Preliminary notices can be the glue that holds a lien policy together, a tool to provide or obtain information, and a necessary part of the financial security and payment process on construction projects. However, despite these incredibly important tasks, preliminary notices and the sending, receipt, and management thereof, can raise questions and concerns for construction industry participants – no matter their level of sophistication.
This paper provides a background on preliminary notices, and a guide to preliminary notice best practices.
Ever wonder why preliminary notices should be sent, how to make sure you are sending the right notice at the right time for the right project, or how to manage the volume of notices needed? How about figuring out why receiving notices is good for business, or what to do with notices once they are received? Does getting a preliminary notice mean that there is a potential problem?
If so, read on because the answers to these questions, and more, are below.
What Are Preliminary Notices, Actually?
Preliminary notices, or “Notices to Owner”, “Notices to Owner and Contractor”, “NTOs”, “Pre-Liens”, “Prelims”, “Fund Trapping Notices”, or whatever they may be called in various parts of the country or by various construction participants, all have the same purposes, and are all key components of construction payment, visibility, and construction’s financial security scheme. While some construction industry parties worry that sending a preliminary notice will damage relationships, or cast aspersions against the GCs ability or willingness to pay, these notices were created for the specific benefit of the parties at the top of the payment chain.
This protection forms the basis of preliminary notice requirements.It’s impossible to talk about preliminary notices without spending a bit of time on mechanics liens, as well. Mechanics liens are security devices afforded to parties who improve property through the furnishing of labor and materials, provided certain requirements are met. Since the mechanics lien right is a right in the improved property itself, and is very powerful to secure payment. In fact, it is so powerful that strict statutory safeguards have been put in place to give some protection and notice to the property owner whose property may be encumbered. This protection forms the basis of preliminary notice requirements. It’s unfair to require a property owner to pay twice for the same work at the risk of losing his or her property – especially when the party making the claim was previously unknown or hidden. Preliminary notices are documents designed to provide notice that a party is on the job, and to retain the noticing party’s ability to file a valid lien and remain in a secured position.
Preliminary Notices: The View From Above
While a “Best Practices” guide to preliminary notices . . .
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