A preliminary notice is a legal notice that construction trades and suppliers provide to owners and general contractors. The concept of a preliminary notice is intertwined with other terms like mechanics liens and lien waivers that make up the financial landscape of a construction project.
This article will untangle some of these terms to help construction parties understand preliminary notices and when they should file them.
When to file a preliminary notice
Construction projects weave an intricate financial web between the owner and investors who fund a project and the general contractor, subcontractors, and material suppliers who provide goods or services for the project.
The concept of a lien is difficult enough to understand, so the idea of a preliminary notice can be slipperier still. Even the term ‘preliminary notice’ can be confusing because different state laws may refer to preliminary notices as “notices,” “pre lien notices,” or “notices of right to lien.” Breaking down the terms may make the concept of a lien and a pre-lien notice easier to understand.
What is a mechanics lien
A mechanics lien is a legal claim marked on the land register against a property. If the owner of the land sells the property while the mechanic’s lien is on it, the proceeds of its sale can be used to reimburse lien holders. A contractor or subcontractor whose invoice doesn’t get paid may resort to filing a lien in the hopes of getting payment from an owner or general contractor.
What is a preliminary notice
A preliminary notice is an official document that a subcontractor, material supplier, or equipment owner submits at the time of performing a service or providing goods for a construction project. A preliminary notice confirms to the owner and general contractor that the filer has provided something that warrants payment and signifies the right to file a mechanics lien against the project property if an invoice goes unpaid.
In most states, construction parties must file a preliminary notice to be eligible to file a mechanics lien later.
What states require preliminary notices to protect lien rights?
Not all states require prime contractors, subcontractors, or materials suppliers to send preliminary notices to protect their lien rights, but many states do. Each state has different rules about the time limit for sending preliminary notices after the work is completed, if there are specific forms to use to file the payment notice, and which stakeholders must receive a copy.
For instance, in Utah, a preliminary notice must be sent within 20 days of providing the first services to protect lien rights. In Texas, by contrast, a notice has to be sent within four months after the completion of the project. These differences illustrate how important it is for contractors to understand the filing rules before completing any work.
Even in states where preliminary notices are not required by statute, it’s a good idea to send them so that all stakeholders are aware of the associated lien rights.
How to prepare a preliminary notice
Before beginning work on a project, find out the local legal requirements for when and how to send a preliminary notice that protects your lien rights.
What contractors need to know to send a notice
Contractors may have to do some digging to find some of the information they’ll need to include in a preliminary notice. For instance, some subcontractors who are hired by a general contractor may have no idea who owns the property they’re working on. Here are some things that might be required for a complete preliminary notice.
- State preliminary notice requirements and timing
- Name of the property owner
- Name and information of project financiers, including lenders and investors
What should be included in the notice
Requirements for preliminary notices will vary by state law, but contractors should include some critical information about their businesses and the projects they work on. Here are some things that should be on the notice:
- Contractor name and contact information
- General contractor name and contact information
- Owner’s name and contact information
- Any information about construction lenders or investors
- Address of the project property, along with its legal description
- Details about the materials and services the contractor has provided
- Approximate cost of the goods and services provided
Who should receive the notice
Some states will require a legal statement on the notice of the contractor’s right to file a lien, and some will describe how and to whom the notices should be sent.
Contractors should send notices to the owner, general contractor, and any known lenders or investors involved. The best practice is to send the construction notices in a way that will provide a receipt of delivery, like by certified mail. It’s surprising how many of those details matter if a legal dispute arises.
The benefits of filing a preliminary notice
Preliminary payment notices present another in a long list of tedious administrative tasks involved in running a construction project. However, like every other administrative task, there are plenty of good reasons for filing preliminary notices.
Protection of payment rights
In most states, a contractor must have filed a preliminary notice to be eligible to file a mechanics lien. The mechanics lien is one form of legal recourse for nonpayment. It is a powerful incentive for the property owner to ensure the contractor gets paid, and in some cases, it could make the difference between a contractor getting paid or walking away without.
By filing a preliminary lien notice within the specific time frame outlined in local rules, contractors protect their rights to file a mechanics lien claim.
The process of filing a preliminary notice may vary depending on location. Check the rules to ensure that the correct preliminary notice format, timing, and recipients of each preliminary notice follow regulations.
Avoid costly payment disputes
Preliminary notices are a formal way of opening the lines of communication between all project stakeholders. By informing contractors, property owners, and other parties of work that’s been completed, contractors bring more awareness of project progress, subcontractor involvement, and financial obligations.
Clear and consistent communication can help avoid schedule delays, payment issues, payment disputes, and costly litigation procedures.
Promote prompt payment
When construction projects are in full swing, there could be subcontractors on site that general contractors and owners aren’t even aware of. A preliminary lien notice offers visibility by sending a direct notification to the owner and the GC of each contractor who has performed work on the project.
Increased visibility and recognition from the top echelons of the construction hierarchy could lead to faster payments and avoid payment issues and the need to file a mechanics lien altogether.
How to avoid filing mechanics liens
Mechanics liens are powerful and important tools that can help ensure contractors get paid for the work they do. While it’s critical to file all required notices to protect the right to file liens, it’s safe to say most contractors hope they will never have to file one.
Liens mean that a GC or an owner hasn’t paid the contractor invoice. By the time contractors file liens, the contractor may have already suffered financial damage from nonpayment, including project failures, loan defaults, or other fallout from stalled cash flow.
Contractors can help their odds of quick payment with a few easy billing practices.
Provide clear payment instructions
Clients should never have to guess how to pay their contractors or what they’re paying for. Invoices should be clear, explicitly detailing all of the charges clients pay for and full contact and project information.
Clients should receive clear payment instructions on each invoice, including accepted payment methods, check instructions, or a secure payment link through Truss.
Offer multiple payment options
Not everybody operates the same way. Offer a few different ways that clients can pay you so they can find the ones that fit best with their processes. Some clients may prefer to pay by check, wire transfer, or ACH payment. Provide instructions for each or establish their preferred payment method ahead of time.
By sending a payment request via Truss, your clients automatically have the option to pay via ACH bank transfer or via credit card, at no fee to you.
Streamline payment processes
Contractors should make it as quick and painless for their clients to pay them. With Truss, contractors can include a payment link on each digital invoice so clients can log in securely using their own banking credentials or credit card to pay immediately upon receipt.
Notices are an important part of the construction billing landscape
Preliminary notices protect contractors' rights to file mechanics liens, which are powerful tools in ensuring payment for outstanding invoices in the construction industry. Each state law has different timing and format requirements for notices, so contractors need to have processes to ensure they understand the procedure before beginning any work on a new project.
The hope is that contractor payment comes swiftly so that nobody has to file a mechanics lien in a bid to get paid. Clear, accurate, and detailed invoices can help clients understand what they’re paying for, and offering multiple payment options, including Truss, can help smooth the payment process. With Truss, contractors can provide their clients with a payment link on each digital invoice to make payment as easy as a few clicks.
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