We have bad news. You aren’t covered by your material supplier’s preliminary notices. For that matter, you’re not covered by your subcontractors’ preliminary notices, either.
This confusing issue has come up a number of times over the past few weeks here at Levelset, on incoming phone calls and as questions posted on our Construction Legal Center. It’s an unfortunate misunderstanding that could lead to the loss of serious payment rights.
Let’s take a deeper look (article continues below).
Notices in General
Sending notice is a common practice for parties furnishing labor and/or materials to a project. It’s usually the first step in the process of making sure you get paid. Monthly notices operate a little differently of course, but at the end of the day, there are plenty of similarities – we’ll get to them in a second.
At its simplest, a preliminary notice lets top-tier parties know that you’re working on a project. That’s the primary reason notices are even required. The notices are usually sent out at the start of a construction project and most states require that subcontractors and suppliers give notice to higher-tiered parties. This may include the GC, the owner, lenders, sureties, or other parties.
They’re Good for Everyone
Preliminary notices aren’t just a good tool for the parties sending them, but also for those receiving them. General contractors and property owners should love to receive the notices because they give clarity and visibility to who’s working on the job.
Because preliminary notices promote transparency on the project, they also prioritize contractor and supplier invoices above those who haven’t sent a notice. This means those who send these notices drastically increase their chances of getting paid and paid faster. It’s true! We’ve heard from countless contractors that the best way they’ve found to speed up payment is sending notices as part of every project.
Plus, if a lien claim becomes necessary, sending preliminary notice will often preserve that right to lien.
Don’t Rely on Another Party’s Notice
Parties that rely on their sub or supplier’s notice don’t receive any of the benefits described above. The notice doesn’t let others know that they’re on the job since notice informs top-tier parties of the sender’s presence on the job. Also, it does not contribute to the transparency or communication on the project – it creates a missing link in the payment chain. And finally: Another party’s preliminary notice doesn’t preserve your lien rights. When a preliminary notice is required, you must send it. Your sub or supplier sending one won’t protect your rights. The party who sends the notice protects their right to payment. Plain and simple.
This is true for monthly notices (when they’re required), too. Let’s take Texas for example. In Texas, a party might not need to send notice unless they’ve gone unpaid. However, to preserve lien rights in those situations, those unpaid parties must send monthly notices to protect unpaid amounts.
But if an unpaid contractor or sub thinks, “It’s ok. My supplier noticed this job,” they could be in for a rude awakening. That supplier may have preserved their right to lien, but their notice protects their lien rights – not anyone else’s.
So, are contractors or subs covered by the preliminary notice sent by the parties they hired? No. It’s that simple. Some states have no notice requirements, but most other states require them from certain parties. But it’s a good idea for all parties to send their own preliminary notice – regardless of whether it’s required. By relying on another party’s notice, your information could get lost in the shuffle, and you could be left empty-handed.