Those in the construction industry know that they are subject to the ever-present risk that their customers will not pay them for their services or materials. The nature of the industry is generally one of permanency, meaning that it is generally difficult or impossible to retake possession of the materials or work provided in the same way that a retailer potentially could.
Even were it possible, the materials could likely not be reused as efficiently and effectively as they were initially, and there is no way to regain the hours spent performing the work. In addition, breach of contract lawsuits can be expensive and time-consuming, and the utilization of a collections company could result in the recovery of merely a fraction of the amount due.
Fortunately, the Arkansas legislature has recognized this difficulty and the unique position the providers of construction labor and supplies find themselves, and so it has provided for a special means by which those in the industry may secure payment for their services known as the construction lien.
Every contractor, subcontractor, or supplier of construction materials may place a lien upon any real property improved as a result of their labor or supplies. While securing such a lien requires strict compliance with the requirements of the applicable statute, the security such liens provides make the effort worthwhile, particularly when considering the effort required to pursue the alternative: filing a lawsuit.
The Pre-Performance Notice
In order to take advantage of the construction lien, the contractor must provide notice to the property owner of the possibility that a lien will be filed against the property if payment is not forthcoming. This notice must be provided prior to the beginning of any work.
In addition, there is no discretion in the wording of this notice. It must use the exact wording laid out in the applicable statute. Arkansas law takes this notice very seriously. If the contractor fails to provide the appropriate the notice, not only will the contractor be prevented from filing a construction lien if the customer fails to pay, but the contractor will also be unable to bring a lawsuit to enforce the contract.
Consequently, a failure to provide the appropriate notice could result in the contractor’s having no possible remedy if the property owner refuses to pay the bill due. The reason for this is to provide an extra layer of protection to the property owner. The construction lien is a very powerful tool and puts the property owner in an awkward situation if filed unscrupulously.
Many property owners are simply unaware that a lien is a remedy available to any contractor, subcontractor, or supplier of construction material, and the legislature has felt it important that they be informed of this possibility before they are faced with its reality.
It also helps protect innocent property owners from the liens of subcontractors that result from the contractor’s failure to pay them despite being paid by the property owner. Being aware of the construction lien remedy encourages the property owner to be vigilant to ensure that everyone is paid.
It is important to note that the initial notice from the contractor will allow subcontractors and suppliers to file liens as well. Without such notice, they may not file a lien, either. Consequently, many subcontractors and suppliers provide their own notices as well.
Pre-Performance Notice Exceptions
Pre-performance notice is not required in every circumstance. If the contractor provides a performance and payment bond, preliminary notice is not required. In addition, the notice requirement does not apply where there is a direct sale to the property owner. A direct sale occurs where the contract is directly between the property owner and the professional that actually does the work—that is, there are no subcontractors. This exception helps protect artisans, such as plumbers and electricians, who work directly for the owners of the property.
Finally, the pre-performance notice is not required for work performed on or materials supplied for commercial property, as those involved with commercial real estate are considered to be more sophisticated real estate owners and thus familiar with the construction lien laws. Notice must be provided on commercial property, but those who would file such a lien have 75 days after they have performed to provide statutory notice.
Notice of Intent to File a Lien
Before filing a lien, a construction professional must provide another notice, this one at least 10 days prior to actually filing it. This notice should state that a lien will be filed to secure payment for services rendered. It should also state the amount due and to whom it is due. This notice requirement is applicable to both residential and commercial property alike. This lien should be filed no later than 110 days after the performance of work because all construction liens must be filed within 120 days.
Filing a Lien
Filing a construction lien requires filing the necessary paperwork with the clerk of the circuit court of the county in which the improved real estate is located. This filing must state the amount due and include an accurate description of the subject property. In addition, it must include a sworn affidavit stating that the person filing the lien has complied with the legal notice requirements.
A construction lien is a powerful tool because it is relatively easy to file and clouds the title to the property, severely damaging its marketability. Consequently, it creates a great incentive to pay.
After the lien is filed, the property owner has 20 days to pay the outstanding amount. Should he or she fail to do so, the lienholder has the option to foreclose on the property, meaning that the property will be sold and the proceeds used to pay the debt. The lienholder has 15 months to take this action. Failure to do so will result in the extinguishment of the lien rights.