Are You Going to Get Paid? Ask a Construction Lawyer

We aren’t the biggest construction law firm in the DFW area, but it is funny how in our practice we get to see some industry trends developing first hand and probably even before most analysts do.  I’ve always told clients to keep up with their receivables in order to preserve their lien rights.  I’ve even gone as far as saying hey…if you don’t want to worry about deadlines just give me a monthly spreadsheet with your receivables and I can tell you which ones you have to worry about.  Usually I’m coming at it from the point of view of lien deadlines, but more and more I have another point of view.

Being an Attorney for many clients in the construction industry I get a broader industry perspective than the lone sole contractor, sub-contractor or supplier.  For instance, I usually know if residential construction projects are having more payment problems than commercial projects or vice versa.  I know what bond companies are easy to work with and which are not.

So the other day I was talking to a client about one matter when he just mentioned that he ‘may’ have another one for me.  I inquired more about it and when he was done, I told him that his ‘may’ was actually a ‘sure thing’.  His potential matter related to a specific General Contractor building an anchor store in Houston.  He was ‘promised’ that he would get paid and to just give it a month (which would have put him past his lien deadline).  What he didn’t know is the previous week I had filed a lawsuit to foreclose on a property in Dallas that the same General Contractor had built for the same retail chain.   So the odds that he would give up his lien rights and not get paid were actually pretty high.

So, yes, people can try and do liens themselves or use a online service to preserve their rights, but they give up something important (beyond probably not doing it right).  When you go to a law firm, experienced in the area of construction litigation and commercial collections, you have the added benefit of a wealth of knowledge regarding the financial viability of particular projects and General Contractors, Builders, Subcontractors and Suppliers in and around the DFW area and even in some cases, throughout the State of Texas.   Many times, we know who is paying, who is not, what jobs are having funding problems, which parties are known to be “slow pays,” “no pays,” or even continuously in litigation.  To most clients, this information is almost invaluable and is a benefit you can get from your law firm without having to spend any additional money.

Online Corporate Formation – You Get What You Pay For!

Unfortunately, I have noticed in my practice that most of our new clients are not adequately protected from the personal liability associated with their business as they thought. A couple of the most common misconceptions I hear from business owners is that once a Corporation, LLC or other legal entity is formed, the owners are protected from personal liability or that they spent $150 on www.thecheapestllc.com plus the state fee and then magically they are like Teflon.

If your company is already set up as a legal entity, you have taken the first step to protect yourself and your assets personally in the event of a lawsuit. However, many business owners believe that forming a Corporation or LLC guarantees protection from that point forward, if you only spent $150 online I’m still talking to you too. On the contrary, maintaining your company as a separate entity, including exercising proper formalities, such as regular corporate meetings with corresponding minutes, is essential to personal liability protection.

Another common misconception I hear from business owners is that a small business, or a businesses with sole ownership, doesn’t need a corporate entity.  All businesses, regardless of size, have the potential for legal liability. It may be through contracts with customers or vendors, or being accused of a wrongful act. Regardless of the size of the business, defending against a lawsuit can create hardship on the company. However, it can be devastating for the owners personally if there is not proper liability protection, because the person suing you can go after not only your business and its assets, but you personal assets and property as well. Additionally, you can personally be liable for your business’s debts.

Do you fall under one of these  scenarios?  Do you have a corporation but don’t know what a corporate book is?  Don’t know what corporate minutes are?  Know about them but haven’t done them for 10 years?  Or have you never registered your company as a formal Inc or LLC with the Texas Secretary of State?  Perhaps you ordered your corporation online and they sent you some documents or a corporate book to fill out but you either didn’t do it or don’t know if you filled it out properly.

Surely you would agree that it is not wise to not have health insurance or automobile insurance, right?  Then why would you own a company in which the liability of owning the company could devastate your family for countless years simply because you failed to understand and follow simple guidelines to protect your business.  Don’t let this happen to you!

