any contractual or statutory retainage.
In short, the claimant must look solely to the bond as their security in cases where they are not paid.
The requirements for a Statutory Payment Bond are: (a) The bond must be issued by a bonding company authorized and admitted to execute bonds in Texas; (b) The payment bond must be at least in the amount of the original contract price between the Original Contractor and the Owner; (c) The bond must be signed by both the Original Contractor and the bonding company; (d) The bond must guarantee prompt payment for all labor and materials used on the project and payment for normal extras, not to exceed fifteen percent of the contract price; (e) The Owner must endorse the bond with his written approval; and (f) The bond must be filed, together with a copy of the written original contract or memorandum of the contract, with the county clerk of the county in which the project is located.
Probably the best way to perfect a claim against a Statutory Payment Bond is to follow all the standard requirements for filing a lien against an un-bonded project.
The alternate method for perfecting a claim against a Statutory Payment Bond is to send the notices normally sent to the Owner directly to the surety (bonding company). The notice to the surety only has to give “fair notice” of the nature of the claim (no owner statutory warning required). Of course, all notices still must be sent by certified mail.
3. Private Commercial Leasehold Project
This is a difficult situation for subcontractors. I recommend you send notices to the Property Owner, the Leasehold Tenant and the Original Contractor just as with a regular commercial project in hopes of getting a resolution. If you file a lien affidavit, you must restrict it to the leasehold interest only. You may still be entitled to utilize the “removables” remedy, if you installed removables, but only as to those removables you installed. You may have some resistance from the Owner claiming superior rights under the lease, but if your claim is substantial, it may be your only option. Remember, any materials supplied by you that are not lienable (not attached) follow the rules applying to security interests (UCC-1).
4. 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:
- Notices
You must send notice to the Owner and a copy of the Owner’s notice to the Original Contractor not later than the 15th day of the second month following each month in which you performed labor or delivered material. The Owner’s notice must contain the special warning contained in §53.252(c) of the Texas Property Code. Remember, all notices must be sent by certified mail. - Lien Affidavit
You must file a lien affidavit 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, settled, or completed.
5. Homestead Residential Project
In the case of residential homestead, your rights flow through the Original Contractor. If your Original Contractor has not complied with the requirements placed upon him by the Texas Property Code, you will have no lien rights. If the Original Contractor has properly complied with the requirements to establish a lien against a person’s homestead, there are special requirements for you to establish your own lien:
- Notices
You must send notice to the Owner and a copy of the Owner’s notice to the Original Contractor not later than the 15th day of the second month following each month in which you performed labor or delivered material including specially fabricated materials. To “trap” funds, the Owner’s notice must contain the special warnings contained in both §53.252(c) and §53.254(g) of the Texas Property Code. All notices must be sent by certified mail. - Lien Affidavit
The Texas Property Code requires that a lien affidavit be filed with the county clerk of the county in which the project is located not later than the 15th day of the third month after the date the contract is declared terminated (by either party) or is abandoned, completed or settled. The lien affidavit must contain the language set forth in §53.254(f) of the Texas Property Code.
6. State Public Work Project
There are actually two statutory schemes pertaining to a State Public Work project. Under Subchapter J (§53.231 through §53.239), (1) if the project is with a governmental entity other than a municipality (city) or jointly operated airport facility and the prime contract is $25,000 or less, or if the project is with a municipality (city) or jointly operated airport facility and the prime contract is $50,000 or less, you must send notice to the official of the governmental entity whose duty it is to pay and a copy of such notice to the Original Contractor not later than the 15th day of the second month following each month in which you performed labor or delivered material. Your notice must contain the information set forth in §53.233 of the Texas Property Code. At that point, if no payment bond was already posted, either you will be paid by the governmental entity or the Original Contractor posts a bond and you must pursue the bond directly. One important note is that you have six months to file suit if a bond is posted.
Any other State Public Work project is covered by §2253 of the Texas Government Code, with similar requirements. However, all governmental entities are required to obtain payment bonds from the Original Contractors at the beginning of the project. You must send notice to the surety and a copy of such notice to the Original Contractor not later than the 15th day of the third month following each month in which you performed labor or delivered material. The notice must be accompanied by a sworn statement of account containing the statutory warning set forth in §2253.041(c).
If you are a DERIVATIVE subcontractor or supplier – one who contracted with another subcontractor, and not with the Original Contractor, in addition to the above notice, you must send notice to the Original Contractor not later than the 15th day of the second month following each month in which you performed labor or delivered material.
