Construction liens: Overview, definition, and example
What are construction liens?
A construction lien, also known as a mechanic's lien or materialmen's lien, is a legal claim placed against a property by contractors, subcontractors, or suppliers who have not been paid for work or materials provided during a construction project. The lien gives the party who performed the work or supplied the materials the right to seek payment from the property itself. If the debt is not paid, the party can ultimately seek a foreclosure of the property to recover the owed amount.
Construction liens are commonly used to protect the rights of those involved in construction projects, ensuring they are paid for their services. The lien serves as a public record of the claim, which can affect the property's title and make it difficult to sell or refinance until the lien is resolved.
Why are construction liens important?
Construction liens are important because they offer a legal remedy for workers and suppliers who may face non-payment for services rendered or materials provided during a construction project. Without such protection, contractors and suppliers might struggle to collect payment, which can impact their business operations.
For property owners, the presence of a construction lien on their property can act as a warning that a claim has been made against the property. If the lien is not resolved, it can result in significant legal complications, including the forced sale of the property to pay off the debt.
Understanding construction liens through an example
Imagine a contractor is hired to renovate a house. The contractor completes the work, but the homeowner fails to make the final payment. The contractor can file a construction lien against the property to ensure they have a legal right to claim the unpaid amount. This lien is recorded in public records, and the homeowner will be unable to sell or refinance the property without first resolving the lien.
In another scenario, a supplier of building materials provides supplies to a construction project but is not paid for those materials. The supplier can file a lien on the property where the materials were used, giving them the legal right to seek payment from the property owner if the debt is not paid.
Example of a construction lien clause
Here’s an example of what a construction lien clause might look like in a construction contract:
“The Contractor shall have the right to file a construction lien against the property located at [property address] for any unpaid amounts due under this Agreement. The Contractor agrees to provide written notice of intent to file a lien to the property owner at least [X days] before filing the lien. If payment is not made within [X days] after the notice is given, the Contractor shall have the right to file the lien and pursue all available legal remedies to recover the outstanding amount.”
This clause outlines the contractor’s right to file a construction lien if payment is not received and sets a procedure for providing notice before filing the lien.
Conclusion
Construction liens are vital tools for contractors, subcontractors, and suppliers to secure payment for work done or materials provided on construction projects. By filing a lien, these parties can protect their interests and seek payment through legal channels. For property owners, understanding construction liens is essential, as unresolved liens can result in serious financial consequences, including the forced sale of the property. Including clear provisions regarding liens in construction contracts helps ensure that all parties understand their rights and obligations, reducing the potential for disputes and ensuring fair compensation for services rendered.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.