Preliminary notices are documents that are sent at the start of a construction project as a form of information to the general contractor and property owner. They serve as a form of notification by a contractor, subcontractor, or supplier preserving their right to file a mechanic’s lien if they do not get paid.
This notice is not a mechanic’s lien but rather a notification. It simply means that if it so happens that there is a need to, the worker or supplier, can exercise their right to file one.
Depending on where the project is domiciled, a preliminary notice may be referred to as Notice to Owner (NTO), pre-lien notice, Notice of Furnishing, etc.
These notices are sent out at the beginning of the project before any disputes concerning payment arise and most times before payments are due.
A failure to send in a preliminary notice in states where it is a requirement will most likely cost you the right to file a mechanic’s lien much later. If it is sent and the worker is paid, then the notice has no further legal use. Preliminary notices are an important aspect of a mechanic’s lien and it is a prerequisite in several states. You can continue reading about this here.
Preliminary Notice as a Precursor to a Mechanic’s Lien
A mechanic’s lien is a kind of security or guarantee that payment will be made to construction workers; contractors, subcontractors, builders, materialmen, etc. when they work on a project. It ensures that in the event of a liquidation, these workers are paid first. In addition to this, no property can be solved while it has a lien on it.
Mechanic’s liens operates by having a worker such as a subcontractor or goods supplier file it against a property, its owners, lenders and other concerned parties. This is often in the event of nonpayment for the job done on the owner’s site or property. The responsibility and burden of the lien lie with the property and its owners. It stays in force until such a time as when the project is done and the personnel involved have all been paid.
Before a mechanic’s lien can be filed, there are preconditions that must be met. This usually includes filing some notices and one of these is the preliminary notice.
Why Preliminary Notices are Important
The whole idea of a mechanic’s lien including preliminary notices is about payments. Everyone wants the project to be completed successfully and also that they get paid.
A project financier would like nothing more than to minimize their costs. As such if there are no punitive measures or deterrents, they may take the liberty of not paying. You cannot rely solely on an individual’s integrity in this matter. Even if the property owner has integrity, what happens if they fall on hard times? It means that the construction worker’s payment may be delayed or may never be paid.
A preliminary notice helps to send a strong signal to the property owner. It helps them to understand that they need to make necessary payments in terms of remuneration and for goods supplied. Considering the associated costs and stress with liens and the fact that they will eventually have to pay, an owner would prefer to avoid them.
The mechanic’s lien is a legal document that empowers an unpaid construction business or worker to put the project on hold or freeze the property. The project owners do not want this. Unfortunately for owners, due to the complexity of construction projects, they may not be able to adequately track who is working on their project. If they do not know this, there is no way to ensure that everyone is paid.
To this end, notices were created to ensure that owners can identify as well as track contributors to their construction projects. With this, they can pay everyone and avoid any lien claims. You can read more in the California Code about preliminary notices here: https://law.justia.com/codes/california/2010/civ/8200-8216.html.
Consequently, third parties such as suppliers and subcontractors also prefer to avoid mechanic liens and would only use them when necessary. Their desire is to get paid on time so they can move on to other projects. Serving a preliminary notice helps to bring to the owner’s attention the work they have done and this will lead to them getting paid.
How Preliminary Notices are Beneficial
Much more than helping to manage payments, preliminary notices also comes with certain benefits. It helps to bring about professionalism and a good reputation. It shows that the issuing business is serious and has processes and procedures by which they do things.
Secondly, it encourages communication. The general contractor may have a hard time coordinating everyone and reaching them with information especially those not directly hired by them. The preliminary notice gives them an idea of who is on the job and is doing what and helps to reach them easily.
Thirdly, it is used to manage and balance risks by property owners to avoid double payment and also by workers to avoid non-payment. It helps to improve waiver collection as you can easily identify who needs to be paid and collect a waiver in exchange for payment.
Sending A preliminary Notice
In most states and places such as Riverside in California, there is a stipulated time for you to file and serve a preliminary notice. This is usually within 20 days from the first time that the sender furnishes a construction with their services. If you do not do this, you risk not getting paid as you cannot file a mechanic’s lien if the owner default’s on payment.
It is always good business to serve a preliminary notice even when you are certain that you will be paid. This will ensure that you are not put in a bad situation if anything untoward happens. There is no way to predict when or where an issue will arise but you can be proactive in protecting yourself in the eventuality that this happens.