Three Ways to Protect Against Non-Payment in Puerto Rico
While security rights are utilized by businesses all over the world, the mechanics lien is a fundamentally American creation. That’s not to say that parties in the construction industry in other places are without recourse for non-payment, but the “if you build it and we don’t pay for it, you can have it” aspect of mechanics lien protection is uniquely American. Because of this, many companies wonder how this protection-scheme works in U.S. Territories.
Puerto Rico Mechanics Lien Rights (And Other Payment Protections)
For companies that perform work in Puerto Rico, there is good news and bad news. The good news is that Puerto Rico has mechanics lien protection extended to parties on construction projects in certain circumstances. The “bad news” is that the protection is fairly restrictive.
Further obfuscating the issues related to mechanics lien protection in Puerto Rico are a confusingly written statute, and a system that splits the available protection into three distinct potential remedies. For private projects in Puerto Rico, protection against non-payment can take the form of a claim against a bond on the project, a claim against the projects funds, or an actual mechanics lien itself. The first two options seem reminiscent of the protection afforded to public projects in many states around the country, and for good reason. These particular protections are basically the exact same avenues of protection most states direct to public projects.
Why is this?
Well, one reason may be that the ability to make a claim against a project’s bond or make a claim against the project’s unpaid funds potentially allows for a more diverse set of claimants to recover what they are owed. Pursuant to Puerto rico law, laborers and employees of contractors and subcontractors (and potentially actual subcontractors and suppliers as well) are allowed to make a claim against the payment bond, and providers of labor and/or materials to the project may make a claim against funds. Mechanics liens, on the other hand, are limited specifically to laborers.
So, since there are protections afforded to construction participants in Puerto Rico, what steps need to be taken in order to secure these rights? In terms of preliminary notice, the answer is easy. Puerto Rico doesn’t require any participant to send a preliminary notice on any private project.
The requirements of providing the claim itself prior to initiating a lawsuit varies by the type of protection being claimed. It’s important to note, however, that for claims against the project funds, any claim is only valid to the extent that some funds remain unpaid by the property owner.