By Bob Blochinger
A lien is a legal instrument used to ensure payment for products or services rendered. It is a common legal action within the construction industry, especially when numerous subcontractors and suppliers are involved. It is designed to protect you.
It all starts with a notice of commencement of work by the owner and a notice to the owner, by the contractor or subcontractor, of intent to place a lien on the property. Each of these instruments has a timeline for notice and enforcement.
As work continues and payment is made through the agreed schedule with specific amounts, typically a retainer is held back (10% of the contract amount) with every payment. During these scheduled payments you will issue a release of lien document. This removes your authority to enforce a lien on the owner’s physical property, and ensures you will not be able to “chase” any unpaid invoices in the future. However, as you are already getting paid for the products or services provided, the “chase” is basically a moot point.
At the time of the final payment or when your retainer deduction is received, the final release of lien is signed and submitted. In case of nonpayment to you, typically after a year a lawsuit is started to collect the money owed, or the property is foreclosed on for the amount of the lien.
As I am a Florida resident I can only speak to the laws of Florida. The laws in other states will be different.
If you believe you may run into negative issues and are the little guy at the bottom of the pile, then a notice to the owner of intent to place a lien is a good idea prior to starting the job. This will advise the contractor or owner that if any nonpayment happens you have a legal instrument to collect your payment.
Some years ago, I was providing flooring product and installation labor in a multi-story high-rise with 135 condominiums, for one of my designer accounts. They asked for financial consideration as this was a “spec” model on their behalf, to the developer. I agreed to delay labor payment for 90 days, which would give the developer time to sell units and the designer to receive decorating work.
I have done these types of arrangements before, so nothing new here. However, late one Friday I received a call from a lawyer demanding I release the lien, as it was preventing three closings on units for that building. I called the designer, who had received the same call, and wondered why my lien on a single unit had held up the closings of three.
I called the lien service and found out they had unintentionally liened the entire building of 135 units, NOT just the one for which I had provided service and products. It took two days to clear up this mess; however I did receive payment shortly thereafter and continued to perform work for the designer.
It was an honest mistake on the part of the service company, but it also showed me the power of having a lien on a project.
