A General Discussion on Liens

A note about residential projects: special rules apply to the projects commenced on homestead property.  That discussion is outside the scope of this general informational page, but we would be happy to discuss the nuances associated with asserting lien rights on homestead property in Texas.

Original Contractors

On commercial projects, an original contractor must file its lien (technically, an affidavit of lien) by the 15th day of the 4th month after the last day of the month in which the owner terminates the original contract or the last day of the month in which the original contract is completed, finally settled, or abandoned.  For residential projects, that time period is shortened by one month, and the deadline for filing liens occurs on the 15th day of the 3rd month following contract termination, completion, settlement, or abandonment.

After filing the lien, the contractor must send a copy of the lien to the owner (or reputed owner) by certified or registered mail within 5 days.

Subcontractors – Commercial Projects

Unlike original contractors, subcontractors derive their rights on a project from an agreement with the original contractor.  A different set of rules were developed because of this relationship.  In contrast to original contractors, subcontractors are generally required to provide written notice of unpaid invoices by certified mail to the original contractor AND owner by the 15th day of the 3rd month after ANY month in which the subcontractor performed work or delivered materials to the project (that is, where the subcontractor didn’t receive payment).  There is also a special notice that the subcontractor needs to prepare in order to protect its right to force the owner of the property to hold retainage funds in trust.  The lien affidavit must be filed by the 15th day of the 4th month after the last month in which the subcontractor supplied labor or materials for the project.  To be safe, we typically suggest that subcontractors use the date of substantial completion as the trigger date for the deadline to file a lien.  Like the original contractor, subcontractors also need to send a copy of the lien to the owner or reputed owner by certified mail within 5 days after filing the lien.

For subcontractors retained by another subcontractor (so-called ‘second-tier subcontractors’), there is an additional requirement that notice of unpaid invoices be sent to the original contractor by the 15th day of the 2nd  month following any month in which the second-tier sub delivers materials or labor to the project.  Like ‘first-tier subcontractors’, second-tier subs must send an additional notice of unpaid invoices to the original contractor AND owner by the 15th day of the 3rd month following any month in which labor or materials were delivered.  The lien affidavit must be then filed by the 15th day of the 4th month after the last month in which the subcontractor supplied labor or materials for the project.  Again, to be safe, we typically suggest that second-tier subcontractors use the date of substantial completion as the trigger date for the deadline to file a lien.  Like the original contractor and first-tier subcontractors, second-tier subs also need to send a copy of the lien to the owner or reputed owner by certified mail within 5 days after filing the lien.

Subcontractors - Residential

On residential projects, there is no distinction between first and second tier subs.  Thus, subcontractors must send notice of unpaid invoices to the original contractor AND owner by the 15th day of the 2nd month following any month in which labor or materials were delivered.    The lien affidavit must be then filed by the 15th day of the 3rd month after the last month in which the subcontractor supplied labor or materials for the project.  A copy of the lien must then be sent to the owner or reputed owner by certified mail within 5 days after filing the lien.

Retainage

Interestingly, claims for unpaid retainage don’t follow the same process when compared to the usual methods available for lien filings.  The law requires that owners withhold 10% of the contract price to secure payments to subcontractors but that requirement can be waived, and there are situations that arise where the original contractor fails to pay the full amount due and points back to the owner who may be withholding the retainage amount.  In order to secure lien rights to collect on retainage, subcontractors must make the owner aware of the fact that retainage is owed under the agreement between it and the original contractor.  The deadline to do this is typically the 15th day of the 2nd month following commencement of work on the project (after executing an agreement requiring retainage, to be technical).  This notice must also contain information about the nature of the agreement for retainage, the amount, and the due date.  Second-tier subs must send the same notices within the same timeframe to the original contractor as well.  If a lien is sought, it must be filed within 30 days of completion of the work.

Additional Options

Additional rules apply to architects, engineers, landscapers, and contractors/subcontractors who supply specially fabricated materials.  If you fall into these categories, please contact us for a consultation regarding your rights.