Houston Principal David Tolin and Attorney Ray Dennison wrote the following article for the November edition of Construction News magazine. David and Ray explore how, in the construction industry, knowing which tools to use is essential—and one of the most powerful legal tools for Texas contractors, subcontractors, and suppliers is the Mechanic's and Materialmen's Lien, a mechanism that secures payment by placing a lien on a property until all debts are resolved.
In the construction world, we are familiar with tools. From a simple hammer and nail to more complex technologies like compressors and cranes, it is critical to know how to use the necessary tools and when. One of the most important tools in the belt of every construction contractor, subcontractor, or supplier in Texas is the right to assert a Mechanic's and Materialmen's Lien in the event of non-payment.
As most in the industry are aware, such liens are a valuable legal tool to ensure that property owners pay their debts to those who complete work for them. A properly filed lien claim encumbers the owner's property and allows the claimant to seek judicial relief from a court to foreclose against that property. There are a variety of different liens that apply to different kinds of property; historically in Texas, for example, liens were even used by saddle makers and repairmen. In fact, those saddle makers were exactly whom the drafters of the Texas Constitution had in mind when they built lien rights for materialmen, craftsmen, and artisans directly into our state's constitution. For the purposes of this article, we will focus on mechanic's liens afforded by Chapter 53 of the Texas Property Code, which are liens that may be asserted against improvements constructed on real property in Texas.
The complex nature of the Texas lien statute can make even the most straightforward questions difficult to answer. And like most questions that seem simple on the surface, it can be embarrassing to ask when everyone else already seems to know the answer. However, spoiler alert: many people get many things wrong when it comes to asserting lien claims. Below, we highlight a handful of commonly asked questions and mistakes.
Do I need a written contract to claim a lien?
Generally speaking, no. A contract is required to assert a lien claim, but that contract need not always be in writing. Although the law requires a valid written contract between the parties when placing a lien on homestead property, oral and even implied contracts can be enough to substantiate a lien on other types of property. The existence of a contract is not the only prerequisite to a valid lien, of course, but the good news is a formal written contract is not always required.
Are the deadlines for notice and filing based on the dates of performance or invoice dates?
The Texas lien statute requires claimants to satisfy various conditions to assert lien claims. These conditions may include deadlines to i) notify others of unpaid amounts, or ii) file a sworn affidavit asserting the claim. Deadlines vary depending on various factors, but missing a deadline is almost always fatal to a lien claim.
Unfortunately, many people miscalculate deadlines. Per the statute, most notice and filing deadlines are calculated from the date that unpaid work was actually performed—not the date of invoicing. This distinction seems simple, but it trips up a lot of claimants. Consider the scenario where a contractor waits to bill for Change Order work until the Change Order is finally approved and executed. While it makes sense, logically, that a lien would not be asserted before an invoice is even issued, the statute ignores payment terms, invoice dates, and other commercial arrangements and focuses exclusively on when the work was actually performed.
It is critical to keep track of performance dates for all work and ensure strict compliance with statutory timing requirements. This is also true for projects involving milestone payments. Even if the agreement is for work to be paid at specific milestones, or perhaps even billed at completion, strict adherence to statutory deadlines is required. Otherwise, a lien claim may be lost before the agreed time for payment has even arrived.
What qualifies as completion?
The Texas lien statute calculates other deadlines from the date of completion. For example, project owners are required to retain 10% from payments to their contractors as a reserved fund for the benefit of downstream subcontractors. At a minimum, those funds should be held until thirty days after completion of the work. But, as all construction professionals know, "completion" can itself be a nebulous concept. Is it Substantial Completion, Final Completion, or something else?
Texas courts have been consistent in their interpretation of deadlines referring to completion of the work: completion occurs at final completion, not substantial completion. It is not partially or mostly done, it is completely done. Also, certificates of completion are not always dispositive. If the original scope of work is not complete, a certificate of completion from the project architect will not change that fact.
Punch list work can muddy the waters. When trying to determine when the clock started to file a lien claim, many contractors wonder whether punch work extends the clock or not. The answer to that question will always be fact-intensive, but the standard rule of thumb is that "true" punch work (i.e., unperformed original scope) will extend the deadlines, while warranty work (i.e., correction of original scope) will not.
Can you waive lien rights in a contract?
The answer to this question is a resounding "NO." Even though some project owners still try to include broad, preemptive lien waivers in their contracts, the statute itself says that contractual agreements to waive lien rights are invalid and unenforceable. It's important to note, however, that this is not necessarily the case for all types of liens. At least one court in Texas has held that mineral liens (which are a different class of lien entirely) can be waived in advance by agreement.
If you make an error in your lien affidavit, can you fix it?
As attorneys like to say: "It depends." If an error is made in a lien affidavit and not caught prior to filing, a new or revised/supplemental affidavit is the only way to fix it. But, because lien filing deadlines are strictly enforced, courts will not entertain a corrected filing after the original lien filing deadline has passed. Thus, a claimant may refile as long as the corrected affidavit would be timely under the statute, but if time has run out, the claimant is out of luck.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
