Pre-Lien Notice: The First Step to Enforcing Mechanic’s Lien Rights

Category | Briefing Papers

Introduction

In today’s economy, many contractors, subcontractors, and suppliers have become all too familiar with the following scenario. Labor or materials are provided for an improvement to real property, but payment is not received. Invoices are sent, calls are made, requests for payment go unsatisfied. Minnesota’s mechanic’s lien statute has long served the purpose of ensuring that contractors and suppliers who provide labor and materials to private construction projects are paid. Indeed, a mechanic’s lien is often the single most effective tool in seeking money owed for improvements to real property. Pre-lien notice is the first step to ensuring valid and enforceable mechanic’s lien rights.

Pre-Lien Notice

Failure to comply with statutory requirements for pre-lien notice is one of the main reasons that contractors and suppliers are forced to pursue other means of recovery that are often less efficient and more costly than a mechanic’s lien. Pre-lien notice should be a regular part of doing business for anyone supplying labor or materials for improvements to real property. The statutory requirements for pre-lien notice differ depending on whether the lien claimant is a general contractor or a subcontractor, whether the project is residential or nonresidential, and whether the improvement involves property consisting of more or less than 5,000 square feet. Pre-lien notice requirements, found in Minnesota Statute Section 514.011, are summarized below.

General Contractor’s Pre-lien Notice: A general contractor who enters into a written contract with an owner for the improvement to real property and will contract with subcontractors or suppliers must include pre-lien notice in the contract with the owner. If the general contractor has no written contract with the owner, the general contractor must provide the owner with written pre-lien notice, personally or by certified mail, within ten days after the date of the contractor’s agreement to perform work for the owner.

Whether the general contractor’s pre-lien notice is part of a written contract or a separate writing in the case of a verbal agreement, the notice must be in at least 10-point bold type if printed, or in capital letters if typewritten, and state as follows:

Please take notice:

Any person or company supplying labor or materials for this improvement to your property may file a lien against your property if that person or company is not paid for the contributions.

Under Minnesota law, you have the right to pay persons who supplied labor, equipment, or materials for this improvement directly and deduct this amount from our contract price, or withhold the amounts due them from us until 120 days after completion of the improvement unless we give you a lien waiver signed by persons who supplied any labor or material for the improvement and who gave you timely notice.

Subcontractor’s and Supplier’s Pre-lien Notice: A subcontractor or supplier must provide the owner with pre-lien notice within 45 days after the subcontractor or supplier first provided labor, skill, or materials for the improvement to real property. Pre-lien notice may be delivered to the owner or the owner’s authorized agent personally or by certified mail. The subcontractor or supplier can ask the general contractor for the name and address of the owner, and the general contractor must provide this information within ten days of the request.

The subcontractor’s or supplier’s pre-lien notice must be in at least 10-point bold type if printed, or in capital letters if typewritten, and state as follows:

This notice is to advise you of your rights under Minnesota law in connection with the improvement to your property.

Any person or company supplying labor or materials for this improvement may file a lien against your property if that person or company is not paid for the contributions.

We, (name and address of subcontractor), have been hired by your contractor, (name of your contractor), to provide (type of services) or (material) for this improvement. To the best of our knowledge, we estimate our charges will be (value of service or material).

If we are not paid by your contractor, we can file a claim against your property for the price of our services.

You have the right to pay us directly and deduct this amount from the contract price, or withhold the amount due us from your contractor until 120 days after completion of the improvement unless your contractor gives you a lien waiver signed by (name of subcontractor).

We may not file a lien if you paid your contractor in full before receiving this notice.

Exceptions to Pre-lien Notice: There are certain situations in which a mechanic’s lien may be enforced against the improved real property without first providing the owner with pre-lien notice. Pre-lien notice is not required in the following situations:

1. The contractor is managed or controlled by the same persons who manage or control the owner of the improved real property;
2. The improvement is to real property consisting of more than four family units and is wholly residential; or
3. The improvement is to real property which is not in agricultural use and which is wholly or partially nonresidential in use if:

a.   the improvement provides or adds more than 5,000 square feet of usable floor space,
b.   the improvement is to real property where the existing property contains more than 5,000 square feet of usable floor space, or
c. the improvement is to real property which contains more than 5,000 square feet and does not involve the construction of a new building or an addition to or improvement of an existing building.
 

Conclusion

Pre-lien notice is intended to avoid surprising an owner or mortgagee with service of a mechanic’s lien statement by an unpaid subcontractor or supplier after the general contractor has been paid the last of the construction funds or mortgage proceeds. Courts tend to strictly enforce pre-lien notice requirements against general contractors. Minnesota’s mechanic’s lien statute, however, provides that subcontractors and suppliers will not lose their lien rights if a good faith effort is made to comply with pre-lien notice requirements, unless the owner or another lien claimant proves damages as a direct result of the failure to comply. The best course of action is to provide timely and proper pre-lien notice to owners in the regular course of business. Doing so is the first step in ensuring that you will have valid and enforceable mechanic’s lien rights.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T