Because the laws regarding preliminary notices change frequently, it isn’t uncommon for contractors and subcontractors to feel confused regarding who should file them and when. The simple answer is that they should be filed before a project by the primary contractor. If you’re wondering if you should file one or not, the simple answer to that question is definitely. Being a contractor is stressful enough without having to worry about if you’re breaking the law by not filing one or worrying about not receiving payments.
The Purpose of a Preliminary Notice
The purpose of a preliminary notice often referred to as notices to owners (NTOs) or pre-lien notices, are sent as a means of supplying notification of the start of construction by contractors or service providers. The requirement of sending these notices occurs in almost every state. Don’t mistake this notice for a bond claim or mechanic’s lien, nor is it a notice of anyone intending to file a lien. Its sole purpose is to let parties become aware of individuals beginning a construction job.
Under most circumstances, these notices go out to the general contractor, construction lender, property owner, and other key project stakeholders. If you fail to send the preliminary notice before the deadline, it invalidates rights to a lien, and the right to file a mechanics lien in the event of non-payment is no longer an option. A notice typically sends through certified mail with a return receipt request, or through registered mail.
Are There Exceptions?
Under some circumstances, there are companies and individuals that don’t need to receive a preliminary notice. These include a material supplier or contractor who was contracted directly by the property owner. The main reason for this is because the notice’s design is to provide information regarding your presence on the construction project to ensure you receive payment. However, if you’re directly contracted by the property owner, they already have a relationship with you and understand that you need to receive payment. You must be aware, though, that there may still need to be a requirement to send out preliminary notices to the construction lender if the project is being funded through a lender.
Deadlines for Preliminary Notices
It’s critical that you meet the deadline for your preliminary notice to ensure your rights are protected in the event of nonpayment. These deadlines are determined where the project is located and, of course, change from state to state. However, under most circumstances, the preliminary notice must be sent out by a specified number of days before the labor and materials are provided for the project. You’ll find that, in some states, it’s required to send a notice out monthly when payments aren’t received. However, in most states, it’s standard for the notice to go out once. It’s essential that you check for the legal requirements of the state where you’re performing work.
How are Preliminary Notices Beneficial?
While preliminary notices aren’t a requirement in every state, they become an incredible asset when contractors send them. Not only do they keep the general contractor, property owner, and other essential parties informed regarding the work everyone is performing, but it also helps prioritize the invoices for payment. In doing so, you’re helping to build a stronger working relationship while simultaneously develop project transparency. Because it’s growing increasingly more difficult to receive payments for construction and contracting services, suppliers and contractors are facing the dilemma of finding hassle-free ways to receive payments for their invoices. Step one in doing so is to send out a preliminary notice.
Critical Reminders Regarding Preliminary Notices
Construction companies have access to preliminary notices throughout the United States. However, in some states, you can’t secure lien rights unless you have a preliminary notice first. You’ll notice that preliminary notices will have many different names depending on which state you’re located. Here are some examples:
· California: 20 Preliminary Notice
· Florida (as well as 12 other states): NTO (Notice to Owner)
· Michigan (as well as three other states): Notice of Furnishing
The Purpose of Sending Preliminary Notices
It’s become standard practice for preliminary notices to go out at the start of a construction project. When parties are supplying labor or materials, they’ll send out this construction notice to comply with local laws that require these notices and as a means of protecting their lien rights. General contractors, property developers, lenders, and other parties who may be involved with the project depend on receiving these notices from suppliers and subcontractors because it provides them with the visibility they need for seeing who is providing contributions to the job.
Is a Preliminary Notice a Lien?
When an individual receives a preliminary notice, it should never be mistaken for a lien. Instead, it’s an informational notice. By law, it must be sent stipulating that contractors have the right to file a lien if the project isn’t paid in full.
Preliminary Notices Provide Transparency
Some companies are already embracing the benefits of sending preliminary notices and have developed sophisticated policies that need management. However, other construction companies are still weighing the costs and benefits of sending them out. Not only do preliminary notices help contractors provide the necessary transparency to projects that stakeholders desire, but they also offer the ability to help prioritize the supply or contractor’s invoice above those who haven’t sent a notice. Therefore, they’ll receive payment quicker and more often.
Preliminary Notice Requirements
Every state will have specific requirements and information that must be included in the preliminary notice. Here are some examples of what some states may require:
· Name and address of the property owner
· Name and address of general contractor
· Description of the construction site to include street address, if applicable
· Name and address of the individual providing the notice
· General description of work performed
· The name of the person for or to the work is being performed
· An estimated cost for the work performed
Why is the “Estimated Price” different from the contracted price?
Many state laws require that the contractor provide the estimate for the total amount of the materials, as well as the services that are or will be furnished during the job. The purpose of this is to cover any additions or extras the job could incur. Regarding material, it could be as much as three times the cost of the first delivery. Contractors can only claim the actual cost of the material supplied, as well as improvements made.
How Preliminary Notices Are Sent Out
Where you’re required to send out preliminary notices, it’s standard practice to send and receive them. For those who qualify for filing mechanics liens, no matter if you’re furnishing material or labor for a construction project, you’ve likely wanted to send a preliminary notice in a required state. Therefore, it’s going to be expected from contractors and property owners to receive a notice from you.
Under most circumstances, you’ll be sending the preliminary notice either through registered mail or certified mail with a return request receipt. It’s essential that you keep a copy of the notice, as well as the return receipt. That way should the need to file a claim arise; you have the necessary documentation stating that you complied with the state’s requirements. You’ll find that there’s a lot of research involved with ensuring you’re meeting the preliminary notice requirements, as well as tracking to ensure a project is paid or not. Under some circumstances, someone in your home may be taking care of this task, or you may hire a professional.
Are There Different Types of Preliminary Notices?
Depending on who is doing the filing, the preliminary notice will vary. In some states, the general contractor must file what is referred to as the “notice of contract” before work beginning of the work is worth more than a specified dollar value. While this notice of contract differs from the preliminary notice, it’s still a required filing.
Those who are equipment lessors will file a different preliminary notice. They’ll deliver their preliminary notice to the general contractor, as well as to the owner at least ten days before the equipment is supplied. A supplier is defined as a “seller of movables” under the Private Works Act. However, in the Public Works Act, the definition is as a “materialman.” You’ll find that these definitions are interchangeable. Therefore, the supplier must send non-payment notices within seventy-five days of the supply of materials and when payment didn’t occur.
Wrapping Things Up
The best rule of thumb is to complete your preliminary notice as soon as contracts are signed for the job and receive a notice to proceed with the work. Once you receive this authorization, purchase order, or any other indication that you’re being retained to complete this work, it’s a good idea to proceed with your notice. Remember that you will not receive a penalty for serving your preliminary notice early, but you will be sacrificing your rights if you fail to meet the deadline. Make sure you conduct thorough research regarding your preliminary notice to ensure you’re meeting every requirement under your state’s laws. If you have questions regarding the process, it’s critical that you reach out to a professional for assistance.