Perfecting Construction Liens for General Contractors
One issue that frequently arises in construction projects is the need to file a construction lien. Generally speaking, a construction lien is a mechanism by which general contractors, subcontractors, architects, suppliers and certain other individuals involved in construction projects can secure payment for the labor, services and/or materials that they performed or provided as part of the improvement of real estate. Depending on the person or entity seeking to perfect the construction lien and the type of project at issue, Wisconsin law has different procedures that a claimant must follow before the lien can be perfected. My goal here today is to provide you with an overview of how a general contractor can perfect a construction lien on a privately funded construction project. Thus, the following information does not apply to subcontractors or suppliers, or for projects involving payment bonds. Separate procedures apply in those situations.
What is a “general contractor” for purposes of Wisconsin’s lien law?
The statute uses the term “prime contractor” instead of “general contractor” and defines it as “A person, other than a laborer, but including an architect, professional engineer, construction manager, surveyor, or other service provider, employed by the owner, who enters into a contract with an owner of land . . . to improve the land” or “an owner of land who acts personally as prime contractor in improving such land.” Thus, these rules are not limited to “general contractors” as that term is traditionally understood in the industry, but also includes such persons as architects if they contract directly with the owner.
If one qualifies as a general contractor under the statute, they must include in their written contract a notice of lien rights. The statute includes particular language that must be used in the notice, which essentially notifies the owner that persons or entities such as subcontractors who provide labor, materials or services for the project may have lien rights on the building and land if the general contractor is not paid. If there is no written contract for the project, the general contractor must provide the notice to the owner within ten days after the first labor, services or materials are performed or provided.
However, the general contractor does not have to provide the owner with this initial notice if the project is for greater than four family units if the project is wholly residential or if the project is partly or wholly non-residential. In other words, this initial notice of lien rights is not necessary if it is a commercial project or a larger residential project. Nevertheless, the better practice is to include this language in all contracts regardless of whether the notice is required for the particular project.
If the general contractor satisfies the notice of lien rights requirement, they can file a construction lien against the owner’s property if the general contractor is not paid for their work. There are two deadlines that the general contractor must meet before they can perfect a construction lien. It is of critical importance for the general contractor to be aware of these deadlines, because failure to meet them will result in the general contractor’s loss of lien rights. If so, the general contractor might not have a means to collect from the owner for the work they performed on the property in the event that the owner has no other assets to collect on, or is judgment proof.
General Contractor Deadlines
Serve the owner with a “notice of intent to file lien” at least 30 days before filing the lien. File the lien within six months of the date that the general contractor last performed labor, services or materials for the project.
First, the general contractor must serve the owner with a “notice of intent to file lien” at least 30 days before filing the lien. The notice must be served on the owner personally or via registered or certified mail; standard U.S. Mail or e-mail does not suffice. The purpose of this requirement is to give the owner notice and sufficient time to make payment to prevent a lien being placed on their property.
Second, the general contractor must file the lien within six months of the date that the general contractor last performed labor, services or materials for the project. Thus, the time limit for perfecting a construction lien is effectively five months after the general contractor last performed labor, services or materials for the project, because the general contractor cannot file their lien unless they first serves the owner with the “notice of intent to file lien,” which must be done at least thirty days before filing the lien. The lien is then filed in the circuit court for the county in which the land is located.
In addition to meeting these two deadlines, the general contractor must include certain language in both the “notice of intent to file lien” and the lien itself.
The “notice of intent to file lien” must briefly describe:
- The nature of the claim
- The amount of the claim and
- The land and improvement to which it relates.
- The lien must contain the following information:
- A statement of the contract or demand upon which the lien is founded
- The name of the person against whom the demand is claimed
- The name of the claimant and any assignee
- The last date of performing, furnishing, or procuring any labor, services, materials, plans, or specifications
- A legal description of the property against which the lien is claimed
- A statement of the amount claimed and all other material facts in relation thereto
The lien must be signed by the general contractor or their attorney, and must also attach a copy of the aforementioned notices (that is, the notice of lien rights in the written contract and the “notice of intent to file lien”). It is critical that the general contractor include all of this information or they will be at risk of having their lien rights impaired.
Finally, once the construction lien is filed against the property, the next step is for the general contractor to enforce it. To do so, the general contractor files a lawsuit to foreclose on the property. There is also a deadline for filing the lawsuit: the general contractor has two years from the date of filing the lien to commence a lawsuit and foreclose on the property. Similar to the other deadlines already discussed, a failure to meet the deadline will result in the general contractor losing their lien rights.
The requirements that a general contractor must follow to properly perfect a construction lien are unforgiving and can be confusing. I’ve provided you with a simplified overview of the procedure. It is critical that the general contractor understand the applicable notices that they must give to the owner, the contents of such notices and, perhaps most importantly, the deadlines that must be met. Failure to follow all of the requirements could result in the general contractor losing their lien rights and, potentially, any means to receive payment for the work that they performed.
Brian practices in the areas of civil and commercial litigation with a focus on construction law and construction defect litigation. For more information please contact Brian at email@example.com or by calling (414) 273-1300.