If preliminary notices weren’t complicated enough, add this wrinkle: Your company may be fined by regulatory agencies for not sending preliminary notice.
Sounds crazy, right? In fact, however, there are a number of states and circumstances where preliminary notice is a mandatory requirement. These laws are designed to protect consumers, in that certain contractors are required to deliver a preliminary notice to their customer warning that mechanic liens can be filed if payments are not properly disbursed to those in the chain. An example of this type of law can be found in Washington, where those who contract with the owner – on certain project types – must deliver a Model Disclosure Statement.
These laws are rarely enforced to fine the contractor for non-compliance. However, they can be. In 2012 the Nevada State Contractors Board announced discipline against 13 contractors, two of which related to a contractor’s failure to deliver the Nevada pre-lien notice. Masoncraft Pool Builders of Las Vegas and Masoncraft Tile & Masonry LLC were found in violation of Nevada R.S. 624 for “failure to provide a pre-lien notice to the owner and failure to provide customers with required “Notice to Owner” disclosures concerning laws governing contractors and lien laws.
Many contractors hate giving these notices because they can be alarming to property owners, especially since the notices must include statutory language in bold ALL CAPS type that warn about liens. However, they are required documents, and contractors must be careful to follow the preliminary notice laws not only to preserve their own lien rights, but in some cases, to avoid state penalties and discipline.