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Can vendors file a lien when subcontractors have been paid from GC but they haven't paid their vendor?

TexasConstruction AccountingConstruction ContractLien ReleasesLien WaiversMechanics LienNotice of Intent to Lien

I am trying to find out if there is a legal document or process that I can provide or go through in order to prevent my subs vendors from filing a lien, when subs have been paid... Legally speaking, if a vendor files a lien or sends an intent notice do they have to provide payment records to me? Do i need to supply payment records if I don't have a Conditional lien waiver? Also, should my company require all CLW's to be signed before releasing payments?

5 replies

May 20, 2021

The legal analysis would start with a review of the contract between the owner and the contractor who contracted with the owner (called the "original contractor" under Chapter 53 of the Texas Property Code - the Chapter that governs mechanic's liens), and then extend to any communications or payments which have occurred.

You do not indicate if you are the owner or the original contractor. If you are the owner, the subcontractors' vendors would have to provide notice by certified mail to you to trap funds by the 15th day of the third month after the month that the vendor's equipment or materials were provided (for commercial projects) or the 15th day of the second month (for residential projects). The owner is only liable for the original contract price. So, if you receive notices of non-payment, then you should withhold payment from the original contractor until the vendor has been properly paid. An owner is also required to withhold 10% retainage from the original contractor under 30 days after the project has been fully completed.

If you are the original contractor, insist that your subcontractors secure lien waivers from their vendors in exchange for payment.

Retain a construction attorney to evaluate your legal situation and to provide advice.

Good luck.

1 likes
May 26, 2021

Hello,

Yes, it is possible for the subs vendors to file a lien.

The vendor would have to provide records in the event they try to enforce the lien and find themselves in court for that enforcement because obviously you will not go quietyly.

You should definitely provide payment records. It can only help.

You should definitely be asking for CLWs when you pay people. The CLW should state something to the effect that all subcontractors and vendors have or will be paid out of the provided funds.

Here's what I am seeing. You paid the sub but the sub was being cheap and didn't pay the vendor. Vendor seeks to lien the Property. To enforce that lien, Vendor will need to go to District Court and sue the Property Owner. The Property Owner, depending on their contract with the GC will seek to have the GC indemnify them because they paid the GC. The GC would step into the suit and provid proof of payment to subs and the subcontractor would need to be added as a party as well to explain to the court why they did not pay the vendor. It may be annoying but the end result is likely to be a court order against the sub to pay the Vendor.

E. Aaron Cartwright III
214.799-0776
Aaron@EACLawyer.com

1 likes
May 26, 2021
Thank you Mr. Cartwright. I am hesitant to share payment records; given the fact that account information is confidential. Common business practice is to not disclose customer account information. However, there aren't clear and concise laws, mandates, policies or anything of the sort once this "lien" situation arises. I appreciate your input.
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May 26, 2021

Hello again,

You definitely are not obligated to share payment records, I've just found that it really gets people going on the negotiations when they know exactly where the money went.

I've personally refused to sue property owners and GCs when I knew subs were paid but had not paid the vendors. That's a professional choice, though. I knew the GCs and Owners were going to get out of the lawsuit quickly so filing it against them would have been a waste of time and money. 

-Aaron

1 likes
May 26, 2021
This definitely brings down the anxiety of the process- I am new to the world of liens. Thank you. I greatly appreciate your time and input.
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