Contractors & suppliers have strong lien rights in Tennessee. If a contractor or supplier isn’t paid on an Tennessee job, they can turn to filing a lien to speed up payment and protect themselves. However, there are specific requirements and rules that must be followed. Here are 5 essential things you need to know about Tennessee’s mechanics lien law.
1) Eligibility to File A Mechanics Lien in Tennessee Depends on the Project
Eligibility to file a lien in Tennessee depends on the project type. On most projects (the exception being 1-4 unit residential owner-occupied buildings), pretty much everyone that participates in construction has lien rights. This includes contractors, subcontractors, suppliers, laborers, surveyors, architects, and engineers.
Where a residential owner-occupied building (1-4 units) is concerned, only the primary contractor, and/or other parties contracting directly with the owner, have lien rights. In the event that the owner is acting as the prime contractor on a single-family residence, the owner-prime’s suppliers, laborers, and 1st-tier subs have lien rights. For all residential projects, contractors are required to be licensed in order to file a lien.
2) Some Type of Notice is Crucial in Tennessee
Tennessee has interesting notice requirements.
General contractors are required to furnish a “Notice to Owner” prior to commencing work on the project. In the case of owner-occupied residential projects (of 1-4 units), the notice must actually be built into the contract between the general contractor and the owner.
Subcontractors, suppliers, and all other parties must deliver their notice within 90 days of the last day of each month in which labor and/or materials were provided but remain unpaid.
In all cases, notice is sent via certified mail return receipt requested to preserve rights. A lien is not valid without a timely notice.
3) Deadlines for General Contractors and Sub Contractors are Different
The mechanics lien deadline rules in Tennessee are a bit convoluted, especially when you start to consider all of the possible circumstantial variations. Let’s start by looking at the basics.
Generally speaking, a general contractor has no technical requirement to record or file a mechanic’s lien statement in order to preserve his lien rights; he must merely file suit to enforce his lien within 1 year from the last date of furnishing labor and/or materials to the project. This is generally not a good idea, however, as the effectiveness of the lien can be cut-off by third parties. The customary way to avoid this is for a general contractor to record the mechanics lien statement as would any other potential lien claimant. To effectively secure lien rights the lien must be filed within 90 days from completion of the project. The same 90-day period (from completion or abandonment of the project) in which to file a mechanics lien applies to all others, as well.
As above-mentioned, however, these timelines can be amended by circumstance. Here is what happens if a Notices of Completion is filed and served on the project:
The following paragraphs outline the time lien claimants have to file:
– Residential (Notice of Completion Recorded and Served): Lien and response to Notice of Completion required within 10 days of date on which Notice of Completion filed.
– Residential (Notice of Completion NOT simultaneously recorded and served): Lien and response (if applicable) required within 90 days of actual completion of project.
– Commercial (Notice of Completion Recorded and Served): Lien and response to Notice of Completion required within 30 days of date on which Notice of Completion filed.
– Commercial (Notice of Completion NOT simultaneously recorded and served): Lien and response (if applicable) required within 90 days of actual completion of project.
– Residential: No mechanic’s liens allowed [unless the owner and general contractor are the same].
– Commercial (Notice of Completion Recorded and Served): Lien and response to Notice of Completion required within 30 days of the date on which Notice of Completion filed.
– Commercial (Notice of Completion NOT simultaneously recorded and served): Lien and response (if applicable) required within 90 days of actual completion of the project.
Don’t forget: all mechanics’ liens must be notarized in the state of Tennessee!
4) Priority of Tennessee Mechanics Liens Is Interesting
Mechanics liens of laborers have first priority in Tennessee as against competing mechanics liens. All other mechanic’s liens are of equal priority, and share pro rata in the proceeds of a sale of the property if the proceeds are insufficient to pay the liens in full.
Mechanics liens may have priority over a pre-existing mortgage, provided certain requirements are met. If the property is mortgaged, a mechanic’s lien may have priority if the contractor provides a written notice sent by certified or registered mail prior to beginning the project. The mortgagee must respond within 10 days (by certified or registered mail), otherwise, the mechanic’s lien has priority.
5) Mechanics Liens in Tennessee Should NOT Include Extra Fees
A mechanics lien in the state of Tennessee does not include interest, service charges, late fees, attorney fees, or any other amount that does not result in the actual improvement of a property. However, the cost of filing at the recorders office can be included in the lien amount.