As a contractor, you know there are several steps involved in starting a new job. From initial assessments, defining the scope of work, securing subcontractor estimates, hiring subcontractors, finding suppliers, signing contracts and more: there’s a lot to keep track of and a lot that you can miss. In this blog we’re going to discuss a really important step of any job called Notice of Right to a Lien.
A Notice of Right to a Lien is like a form of insurance. In most states it is a statutory requirement for you as a contractor to provide a Notice of Right to a Lien to your customer when work begins.
It’s taken out against the property owner and insures that the owner will pay for every aspect of your job. This includes the general contractor and his employees all the way down to the supplier and vendors used. A Notice of Right to a Lien isn’t an actual lien itself. It grants you the legal permission you need to take out a lien against the property should the owner refuse to pay you for work, supplies or services completed.Information Notice to Owner
Depending on how your job is set up you may need to start this process by providing a legal document called Information Notice to Owner. This only needs to be sent out if you are dealing directly with the property owner.
Consider offering this document as adhering to the “best practices” of the contracting industry. The Construction Contractor’s Board goes so far as to encourage property owners who don’t receive this letter to contact them. So, it’s better to have your bases covered than risk a call from the contractor’s board.
Deliver the Notice of Right to a Lien after the owner receives the Information Notice to Owner (again, only if dealing directly with owner). Utilizing this notice to your advantage can be especially helpful on larger jobs which require funding as you progress through the project. The notice itself states that you have the right to claim a lien. The lien covers all materials, equipment, labor and services delivered within a certain date range.
Circling back to the other question posed in the beginning of this post, what does it mean for your business if you don’t use Notice of Right to a Lien? Well, quite often, simply nothing. Your project goes mostly to plan and the person or agency employing you pays you as arranged. You’re able to pay your subs and suppliers and everyone goes home happy. But what if something doesn’t go to plan? Or the agent employing you doesn’t pay as arranged? Well, you’re not protected.Protecting Yourself from Liability
You become liable to pay those subs and suppliers even if you’re not getting paid. There lies the danger. This doesn’t occur often, but when it does it can ruin businesses and bankrupt contractors. A Notice of Right to a Lien, however, protects you no matter what. The lien steps in as the referee and debt collector if the owner refuses or disputes payment.
So, you settle up no matter what.
See how one small cautionary step can make a huge difference in the long-term? Like worker’s compensation, it can seem like a hassle at the time to go above and beyond to protect your company. There’s a little footwork involved at first, but it goes a long way to removing job-related stress and worry. As the saying goes, better to be safe than sorry, especially when your business is on the line.