To say that Tennessee law which governs the rights of contractors and subcontractors to place liens on property is complex and full of potential pitfalls is an understatement. If you are owed money for work or materials, you should consult with a qualified, experienced construction lien attorney as soon as you suspect you may not be paid and may need to use your lien rights. We had one case a few years back where our subcontractor client could have recovered substantially more money if it had only acted a couple of weeks sooner.
In Tennessee, both general contractors (also referred to as “prime contractors”) and subcontractors (also referred to as “remote contractors”) have lien rights in certain situations. To be enforceable and effective, these lien rights must be properly asserted and perfected under the statutes which govern mechanics and materialmen’s liens (“construction liens”) in Tennessee. The rationale behind giving lien rights to contractors and subcontractors is that they should have greater rights and a better chance of collecting their debt than a party to a typical contract because their work or materials increased the value of the owner’s real property.
Keep in mind that, if you are a contractor or subcontractor, even if you never file a lien, you may be able to collect your debt from the party with whom you contracted. Where mechanics and materialmen’s lien make a critical difference for contractors and subcontractors are in those situations in which they have provided work or materials and the party who agreed to pay them cannot or will not pay them. In many of those situations, provided that the contractor or subcontractor has jumped through all of the construction lien law “hoops,” it can recover from the owner of the property with respect to which it provided work or supplied materials.
What damages can a contractor or subcontractor recover in Tennessee if it has an enforceable mechanics and materialmen’s lien? In Tennessee, a mechanics and materialmen’s lien secures the “contract price.” The contract price is the amount agreed upon by the parties to be paid for the work and/or materials. If the parties have not agreed on that amount, then the court will determine it using a reasonableness standard.
Contract price can include overhead and profit, but can never include attorney’s fees incurred by the contractor or subcontractor in enforcing its construction lien rights. A mechanics and materialmen’s lien may also cover extras that were authorized by the owner. Contract price cannot include interest or late charges.
With some frequency, a contractor or subcontractor which needs to assert a mechanics and materialmen’s lien was not allowed to finish its work. In those situations, does the lien apply to the full price of the contract? No. In those situations, the contractor or subcontractor only has a lien for the amount of the work which it performed.
Generally speaking, subcontractors (or remote contractors) have no right to a mechanics and materialmen’s lien against residential real property where the owner resides or intends to reside. An exception to this rule arises where the owner of residential real property consisting of one dwelling unit acts as the general contractor, and the remote contractor has a contract directly with that owner.
If you are a remote contractor with lien rights, you will lose your lien rights unless you send a notice of non-payment to the owner and prime contractor, which notice must comply with T.C.A. §66-11-145, within 90 days of the last day of each month in which you supplied work and/or materials. In addition to the Notice of Nonpayment, you must serve a notice of lien on the owner of the real property within 90 days after the project is completed or abandoned.
If you are a remote contractor, in order to protect your lien rights, you can’t stop by taking the steps set forth in the above paragraph. You have to file your lawsuit within 90 days of the service of your notice of lien. If you fail to do that, your lien rights will be lost.
What does a general contractor (a “prime contractor”) have to do to secure and perfect its lien rights? The prime contractor’s lien rights attach as of the visible commencement of operations and continue for one year after the project is completed or abandoned. If the prime contractor does not file a lawsuit within one year of the project’s completion or abandonment, its lien rights will be lost. A prime contractor is not required to send a notice of non-payment, as is a subcontractor.
Both a prime contractor and a remote contractor should file a sworn statement, which complies with T.C.A. §66-11-112, with the register of deeds for the county in which the property with respect to which work and/or materials were furnished is located in order to preserve the priority of its lien over subsequent purchasers.
There is no way possible for this blog to cover every aspect of mechanics and materialmen’s liens in Tennessee. Because of the complexity of Tennessee lien laws which apply to contractors and subcontractors, you should consult with a Tennessee law firm which specializes in mechanics and materialmen’s liens about the specific facts of your case before you rely upon anything in this blog post.