Sending preliminary notice is a fairly standard prerequisite to remaining in a secured position and retaining the ability to file a valid mechanics lien or bond claim. Most states have some sort of preliminary notice requirement – and, when required, the failure to provide the preliminary notice can be fatal to your rights to make a valid lien or bond claim. The notice requirements themselves, however, can be difficult to wrangle – different deadlines, and different form/information requirements can make the standardization of providing notice difficult.
Since providing preliminary notice on every project is clearly a best practice that typically results in faster payment, it only makes sense to look for ways to streamline the process. One question that comes up with some frequency is whether preliminary notice can be included in the contract itself. After all, if preliminary notice is “sent” at the same time that the contract is signed (by being included in the contract itself), then there’s no need to worry about deadlines, or making sure the notice gets sent.
Generally speaking, however, and subject to certain exceptions, including a notice in your contract doesn’t actually help solve any issues or streamline the process, and is in fact insufficient by itself which could invalidate your lien rights.
Preliminary Notice Generally Required to be Given to Parties Other Than the Party With Whom You Contract
The first potential issue related to including your preliminary notice with your contract is, the party that is on the receiving end of your signed contract and the party or parties that need to receive your preliminary notices are usually not the same. Or in words, including your preliminary notice in your signed contract doesn’t do you any good if the required recipient of the preliminary notice isn’t the company that you’re contracting with.
Preliminary notices were originally developed primarily as a protection for the owners on construction projects to guard against “hidden” parties filing liens. Therefore, nearly every preliminary notice requirement mandates that the notice be given to the property owner. Other parties that may be required to receive notice are lenders, lien agents, and GCs.
In pretty much every case in which you didn’t contract with the property owner, therefore, merely providing your preliminary notice as an attachment to your contract would be insufficient. And in the real world of construction work, very rarely do subcontractors, sub-subs, equipment rental cos., or material suppliers ever contract directly with the owner.
Even parties who do contract with the property owner may not be able to notify all required parties by including the notice in the contract itself. For example, in California a direct contractor is only required to provide a preliminary notice to the construction lender (if there is one) – so the same issue of mandatory parties not receiving the notice arises.
Preliminary Notices Generally Must be Sent by Specific Means
The next potential issue with solely including preliminary notice as part of your contract has to do with the method of delivery of the preliminary notice. Most states are very specific about the means by which preliminary notices may (and must) be delivered: certified mail or certified mail return receipt are commonly required, and some states even require more intricate methods. Although it’s sometimes the case in some states that the actual receipt of the notice trumps the required delivery method, in other states the failure to deliver the notice by the statutorily required manner can invalidate a subsequent lien claim.
More Than One Notice May Be Required
Yet another potential stumbling block with solely containing a preliminary notice in your contract is in some states, there may be multiple notices required. In states such as Texas, Tennessee, Louisiana, and New Hampshire, a party may be required to provide a specific notice for multiple months, or even each month of the project. Some states have multiple distinct notices that must be provided. And in Arizona, additional notices are required once certain thresholds are met.
When any of this is the case, containing the preliminary notice solely within the contract itself will not be sufficient to meet the statutory requirements. And, when the statutory requirements are not met, a subsequent lien claim is likely invalid.
Exception: Sometimes Preliminary Notice May or Should Be Contained Within the Contract
Well, we hope that most of you are still with us and reading this article very carefully, because after several paragraphs of explaining why relying on a preliminary notice contained within your contract itself is generally insufficient, there are exceptions to this rule.
And the big exception here is that some preliminary notices are in fact supposed to be included with the contract. In nearly every circumstance, however, the only parties that are required to contain informational notices within their contract itself are parties that contract directly with the property owner, and, in most cases, this requirement is limited to residential projects.
While it may seem like a time-saver to just include preliminary notice language within your contract, or as an attachment thereto, this can be a fool’s errand. Absent the direct statutory guidance that the notice should be contained within the contract, doing so is likely insufficient to comply with all of the specific requirements that go along with the specific notice.
In order to best protect the right file a lien or bond claim, and in order to provide visibility to all necessary stakeholders on a project, it is best practice to deliver the notice to the required parties by the required method – even though that requires more foresight than just containing the document in the contract itself.