This week’s question comes from a general contractor. The “handshake agreement” is still all-too-common in construction — but it can leave either side of the agreement vulnerable. Construction lawyer and payment expert Michael Johnson weighed in on the strength of verbal agreements versus written contracts.
Question: I did not have a signed contract, only a verbal agreement with a client. I completed work on the property. Now that the project is done, the homeowner is only willing to pay the amount that was verbally agreed to. Do I have the option of placing a Mechanics Lien on the property?
Answer: Verbal agreements can be common within the construction industry, but that doesn’t provide a lot of support for situations like this, as it varies quite a bit depending on the particulars.
Construction lawyer Michael Johnson weighed in to say whether or not you can file a lien without a written contract depends on the state and the particular situation.
In 37 states, you generally don’t need a written contract to retain lien rights, but without a written contract you could also find yourself in a difficult mechanics lien dispute.
In states like Delaware, Kentucky, Massachusetts, and New Jersey, a written contract is required for lien rights to hold up — while Arizona, Colorado, Indiana, and Texas only require them for certain types of work.
It doesn’t get any easier to figure out in a handful of states, either. In New Hampshire, South Carolina, South Dakota, and Utah, the laws surrounding these situations are fairly unclear, You may be in the clear without a written contract, but you may not — that’s a lot of uncertainty to deal with.
Regardless of the applicable location, it’s always best practice to have a signed written contract for work provided on any project, of course, and to send preliminary notice when it’s applicable. Even in places where parties are legally able to file a construction lien with just a verbal agreement, having a written contract tempers the possibilities when it comes to legal disputes centered around payment.
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