By Karalynn Cromeens, The Cromeens Law Firm
As my friend Tom Reber says in his book Winning the Contractor Fight, “Money is like oxygen to your business”. Meaning your business cannot survive without money. As a subcontractor in the commercial construction world with a “pay when paid” clause in every contract, you are not always in control of the amount or how often you receive the oxygen you desperately need.
How can you as a commercial subcontractor gain some control over your oxygen supply? Through your lien rights. A lien is a security interest against the owner’s property for the amount of money you are not paid for labor and/or material. It gives you a claim against the property and a way to sue the property owner, even though you were not directly hired by them. To a subcontractor a lien is leverage to the oxygen you need.
Every state has different rules on what steps you need to take to have a valid lien against the owner’s property. Most of the lien rules are based on who you must send the notice of your unpaid amounts to and when it needs to be sent. Every state has deadlines that must be met, however, there are no states that will penalize you for sending notice early. There are several states where your lien will only be valid for the amount still owed to the general contractor at the time the owner receives your notice of unpaid amounts. As a general rule, it is easier to get paid when the owner has not already paid the general contractor and a payment to you would not result in the owner paying for the same thing twice. I say all of this to encourage you to set up a consistent collection strategy based on the lien rules of your state and your cash flow needs. The idea is to send notice of your intent to file a lien earlier than when required by your state lien laws because this will get you paid faster.
Texas is a great example, before January of 2022 material suppliers and sub– subcontractors had to send notice of unpaid amounts to the general contractor the 15th day of the second month after they remained unpaid. Under the new laws that went into effect for original contracts signed on or
after January 1, 2022, this second month notice was no longer required. All of my material supplier and sub–subcontractor clients still send the second month notice of unpaid amounts even though they are not legally required, because that is what gets them paid. Bottom line, the earlier and more often you send notice of unpaid amounts/intent to lien the more likely you are to get paid.
I always get a lot of push back when I talk about sending intent to lien notices because the fear is, “my customer is going to get mad”. Honestly, from my experience if your client has not been paid, they don’t mind you sending notices because it will get them paid. Customers only get upset about lien notices when they have already been paid and have not paid you. They are funding their company with your oxygen; Is that really someone you want to work for? If it costs you money to have a customer, you don’t want that customer. If you are not being paid for work you have done, you are essentially paying someone else to work, and would be better off not working at all.
Takeaway: Know your cash flow restrictions and the lien rules of your state, set up a collection strategy based on those two things. Never let anyone push you outside your lien rights based on a promise of payment.
Author Bio:
With more than 18 years of experience in construction and real estate law, Karalynn Cromeens has filed more than a thousand lawsuits to foreclose or remove mechanics liens successfully. Her family also owns a material supply company, providing Karalynn first-hand knowledge of the construction industry. This personal understanding, combined with her extensive legal experience, guides The Cromeens Law Firm’s true purpose— To protect and defend all that you have worked hard for and be your partner in business. She is also a best-selling author and podcast host for Quit Getting Screwed.
