The state of Texas’ lien process is complicated, to say the least. Specifically when it comes to the preliminary notice requirements. To add to the list of notices requirements in Texas, there is also a Notice of Contractual Retainage.
This lien notice is used to secure your right to file a lien on any unpaid retainage amounts. If, of course, the claimant’s agreement provides for retainage. This is in addition to any other notice requirements. Let’s take a look at what this notice is, and how to properly use a Texas Notice of Contractual Retainage to secure your lien rights.
Texas retainage laws
Texas retainage laws set specific rules for the amount and timing of retained funds. On private construction projects, the property owner is required to withhold statutory retainage of 10% of the total contract price under the Texas Property Code. §53.101.
The timing for the release of retainage on private projects is a bit unclear, but it is generally 30 days after substantial completion of the project. If the amount retained is ultimately unpaid, you won’t be able to include that amount in the lien claim unless you provided a Texas Notice of Contractual Retainage.
Texas notice of contractual retainage*
A Notice of Contractual Retainage is governed by Tex. Prop. Code §53.057: Derivative Claimant: Notice For Contractual Retainage Claim. It is meant to inform the property owner that you are working on the project under a retainage agreement.
If at the end of the project, you ultimately aren’t paid the retained funds, this secures the ability to pursue a lien claim for the retained amounts; to the extent that those withheld amounts weren’t included in your monthly fund-trapping notices. This notice, if needed, should be sent by any party who didn’t contract directly with the property owner.
* Note: On all new projects started on or after 1/1/22, the name and form of the notice will be changed to a Notice of Claim for Unpaid Retainage
Texas rules for mechanics liens and notices are subject to major changes in 2022.
The information on this page has already been updated to reflect the new rules.
Preparing a notice of contractual retainage
Under Texas law, the notice letter itself doesn’t require much. The statute only requires that the notice must “generally state the existence of the requirement for retainage,” the name and address of the claimant, and the hiring party’s information.
The “general statement” should include the percentage being withheld along with the total dollar amount. In addition to those bare minimum requirements, claimants should also include a few other pieces of information. These include the property owner’s information, a description of the property being, and a brief statement describing the labor and/or materials being furnished to the project.
Download a free notice form
Download a Notice of Contractual Retainage form, prepared by construction attorneys to meet the statutory requirements.
Sending a notice of contractual retainage
The notice of retainage needs to be sent to the property owner (or the owner’s agent) and the general contractor (if hired by a sub) at their last known business or residence address.
The best way to send this notice is by certified mail with a return receipt requested. That way you can retain the proof of delivery in case the notice is challenged down the line. Keep that proof of service, and attach that to a copy of the notice for your records.
As far as the timing is concerned, the retainage notice deadlines state that it must be sent no later than the 30th day after the earlier of:
- The date the claimant’s contract is completed, terminated, or abandoned; or
- The date the original contract is terminated or abandoned.
Missing this notice deadline means losing your right to file a lien for the retained amounts.
Retainage tips for Texas contractors
Recovering retainage on a construction project can be difficult if you don’t understand your rights. Here are some tips that contractors and suppliers in Texas should keep in mind.
If you’ve been following along at home, you may have noticed “30 days” keeps popping up. Retainage is typically required to be released within 30 days of the project completion. And a Notice of Contractual Retainage must be sent 30 days after completion of your contract. That means you may not even know if your retainage will be released or not before the notice is required.
It’s best practice to send a notice as early as possible. That way if an issue does arise regarding retainage payments, you’ve already set yourself up for success.
Send a request for notice of termination or abandonment
Contractors in Texas should send a Request for Notice of Termination or Abandonment on every project. As noted earlier, the deadline for a retainage notice (and some filing deadlines) can be affected by a notice of termination/abandonment.
If sent, the property owner is required to send the claimant notice within 10 days. That leaves you a 20-day window to send your notice in the event the original contractor is terminated or abandons the project.
Other notices are still required
Remember, this notice will only secure lien rights to unpaid retainage. In order to secure the right to file a lien for the full contract price of the work, there are a number of other notices that may be required. Texas requires monthly fund trapping notices as well. But unlike those notices, the Notice of Contractual Retainage only needs to be sent once.
Discover how a Texas supplier cut their payment collection time in half after using software to send monthly notices.