Seems like a pretty straight forward concept. However, the “One Client” piece is often the cause for oversight when attempting to protect your lien rights on a very large project with lots of construction activity.
So let’s break it down by displaying a few possibilities that can exist which will require that you serve multiple preliminary notices on the same construction project.
First and foremost is the fact that by protecting your job related accounts receivables for a client who is working on a specific project, you must uncover “ALL” of the entities between your client and the owner of the project. This could be as simple as:
Situation A: Your Client is contracted by the General Contractor who is contracted by the Property Owner A single preliminary notice will handle this situation very nicely and be in complete compliance with the laws.
However, what if;
Situation B: Your Client is contracted by a Subcontractor who is contracted by the General Contractor who is contracted by the Property Owner? Again, the answer is the same; A single preliminary notice which list these entities and is served on the those who are required by statute, will be all that is needed to protect you.
But what if;
Situation C: Your client is contracted by TWO Sub Contractors, each having contracts with the SAME General Contractor who has a contract with the Property Owner? This is where it can get a little dicey. Reason the Two Subcontractors named in preliminary notices will make request of your client for Releases of Lien Rights in order for them to receive their payments on this project. Now your client will come to you asking for
TWO releases: One for Subcontractor A and One for Subcontractor B.
If you had served separate preliminary notices at the start, this presents no problem. If you did not, then you can only provide a release for the Subcontractor named on the preliminary notice you served. The dicey part is when you are trying to file a lien on this project and the amount you want to protect includes the amount provided to Subcontractor B. As this Subcontractor was never served a preliminary notice, you have now negated your right to bring a mechanics lien against this property for the value of the materials or services that your customer provided to Subcontractor B.
So now the question becomes: “How do I avoid this situation?”
The best answer is to have your client disclose their customer on the project. This will trigger you to always request a new preliminary notice every time your customer’s customer changes on the same project.
Another solution is to request that your prelim be “Amended”. This will force your preliminary notice service to execute new research for the job. If no new Subcontractors are uncovered, your Amended Prelim will be served on the same entities only it will now have a revised “Estimated Value”. If NEW SUBCONTRACTORS are discovered during the research process. Your preliminary notice service should alert you that a new Preliminary Notice will be required to protect your lien rights for the services or materials provided to your one client for both subcontractors who are contracted by the same General Contractor who is working for the Property Owner.
YES – IT CAN GET COMPLICATED. But your lien rights may also be lost in the shuffle if your preliminary notice service does not properly research the preliminary notice request.
It can even get more dicey when more than ONE GENERAL CONTRACTOR is discovered on the same project. Think this doesn’t happen? Think again. Large jobs are notorious for being separated into multiple projects and many phases.
The best advice we can offer is to use a Preliminary Notice Service that is designed to be ON TOP on these anomalies and performs the research process on each and every preliminary notice. For piece of mind with your preliminary notice choose:
CRM Lien Services, Inc. “Serving Industries that build America” for over 30 years.