The ability to file a mechanics lien against a property is one of the most powerful tools to ensure payment in a construction company’s arsenal. While nobody wants a project or payment dispute to devolve into a situation in which a mechanics lien must be filed, it’s a nice security blanket to have.
Even though equipment rental companies are generally protected by mechanics lien rights, these lower-tiered companies may not be as aware of, or set up to comply with, the necessary requirements as are more traditional lien filing parties such as small GCs or subcontractors.
The following checklist gives some guidance so that your equipment rental company can make the most out of its lien rights, and get paid on every project.
Get the Required Information
In every state, there is certain information that is required to be on the face of a mechanics lien or bond claim document, or their associated preliminary notices. While this required information varies from state to state, there are a few pieces of information that are routinely required and/or generally good to have.
This information includes, but is not necessarily limited to:
- Property Owner
- General Contractor
- Hiring Party (party that is renting your equipment)
- Date of first furnishing equipment to the job site
- Total Contract Amount
Equipment rental companies that are not in the practice of sending preliminary notice on every project, or perhaps are unaccustomed to using mechanics lien rights to ensure payment, may not have set practices to collect this information.
Sales or credit personnel may not know what information should be collected when a job is started, which can make it much more difficult to send sufficient notices and properly protect mechanics lien rights. It may be helpful to draft a specific form with blanks for all such required information to be filled in along with the contract itself.
Furthermore, deciding which projects necessitate obtaining the information is a company-specific situation, as internal determinations may conclude that only projects in excess of a certain amount (or for a certain time) will require this protection.
Further Reading: Read an article about the industry-wide challenge of collecting important project information, and how one company used Levelset to overcome this obstacle and make their lien rights process work.
Create and Use a Mechanics Lien Policy
Drafting a sheet to fill in with the appropriate information is all well and good, but if your employees don’t know the purpose or importance of collecting the information, then it’s unlikely to be consistently used, and the company’s lien rights will suffer.
If using the protection available through mechanics lien rights is a company priority (which it should be), a set and consistently followed mechanics lien policy should be created, and employees should be trained on the application of – and the reasons behind – the policy. Any party who exercises some responsibility for making sure the money gets in through the doors every month should be ecstatic about mechanics lien policy.
To really connect the dots, be sure to tie the benefit of securing amounts due to the company’s bottom line. Making this connection is important and provides an urgency to obtaining this information that may otherwise go unnoticed.
Once the lien policy has been established, make sure it is followed. Every project that should get a notice must get a notice. (It’s important to understand that Levelset’s recommended best practice is to send notices on every project, even when notice is not required).
Every project that remains unpaid should have a lien pursued prior to the expiration of the lien filing deadline. Creating the policy does no good if it’s only an academic exercise — following through with decisive action steps is an essential part of any effective lien policy.
Get the credit guide
Download a free guide to learn how to solve the 7 biggest problems that credit teams face in equipment rental companies.
Notice Needed? Specific Requirements for Equipment Lessors?
Must states have some sort of preliminary notice requirement that must be met in order to later file a valid mechanics lien. And, since these requirements and deadlines change from state to state, it is important to get a handle on the potentially applicable deadlines based on where your company does business.
Keeping track of notice and lien deadlines throughout multiple projects in multiple states can be difficult, and in many cases it makes sense to enlist outside assistance in notice compliance. In addition to, or in replacement of, the traditional notice deadlines and requirements, some states have specific requirements for equipment lessors which may mandate sending multiple notices on the same project.
While, as mentioned above, equipment lessors are generally protected by mechanics liens, the issue is ambiguous in some states. Accordingly, it doesn’t hurt to include clauses in your rental contract that specifically allow for mechanics lien filings to recover amounts due for the rental of equipment. While the ultimate legal effect of such a clause may be cloudy, it could likely cut off some dispute from the contracting party in the event the law of the state is unclear.
By following the steps listed above, your company can kick-start the use of the mechanics lien process, and that can be the key to getting paid faster, and making sure that the money you’ve earned is the money you’re paid.