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Is a property owner in TN liable for any mechanic's liens from sub-contractors if the primary contractor is unlicensed?

Tennessee

I am a property owner who paid a contractor $32,000 for rehab/renovation on a residential home for rental. We only had a verbal contract as he was a family friend and I have copies of the checks written to him. However, I discovered on visiting the work site that a stop work order had been placed and the construction permit revoked due to multiple code violations and refusal to comply by the contractor. I learned from the E Ridge city code enforcement office that the contractor's license had expired in 07/2019 over a year prior to the construction. As the owner I did not grant approval or sign any agreements with any sub-contractors. (A) Am I liable to any mechanics liens? (B) Am I able to recover any of my money from the primary contractor if that contractor is in bankruptcy? (C) How do I properly terminate his services and protect my LLC from him any further demands for payment?

1 reply

Oct 30, 2020

I'm sorry to hear about all the trouble you have been experiencing. I will address each part of your question as follows: 

A. The only way to determine if you are or are or are not liable or likely to receive a potential mechanics lien filing is if the contractor working on the project signed a lien waiver. Lien waivers are documents that are exchanged at the time of payment that act as a "receipt" of payment. The person or company signing is "waiving" any future lien rights in the project. Parties that make payments on the job desire signed waivers to protect against mechanic liens being filed against the project. In Tennessee, "no lien" clauses or other provisions in a contract that attempt to waive lien rights prior to labor or materials being furnished are prohibited. Tennessee law also provides strict consequences for any contractor that attempts to violate that restriction. Therefore, unless a lien waiver was signed and received between parties, there is always a possibility of a mechanics lien being filed if contractors have not been paid for work that improved a property. 

B. Owners potentially can recover damages if they succeed in a breach of contract claim. Likely, you will need to contact a Tennessee construction lawyer to determine if your construction contract was breached in any capacity which may render damages for you. 

C. Levelset has provided some in-depth posts that are will likely be helpful to you if you decide to terminate a contractor

Good luck! 

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