Here is a document that contains some of the reasons that you could Lose Corporate Protection

February Mechanic’s Lien Deadlines

February Mechanic’s Lien Deadlines

Commercial Projects

1st Tiered Claimant:

Your notice letters are timely for work done any time after November 1, 2009.
Your mechanic’s liens are timely for work done any time after October 1, 2009.

2nd Tiered Claimant:
Your notice letters are timely for work done any time after December 1, 2009.
Your mechanic’s liens are timely for work done any time after November 1, 2009.

Residential Projects

For all Claimants:

Your notice letters are timely for work done any time after December 1, 2009.
Your mechanic’s liens are timely for work done any time after November 1, 2009.

Does your Work meet the requirements for a Mechanic’s Lien?

Every month, I get emails from various contractors wanting to lien a residential or commercial property. The problem is that not all work performed at a residence or building or on a property entitles the person to a mechanic’s lien pursuant to the Texas Property Code

To meet the definition, the work performed must be considered to be a fixture or financial benefit to increase the value of real property. For example, dental equipment, dish satellites, lawn mowing, property security, etc. would not increase the value of the property. Lawn mowing simply helps the aesthetic appeal of the property, property security provides a benefit to the owner and perhaps the contents within the property, and dental equipment is a benefit to the dentist but certainly not the property. Now, if sod had been planted or security cameras had been added, that would have improved the value of the property.

In these situations, the most the person would have would be a right to collect the monies due through civil litigation such as a demand letter or through small claims court.

Mechanic’s Lien Reminders Tip of the Month – Warranty Claims

Last month, we talked about retainage claims and how you protect your ability to collect on retainage funds that are not timely paid to you.

This month, I wanted to discuss warranty claims.  Many clients believe that warranty claims can extend their mechanic’s lien deadlines.  For most clients, this would be generally untrue because the deadlines for their work performed or material supplied would not be calculated pursuant to the Substantial Completion rule, discussed below.  However, there is what may be referred to as a “loophole” that can be used to extend deadlines in very particular situations.  This would never be something I would recommend or could rely on with certainty as a court of law would have to determine its applicability to the particular circumstances.

That being said, in order to clear up some of the myths that are circulating relating to the extension of deadlines by warranty claims, it is important to understand the distinctions.  Most lien deadlines are calculated from the date that work was first performed.  Thus, doing more work does not generally extend the deadline. However, the lien deadlines are calculated by the earlier of the 3 / 4 months after work was performed (depending on whether it is considered a residential or commercial project) OR WITHIN 30 DAYS AFTER SUBSTANTIAL COMPLETION OF ENTIRE THE PROJECT (not just your portion), whichever is sooner.

So, while most subcontractors and suppliers fall within the normal mechanic’s lien deadlines, if you perform work at the end of the project (such as landscaping, which is generally one of the last aspects of a construction project), your lien deadline can be shorter than the typical 3 / 4 month time frames (as set forth in the “Deadline” portion of this email).

If you believe you are late on your mechanic’s lien or notice letter, there is quite a bit of case law that attorneys can and do use to argue around the deadlines. One such case law relates to warranty work. Warranty work can, in some instances, be the basis for arguing that substantial completion has not occurred, and thus a claimant is not late on a lien. Some courts have extended substantial completion deadlines to include punch and warranty work.

So, what does this mean to you?  If you are a subcontractor or supplier that performs work or supplies during the first or middle portion of the construction project, it means absolutely nothing because your lien deadlines are not dependent on substantial completion of the project.  However, if you perform work on what might be considered the later part of the project (about the last 4 months), your deadlines might be shorter than normal but, on the other hand, any warranty work that may have been performed on the project could possibly be used to extend the timeframe for you to properly perfect your lien.

There are a lot of companies out there filing their own liens and/or notice letters. As you can see, there is not one exact formula to the mechanic’s lien process. It depends on a variety of circumstances, all which must be taken in consideration to determine your deadlines and filing requirements. The best business practice is to meet with an attorney that understands your business and how your work fits within these deadlines. While the use of loopholes to extend your deadlines can be beneficial it certainly cannot be relied upon on a day to day basis.