Protecting Construction Lien Rights Requires Proactive Practices

David M. Henry
dhenry@kmksc.com
(414) 962-5510

When subcontractors and material suppliers (collectively, Subcontractors furnish labor or materials for a construction project, it is critical to be proactive to ensure that the right steps are taken to perfect lien rights in case the customer fails to pay. At the outset of the job, Subcontractors should carefully gather all relevant and accurate information and identify the steps and deadlines required to preserve and perfect a construction lien.

Obtaining complete and accurate information

Subcontractors commonly obtain a job information sheet at the start of a new project, often completed by the Subcontractor’s sales representative or the customer. Unfortunately, too often these job sheets contain inaccurate or incomplete information. Especially in cases where the customer presents a significant credit risk, the Subcontractor should ensure before work has begun that it has and has verified all of following:

1. Legal name and principal office address of the owner of the job site. A fictitious or d/b/a name and a “ship to” address will not suffice!
2. Physical address of the job site ( a “ship to” address is insufficient).
3. Nature of the overall construction to be completed at the site (construction of a new building, addition to or remodel of an existing building, etc.).
4. Legal name and principal office address of the construction manager (if any) and the general contractor.
5. Legal name and principal office address of the party contracting with the Subcontractor’s customer.
6. A specific description of the labor and/or materials to be furnished for the project by the Subcontractor’s customer.
7. Legal name and principal office address of the construction lender (if any) for the project.

To ensure that the Subcontractor has complete and accurate information, we recommend a property search through a title company to verify the identity of the owner of the job site, especially if the Subcontractor estimates significant charges for the job. This will help ensure that construction lien notices can be served on the job site owner.

Construction lien notice and filing deadlines

While every state is different, under Wisconsin law there are five key notice and filing steps that must be undertaken in order for a Subcontractor to perfect a valid, enforceable construction lien: (1) Serving a Preliminary Notice, (2) Serving a Notice of Intent to File a Lien, (3) Filing the Lien, (4) Serving a Copy of the Lien on the Owner, and (5) Filing a Lawsuit to Enforce the Lien. Each step must be taken in order and by very specific and rigid deadlines.

1. The Preliminary Notice

A Preliminary Notice (also known as a Subcontractor Identification Notice) generally must be served on the job-site owner within sixty (60) days after the Subcontractor first furnishes labor or materials for the construction project. The Preliminary Notice should be sent to the job owner, the construction manager (if any), the general contractor, the construction lender (if any), and the party contracting with the Subcontractor’s customer. Service by certified mail, return receipt requested, will suffice. However, a Subcontractor does not need to provide a Preliminary Notice under the following circumstances:

1. If the construction project is wholly residential and more than four living units are being built or added; or
2. If the construction project is partly or wholly nonresidential.

Even if the Preliminary Notice is not required because one of the above exceptions applies, it is a good practice to send a Preliminary Notice anyway. This puts the parties involved on notice that the Subcontractor is furnishing labor and/or materials for the project, expects to be paid, and will protect its construction lien rights if it is not timely paid.

2. The Notice of Intent to File Lien

To preserve its lien rights, a Subcontractor also must serve a Notice of Intent to File a Claim for Lien (the “Notice of Intent”) on the owner of the job site at least thirty (30) days before filing the lien. This Notice can also be served by certified mail, return receipt requested. Since the Lien itself must be filed within six (6) months of the date the Subcontractor last furnished labor or materials for the project, the Notice of Intent must be served on the owner no later than five (5) months from the date of last furnishing.

While the Notice of Intent only needs to be served on the owner, it is a good practice to also serve it on the construction manager, the general contractor, the construction lender, and the party contracting with the Subcontractor’s customer. Doing so will improve the likelihood of obtaining payment.

3. Filing the Lien

The Construction Lien itself must be filed with the Clerk of Court of the County where the job is located, by no later than six (6) months after the Subcontractor last furnished labor or materials for the project. However, the Lien cannot be filed until at least thirty (30) days after service of the Notice of Intent on the job owner. Note that labor and/or materials furnished pursuant to a punch list or to satisfy warranties will not re-start the running of the six (6) month deadline.

4. Serving the Lien

The Construction Lien must be served on the owner no later than thirty (30) days after the Lien is filed. Again, service by certified mail, return receipt requested, is satisfactory. While a Subcontractor is only required to serve the Lien on the owner, it is prudent to also serve the construction manager, the general contractor, the construction lender, and the party contracting with the Subcontractor’s customer, as this may facilitate payment.

5. Filing a Lawsuit to Enforce the Lien

A lawsuit to foreclose on the Lien must be filed in the federal or state courts of the County where the Lien was filed. The lawsuit must be initiated no later than two (2) years after the Lien was filed. If no lawsuit is filed by this deadline, the Lien will expire and will no longer be valid or enforceable.

The Bottom LineCorrectly and completely following the above steps greatly enhances a Subcontractor’s likelihood of being timely paid for the labor and materials furnished for a project, and timely payments are the lifeblood of any Subcontractor’s business. Strict observance of the timelines and procedures to protect lien rights should be a part of every Subcontractor’s customary business practices. Missed deadlines to serve or file a lien claim and even minor mistakes in the lien notices or lien filings can result in the total loss of a construction lien. KMK attorneys are well-versed to answer questions, aid in the protection of construction lien rights, initiate legal action to enforce a Lien and assist at every stop along the way.

If you have questions or need assistance with a construction lien claim, please contact KMK attorney David M. Henry at (414) 962-5110 or dhenry@kmksc.com.