The Alabama Court of Appeals addressed the state’s preliminary notice requirements in an October 2013 decision, Gunther v. Carpet Systems of Huntsville, Inc. The case isn’t significant for any change in the law, but it is noteworthy in that the appeals court discussed the state’s preliminary notice requirement at length. The decision makes clear that Alabama’s preliminary notice requirement is important to a claimant’s lien rights, and that strict compliance with the notice provisions is required to preserve the right to a full priced lien.
Explaining the Alabama Preliminary Notice Requirement
Wait…Alabama requires preliminary notice? This may be your first reaction to news of the Gunther case since Alabama is not generally considered a traditional “notice state.” In fact, if you peruse some of the mechanics lien law resources published on the Internet, you’ll find a lot of guides that mistakenly advise that preliminary notice is not required.
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The explanation for this is that Alabama is not a “traditional” preliminary notice state. First, if you don’t delivery preliminary notice in Alabama, you still have some mechanics lien rights. Second, unlike many states that require preliminary notice within a certain period of time after first furnishing, Alabama has a weird requirement that requires notice before any furnishing whatsoever.
Difference in your Alabama Mechanics Lien Rights If Preliminary Notice Sent
Those furnishing labor or materials to a construction project in Alabama have some shade of mechanics lien rights regardless of whether they delivery preliminary notice or not. However, the difference in the scope of these rights could be great depending on the circumstances.
It’s important to understand the concept of “Full Price” and “Unpaid Balance” mechanics lien claims to understand the difference between sending notice, and not, in Alabama.
Full Price liens can be filed at anytime before the mechanics lien filing deadline, and when filed, they will secure the entire debt against the project. So, if you are owed $100,000, and you file a mechanics lien that qualifies as a “full price” lien, you’ll be entitled to recover the entire $100,000 from the lien regardless of any other circumstances about the project. Most mechanics lien claims are “full price” liens.
Unpaid Balance liens, on the other hand, only secure the amount of money that the property owner has not paid the general contractor at the time of the claimant’s filing. So, for example, if you are owed $100,000, but the property owner has already paid the entire contract price to the general contractor, a mechanics lien filing would be worthless.
What is the difference between full price liens and unpaid balance liens? Well, nothing really. The lien document itself is identical between the two types, and the “deadline” to file the document is the same between the two types. The difference boils down completely to the state’s law. Generally speaking, some states are unpaid balance states (like New York) and other states are full price states (like California).
Alabama is a hybrid state.
Those who properly delivery a preliminary notice (called the “Notice to Owner” in Alabama) are entitled to file a Full Price mechanics lien. Those who do not, however, can only file an Unpaid Balance lien. Thus, the importance of sending a notice to owner in Alabama is clear.
The Timing of Sending A Preliminary Notice in Alabama
Alabama’s mechanics lien law — Ala. Code § 35-11-210 — sets for the state’s notice requirement as follows:
But if the person, firm, or corporation, before furnishing any material, shall notify the owner or his or her agent in writing that certain specified material will be furnished by him or her to the contractor or subcontractor for use in the building or improvements on the land of the owner or proprietor at certain specified prices…the furnisher of the material shall have a lien for the full price thereof as specified in the notice to the owner or proprietor without regard to whether or not the amount of the claim for the material so furnished exceeds the unpaid balance due the contractor, unless on the notice herein provided for being given, the owner or proprietor or his or her agent shall notify the furnisher in writing before the material is used, that he or she will not be responsible for the price thereof.
This provision is very different than traditional notice provisions in other states. One of the key differences is the timing of the notice, which requires that the notice be provided “before furnishing any material.”
Gunther Case Reiterates Preliminary Notice Requirement To Qualify for a Full Price Lien, But Gives Interesting Commentary on Timing Requirements
The first takeaway from the Gunther case isn’t all that interesting: if you want to file a full price lien, you need to send the notice to owner. This requirement is relevant in the Gunther case because the property owner didn’t have enough money remaining to pay out on the contract at the time of the mechanics lien. The “Unpaid Balance,” in other words, wasn’t enough to cover the cost of the subcontractor’s lien. If the subcontractor couldn’t qualify for a full price lien in this case…the recovery would be zero. (Interesting discussion of Gunther decision by Burr & Forman here: Alabama Court of Appeals Reiterates the Strict Requirements for Filing A Proper Mechanics Lien).
The second takeaway is more interesting, and it relates to the timing of the notice.
As explained in the case facts, an allegedly sufficient Notice to Owner was delivered by the supplier to the owner on September 22, 2009. However, the owners alleged that “most of the” materials related to their flooring job was already delivered and installed by September 9th — that is, before the notice was delivered. It was not disputed that some materials were furnished before the September 22nd notice and that some materials were delivered after the notice.
The question prohibiting a summary judgment in favor of the property owners, according to the appeals court, was whether the claimant’s mechanics lien related to the materials delivered before or after the notice:
Gunther did not explain whether the materials and labor she stated had been provided before she received the September 22, 2009, notification were part of the larger, $40,650 order for which Carpet Systems sought its full-price lien or whether those materials and labor were provided pursuant to the separate, September 9, 2009, transaction in which the Gunthers purchased items directly from Carpet Systems. However, out of an abundance of caution, we conclude that there exists a factual question as to whether materials and labor for the order for which Carpet Systems claims a lien had been furnished before Carpet Systems provided the Gunthers the September 22, 2009, notification
I find this to be an extraordinarily interesting comment about Alabama’s preliminary notice requirement.
Anyone in the construction industry knows that materials are ordered an on-going basis. One batch of materials may be ordered at the beginning of the project, and then some more a few weeks later, and then some more again, and so on. The Alabama statute requires notice of the “specific materials” ordered and the “specific prices.” The Alabama statute also requires notice be sent before furnishing any material.
This creates a bizarre burden on anyone supplying materials, and an unclear burden to boot. How specific must the description of materials be, how specific must the price be, can the stated price be estimated, must the notice be transmitted with every material ordered, and — importantly for this case — can a material supplier preserve their full price lien rights by sending notice related to one shipment even though a notice was not sent for a previous delivery?
In this case, the supplier sent materials around September 9th. They didn’t send notice until at least September 22nd. It is clear that a notice was not sent “before furnishing any material.” The court, nevertheless, is entertaining the possibility that the September 22nd notice was enough to preserve a full price lien right for the materials delivered after that date.
Given the ambiguous language in the statute and the purpose of Alabama’s lien law, I think this is the right decision. However, it is also interesting, because it seems that this is a first impression for the appeals court.
What Should Suppliers Do in Alabama To Preserve Lien Rights?
The preliminary notice rules in Alabama are a bit hazy, and this recent Gunther case isn’t clearing matters up much. The good news is that suppliers will always have an unpaid balance lien right regardless of notice compliance, but getting a full price lien right might require some gymnastics.
The best advise is to just send preliminary notice in Alabama as immediately as possible, and do you best to describe the materials and their price.