Lien Laws & Out-of-State Construction Projects (Part II)

In the first part of this blog series, posted on August 4, 2011, we addressed differences between state laws on the protected class of construction lienors. Today, we’ll cover differences in contract provisions and required warnings or disclosures as prerequisites to lien.

As you venture out of state to find work, you should review the validity of the standard contracts your company sends to its clients, subs, and suppliers in light of local lien law requirements.

Most state statutes permit both oral and written contracts, but some states limit the enforceability of oral contracts. For example, many states (like Florida) require a contract to be in writing if a project cannot be performed in less than a year or involves the sale of goods exceeding $500. If you come from a state where all oral contracts are enforceable, you may be surprised if an oral contract is prohibited in another state.

“Pay if paid” clauses are also a big issue. Under these clauses, a contractor is not required to pay subs unless the contractor first received the corresponding payment from the owner. Some states freely enforce these clauses, while others prohibit them as against public policy; still others enforce them under limited circumstances.

There are many more examples of traps like these, so you must determine the enforceability of your company’s standard contracts before using them in unfamiliar states.

Also, be aware of unusual procedures or warning requirements as prerequisites to liens differing significantly from your home state. Failing to meet these requirements could jeopardize your company’s lien rights before work on a project even starts.

Here are some examples: On most residential projects in Florida, a contract between an owner and a contractor must contain a front-page, mandatory warning provision in no less than 12 point, capitalized, boldface type, on the front page of the contract or a separate page, signed by the owner and dated, alerting the owner to the lien law and how it operates.

Kansas permits liens on new residential property after a purchaser buys the property provided the lienors first record a Notice of Intent to Perform in the office of the district court where the property is located before the deed passing title to such property is recorded.

In Missouri, subs are not entitled to liens on owner occupied residential property of four units or less unless the GC first obtains written consent from the owner in a written contract wherein the owner agrees to be liable for such costs if the subs are not paid.

In Minnesota, the GC must include a notice, in at least 10- point bold type, if printed, or in capital letters, if typewritten, about the lien law in any written contract with the owner. If the contract is verbal, the notice must be separately prepared and delivered personally or by certified mail to the owner or the owner’s agent within 10 days after the scope of work is agreed upon.

In many, but not all, of these instances, non-compliant contractors would lose their lien rights before the job starts, so it’s important to research out-of-state lien laws before signing any contracts.

This series will continue with my next blog, when we’ll cover preliminary notice to owners and the manner in which liens must be recorded.