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Threatened with termination

North CarolinaLien on Funds Mechanics Lien Recovery Options Right to Lien Slow Payment

We have been working on a multifamily project in NC for months. Since day 1 they have consistently gone to 60 days. Our contract states we have the right to place the GC on credit hold and no longer provide labor or materials until the account is brought current. They refuse to pay the 50% retention that is at 63 days and are at 40 days on the last draw. They now have threatened to terminate us if we do not finish without payment. What are my options? Can I lien for the remainder of my contract? Are they not in default of the contract, not us?

1 reply

Apr 27, 2020

Lien rights will generally be available if you've gone unpaid for the work you've done on the project. Though, the type of lien that's available will depend on whether the GC's been properly paid. We'll discuss more below, but for more info the different types of NC liens: (1) How to File a North Carolina Mechanics Lien | Guide + Form Download; and (2) North Carolina Mechanics Lien Guide and FAQs. If the GC has active and current mechanics lien rights, then their subcontractor could file a mechanics lien against the property through "subrogation" (by stepping into the shoes of their GC). But, even if the GC has been getting paid on time, a lien against the project funds could be available (to the extent that the GC hasn't received final payment). And, if a lien against funds is filed, that will secure payment by stopping an owner from paying the GC until the claim is resolved. Because the GC can't get paid until their sub does in that situation, a lien against funds will usually work to resolve things. Regardless of what type of lien will be filed, though, keep in mind that lien rights are only available to the extent that work is performed but not paid for. So, if you haven't done the work, then the amount can't be liened. But, even if mechanics lien rights aren't on the table, that doesn't mean some other recovery option won't be appropriate and effective.

Speeding up payment without filing a lien

Keep in mind that filing a lien is just one option, and it's usually saved as a last-ditch effort. Other tools could be useful before jumping to that point. For one, sending a payment demand letter could be useful. Demand letters will generally include specific legal threats (like filing a breach of contract claim, retainage claim, etc.). And, they'll put a deadline on when payment must be made. So, sending the demand could let the customer know you're serious about getting paid and willing to do what it takes to make sure that happens. What's more, under North Carolina's prompt payment laws, subs must typically be paid within 7 days from when their customer gets paid. So threatening a prompt payment claim could be useful, too. Finally, because mechanics liens are so powerful, the mere threat of a mechanics lien claim is powerful, too. Sending a Notice of Intent to Lien lets the property owner and your customer know that a mechanics lien is on the horizon if payment isn't made soon. Plus, for many owners, they won't even know about the issue - so sending a Notice of Intent can help get the owner to put pressure on their GC to make payment. More on that here: What Is a Notice of Intent to Lien and Should You Send One?

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