When talking to folks about preserving their mechanics lien rights by setting up a lien policy that sends preliminary notices on each project, we frequently get pushed back with worries that preliminary notices will scare others on the project or impair relationships. In fact, a few years ago, it inspired me to write this post: Preliminary Notice Will Not Scare Your Customer.
This is an extension of that post, reviewing some specific reasons why you’re wrong if you think preliminary notices are bad business.
1. Preliminary Notices Are A Fact of Life In Construction And You’re Probably In The Minority If You Don’t Send Them
First things first. You’re not going to get a target on your back if you send a preliminary notice. In states where preliminary notice is required, everyone is sending them. Everyone. In fact, as I’ve explained in a previous post, most general contractors even have software to manage the preliminary notices they receive since there are so many.
As an attorney, I’ve represented a lot of general contractors and developers. I have never ever ever seen any push back or concern from these parties because they received a preliminary notice. It’s a complete non-issue. The once in a blue moon occasion when someone does get rattled by these notices is because they are inexperienced and not sophisticated. These inexperienced parties are exactly the people you want to be cautious about, which makes the preliminary notice even more important.
2. Your Fear of Preliminary Notices Is Unfounded, As You Take Other Credit Protection Measures Without As Much Fear
I recently wrote a few articles about personal guarantees and whether they are good enough for credit managers to feel comfortable about an account. That got me thinking about personal guarantees and other precautions credit managers routinely take in the construction industry, such as joint check agreements and letters of credit. And that got me thinking about how invasive those particular requests are.
For whatever reason, it seems that credit managers and construction controllers are more fearful of preliminary notices than they are about these much more invasive measures. Why? There’s no reason. Credit is credit and protection is protection. Mechanics lien rights – preserved through preliminary notices – are the least invasive credit protection you can get, and the most effective.
3. Preliminary Notices Are Sometimes Required By Law, Giving You No Choice
If you think sending a preliminary notice is optional, you may be wrong depending on where you’re furnishing. Since July 1, 2012, the State of California has made preliminary notices mandatory, and companies can actually get fined for not sending the notice.
Although I’m not aware of any fines in California to date, we did previously write about a contractor in Nevada who was fined for not sending the required preliminary notice.
4. Preliminary Notices Are Not Liens, Do No Threaten Liens and Are Not Scary
A lot of companies (and sales departments) fear preliminary notices simply because they don’t understand them. They think they are liens, or that they threaten liens, or that they are some abrasive document that will make all types of demands and threats on their friendly customers.
Preliminary notices are nothing like this.
They are simply notices that are required by law, and that inform the receiving party that the law protects all materialmen and subcontractors from non-payment with the lien remedy. In fact, notices are designed by state courts to help the owner and the general contractor protect themselves against bad situations.