Preliminary Notices With Respect to Retainage

Preliminary notices are a common requirement in the majority of states for a potential lien claimant to remain in a protected position and retain the ability to file a valid and enforceable mechanics lien.

These notices were developed to provide crucial information to the property owner (and potentially other interested parties), so the failure to provide these notices (when required) is almost always detrimental and can be fatal, to a subsequent lien claim. In most cases, the general required preliminary notice for the project’s state is sufficient to protect the potential claimant with respect to all s/he is owed on the project, including retainage.

However, in rare situations, a different, or additional retainage notice is required, but that is the exception. But, what happens in situations in which preliminary notice was given late, or if there are other preliminary notice issues – can the full amount of retainage still be protected?

General Rule: Retainage is treated the same as other amounts due

Before getting to the meat of the question, it’s worth noting that the best practice is always to send any required preliminary notice well in advance of the expiration of any associated deadline.

If this rule is followed, the question of how preliminary notices relate to retainage amounts is inconsequential. To put it simply: if you send the required preliminary notices within the time they need to be sent, then you are protected.

Clearly, sending notice when required is the best avenue to remain protected for all amounts due. But, is it the only way to protect retainage? Does an otherwise late notice protect the ability to make a claim for retainage, despite losing out on some protection for the general amount due?

The answer here is generally, ‘yes.’ Sending preliminary notice in a timely manner is just as important to make a retainage claim as it is to make a claim for the other amounts due – and the rules apply the same to retainage amounts as to the other amounts due.

Generally, recovery of retainage through a late notice is going to follow the general rules for protection through a late notice. For example, in Washington, a preliminary notice should be given within 60 days from first furnishing labor or materials, but a late notice protects amounts furnished starting 60 days before the notice is given. In the case where a notice is given late, any recovery is going to be limited to the value of the materials and labor furnished within the 60 days preceding sending the notice, and this calculation will include retainage. Any retainage related to the work/materials provided in the immediate 60 days will be protected, but retainage related to work/materials before the 60 days will be unsecured.

Are there exceptions?

Yes. Just like everything related to construction payment and notice and lien requirements, the requirements and rules aren’t the same everywhere.

For example, in Texas, there is a specific “notice of claim for unpaid retainage” that can be provided “instead of or in addition to” the regular monthly notices that Texas requires – but which is limited to protecting the ability to make a claim against the retained amounts.

The deadline for this retainage notice is different than the general monthly notice – and can be given not later than the earlier of:

(1) the 30th day after the date the claimant’s agreement providing for retainage is completed, terminated, or abandoned; or
(2) the 30th day after the date the original contract is terminated or abandoned.

Note that if this notice is given instead of the regularly required notices – while the retained amounts can still be protected, the only amounts protected are the retained amounts, not the regularly due amounts.

When all is said and done, the best practice (in every state) to retain lien rights for the total amount owed, including the retained amounts, is to send any required preliminary notice on time on every project.

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How Do Preliminary Notices Work With Respect to Retainage?
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How Do Preliminary Notices Work With Respect to Retainage?
Sending preliminary notice on time is just as important to make a retainage claim as it is to making a claim for other amounts due on a construction project
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