The ongoing impact of COVID-19 has created a number of challenges for the construction industry. It has caused a shortage of supplies and materials, caused delays in completing projects, and has put some project developers, owners, and general contractors in a position where they are unable to pay their contractors, subcontractors and suppliers (each considered a “laborer”). For an unpaid laborer, filing a mechanic’s lien may be the only way to ensure getting paid on a project which has been affected by the COVID-19 pandemic. Therefore, an unpaid laborer should not delay in filing a mechanic’s lien if the law permits it.
What is a Mechanic’s Lien?
Mechanic’s liens are claims against property and most laborers know that they have a right to one when they are not paid for their services. Under Tennessee law, a laborer who performs the work or any part of the work, or furnishes the materials for the erection, improvement, repair or alteration of a structure may be entitled to assert a claim against the property on which the structure sits if the laborer is not paid. Nevertheless, the law in Tennessee governing mechanic’s liens is complicated and often laborers lose their right to enforce one because of the strict deadlines set forth. The following basic guidelines are designed to give laborers a general understanding of lien law. These guidelines are in no way to be used in place of an attorney’s legal advice, and anyone who needs to assert a mechanic’s lien should contact their attorney.
Identity of Owner
The first issue in resolving whether a laborer has a right to a mechanic’s lien is to determine the identity of the owner of the property where the labor occurred. If the owner of the property is a private person or a private entity (a partnership, a corporation, or a limited liability company) then a mechanic’s lien may exist. If the property is owned by a public entity (city, state, county, or federal government) then a lien does not exist.
Contractors have an automatic mechanic’s lien on the property for a period of one year after the last day that labor was performed by the contractor. To qualify as a contractor, the laborer must have contracted directly with the owner of the property where the labor occurred. If this requirement is not met, the laborer is considered a subcontractor and must meet the requirements detailed below in the Subcontractor Section in order to protect the laborer’s mechanic’s lien.
Even though contractors have an automatic mechanic’s lien for a period of one year, the lien is only valid against the current owner of the property. If the property is transferred, the lien will not be valid against a subsequent owner unless the contractor files a Notice of Lien in the Register of Deeds office where the property is located. This filing must be filed within ninety days of the completion of construction and should be done with the help of an attorney to ensure that it is done correctly.
In order to enforce the mechanic’s lien, the contractor must file a lawsuit within one year of the last day that labor was performed by the contractor or the contractor will lose any rights to enforce the mechanic’s lien.
*Warning – see the Notice of Completion Section below
Subcontractors do not have the same rights to a mechanic’s lien as do contractors. A laborer is a subcontractor if the laborer contracted with anyone other than the owner of the property where the labor occurred.
Subcontractors do not have the right to a mechanic’s lien on residential property. Residential property is defined as 1, 2, 3, or 4 family residential units in which the owner intends to reside. Only a contractor may assert a mechanic’s lien on residential property. There is an exception to this rule, however. If the owner of the property where the labor occurred and the contractor are the same person or controlled by the same person, the subcontractors who contract directly with the contractor/owner will have a right to a mechanic’s lien and will follow the same procedure set forth below for liens on commercial property.
Subcontractors do have a right to a mechanic’s lien on commercial property, but the process is more complex than the process for contractors. In order to preserve a mechanic’s lien, the subcontractor is required to provide the owner of the property where the labor occurred and the general contractor with a Notice of Nonpayment. The Notice of Nonpayment must be provided to the owner and general contractor within ninety days of each month that work was provided by the subcontractor. The Notice of Nonpayment must meet certain statutory guidelines and must be sent by certified mail. Therefore, the Notice of Nonpayment should be done with the help of an attorney to ensure that it is done correctly.
In order to preserve its mechanic’s lien, the subcontractor must then file a Notice of Lien in the Register of Deeds office were the property is located within (a) ninety days after service or labor was provided by the subcontractor, or (b) ninety days after the completion of construction. These two filing time periods may sometimes provide subcontractors with two opportunities to protect their mechanic’s lien, assuming that the subcontractor complied with the Notice of Nonpayment requirements. The Notice of Lien must also meet certain statutory guidelines, and therefore, the Notice of Lien should be done with the help of an attorney to ensure that it is done correctly.
The time frame in which a subcontractor must enforce its mechanic’s lien is much shorter than that of the contractor’s lien. In order to enforce its mechanic’s lien, the subcontractor must file a lawsuit within ninety days of the day that the Notice of Lien was filed.
Notice of Completions
Contractors and subcontractors should beware of Notice of Completions. The owner of property where labor occurred can file a Notice of Completion in the Register of Deeds and can cut off a laborer’s right to enforce a mechanic’s lien. If a Notice of Completion is filed, anyone wishing to enforce a lien must send a Notice of Lien to the address contained in the Notice of Completion within ten days for residential property and thirty days for all other property to the address contained in the Notice of Completion.
Once again it is important all laborers seek legal advice to ensure that their rights to a mechanic’s lien are protected. For any contractor, subcontractor or supplier who has not been paid on a project due to COVID-19 or any other reason, Lodestone Legal Group can help.
Post Authored by: Gaylord Gardner