7. Federal Public Work Project
Claims on a federal public work anywhere are governed by 40 U.S.C. Section 270b (the “Miller Act”).
The Miller Act provides protection for FIRST TIER subcontractors and suppliers (those who contract directly with the project’s Original Contractor, and for SECOND TIER subcontractors and suppliers (those who contract with First Tier subcontractors and suppliers). Subcontractors and suppliers further down the line are afforded no protection under the act.
The Miller Act requires prime contractors to post payment bonds in connection with all contracts for the construction, alteration or repair of any “public building” or “public work” of the United States. A subcontractor or supplier who has a contract directly with the original or prime contractor is not required to notify the bonding company of its claim, but a formal demand for payment should always be made. Information concerning the bonding company’s name, the prime contractor’s name and prime contract number are available from the contracting officer on any federal project. By simply submitting an affidavit that you have supplied materials to the project and that you have not received payment, the contracting officer is directed to provide you with a certified copy of the bond and the contract with the prime contractor. If there is any possibility that you are going to have to pursue the bonding company for payment, you should submit your affidavit to the contracting officer and obtain a certified copy of the bond at the earliest possible date. You must file suit against the bonding company in federal court in the district in which the contract was to be performed, within one year from the last date on which you furnished labor or materials to the project, and no sooner than 90 days after the last of your work or material was furnished.
If you are a SECOND TIER subcontractor or supplier, you must notify the prime contractor within 90 days from the date on which you performed the last of the labor or furnished or supplied the last of the materials for which your claim is made. Second-tier claimants must strictly comply with the 90-day notice requirement to the prime contractor, or they will lose all protection. The second-tier claimant’s notice must state, “with substantial accuracy,” the amount claimed and the identity of the party with whom the claimant dealt. The notice should be sent by registered mail. Certified mail may suffice, but better practice is to use registered mail. When the 90-day notice requirement applies, it is recommended to mail the notice sufficiently in advance of the deadline so that it is actually received by the prime contractor within the 90-day time period.
8. Specially Fabricated Materials
If specially fabricated materials are delivered or scheduled for delivery to the project, you must give two notices: (1) the first notice must always be given to the Owner not later than the 15th day of the second month after the month in which you received and accepted the order for specially fabricated materials; and (2) notice to the Owner and a copy of the Owner’s notice to the Original Contractor not later than the 15th day of the second month following each month in which specially fabricated materials were delivered or scheduled to be delivered.
Second, you must file a lien affidavit in the county in which the project is located not later than the 15th day of the third month from the earliest of (a) the last month the material was delivered; or (b) the last month material would normally have been required. You must have certified mail a copy of the filed lien affidavit to both the Owner and the Original Contractor within five days of filing the lien affidavit.
**** The Texas Property Code requires the Owner to withhold ten percent of the total contract price with the Original Contractor (or ten percent of the value of the work performed if no contract exists) for thirty days after the project is completed, terminated or abandoned. This money is for the benefit of those who have not been paid for either labor or materials, although unpaid wage claims do have first priority. If the Owner fails to withhold the funds, a lien is imposed against the land to the extent of the amount of funds that should have been withheld and the Owner is personally liable.
As with the “trapping” provisions of the Texas Property Code, you must have first sent timely notices, and secondly, timely filed a lien affidavit. The general rule has been that the lien affidavit must be filed not later than the 30th day after the earliest of the date (1) the work is completed; or (2) the original contract is terminated; or (3) the original contractor abandons performance under the original contract.
However, the Texas legislature has recently modified the retainage provisions creating an apparent significant benefit to subcontractors and suppliers. A properly perfected claimant not only is afforded lien against the retainage, but may additionally pursue the Owner for personal liability. Moreover, the Owner must now give notice (by certified mail) of the completion, termination or abandonment of the original contract to each subcontractor or supplier who has provided the Owner with proper notice. Failure to provide each subcontractor or supplier with such notice, causes the lien affidavit filing deadline to be 15th day of the third month after the date the contract is declared terminated (by either party) or is abandoned, settled, or completed. If the Owner timely provides the subcontractor with notice of the completion, termination or abandonment of the original contract, you must then file your lien affidavit not later than the 40th day after the designated date of completion or designated date of abandonment or termination.
As usual, you must mail (by certified mail) a copy of the filed lien affidavit to both the Owner and the Original Contractor within five days of filing the lien affidavit. Statutory Retainage