Sending a preliminary notice is a crucial step to securing your mechanics lien rights in most states. If required, these notice requirements need to be followed closely, any misstep could result in the loss of lien rights. Some states provide some leniency and exceptions to these notices. A recent Minnesota Court of Appeals case explored some of the exceptions to the notice requirements.
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Minnesota preliminary notice requirements
“Every person who contributes to the improvement of real property so as to be entitled to a lien pursuant to section 514.01, except a party under direct contract with the owner must, as a necessary prerequisite to the validity of any claim or lien, cause to be given to the owner of the owner’s authorized agent, either by personal delivery or by certified mail, not later than 45 days after the lien claimant has first furnished labor, skill, or materials for the improvement, a written notice…”
The thing about mechanics liens is that they are statutory rights. This will usually require strict compliance in order to secure these rights. Some states have carved out good faith or substantial compliance exceptions, and certain scenarios where the notice requirements don’t apply. And Minnesota is just so happens to be one of those states. There are two exceptions to Minnesota’s preliminary notice rules: an exception for a “good faith effort,” and another when the owner is acting as the general contractor.
But what constitutes a “good faith” effort? And when is the owner considered the GC? These questions were explored in a recent Court of Appeals case out of Minnesota.
Subcontractor mistakenly relies on notice exceptions
The case in question is Timberwall Landscape & Masonry Products, Inc. v. DRMP Concrete LLC
- Owners: Anton & Evialina Klochko (Kloschkos)
- Contractor: DRMP Concrete, LLC (DRMP)
- Material Supplier: Timberwall Landscape & Masonry Products, Inc. (Timberwall)
The Klochkos initially hired DLM Construction for the construction of a new, single-family home. However, before work began, the building permit was transferred into Anton Klochko’s name, as he was taking over the project. Klochko contracted with DRMP to install a retaining wall and driveway on the property. In turn, Tiberwall was hired to provide materials to DRMP. Timberwall began to supply materials to the project on April 26th.
As the project progressed, the Klochkos paid DRMP monthly. However, the checks issued by DRMP to Timberwall we all returned as “Not Sufficient Funds.” On July 7th, Timberwall mailed a notice to the Klochkos informing them that they were providing materials to the project. Ten days later they filed a mechanics lien for $26K and, shortly thereafter, filed a lawsuit to enforce the claim.
Subcontractor pleads exceptions to notice requirements
At trial, the Klochkos filed a motion for summary judgment alleging that the mechanics lien was invalid because the notice wasn’t provided within the 45-day timeframe required by §514.011. Timberwall responded by arguing two main points.
First, that the notice provided fell under the good faith exception. Secondly, they weren’t required to send a pre-lien notice because the owner was acting as a general contractor on the project. Each of these statutory exceptions are provided below:
Owner acting as contractor exception: Minn. Stat. §514.011(4)(a)
The notice required by this section shall not be required to be given where the contractor is managed or controlled by substantially the same persons who manage or control the owner of the improved real estate.
Good faith exception: Minn Stat. §514.011(2)(b)
A person entitled to a lien does not lose the right to the lien for failure to strictly comply with this subdivision if a good faith effort is made to comply, unless the owner or another lien claimant proves damages as a direct result for the failure to comply
The court rejected both of these arguments, and granted the Klochko’s motion. Timberwall appealed.
Appeals court rejects the notice exceptions
On appeal, the court first evaluated whether the Klochkos were entitled to a pre-lien notice or not. The court did recognize the exception to the notice requirements when the “contractor is managed or controlled by substantially the same persons who manage or control the owner of the improved real estate.”
The rationale behind this exception goes to the basis of a preliminary notice. They are meant to inform property unsuspecting property owners who may not know who is working on the project. If the owner is acting as the GC, they are not as “unsuspecting,” for the purposes of the notice.
In the case at hand, Timberwall relied on the fact that the building permit was put in the Klochkos’ name. However, they were not acting as developers, nor did they have any experience as contractors. They were “merely a point of contact” for the building permit.
As for Timberwall’s second argument, they stated that even if they were required to send notice, they made a good faith effort to comply by delivering the notice on the 72nd day after first furnishing.
Timberwall contended that by providing notice on the 72nd day after first delivery, and furthermore, that DRMP wasn’t paid in full. However, there was no evidence that Timberwall attempted to comply with the notice requirements within the required 45 day period. Merely sending a notice at some point is not enough. Since there was no attempt to initially comply, the good faith exception didn’t apply.
Don’t rely on minor exceptions to notice & lien laws
As mentioned previously, in order to invoke the power of lien rights, there must be strict compliance with the notice provisions and deadlines. Although there are certain exceptions carved out in the statute, they apply in very specific circumstances. And these exception should not be relied upon lightly.
Unfortunately for Timberwall, they pursued a claim that they may have known was otherwise invalid. This cost them a substantial amount of time, litigation costs, and their claim for payment. Be sure to familiarize yourself on notice requirements as much as possible before starting any job.