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What contract amount should I list on my preliminary notice?

We are subcontractors in Minnesota and have received strong pushback from our GCs after they saw the contract amounts we were listing on our prelims. They mark up the prices and were angry that the property owner would see the markups from the contract amount we had listed. They said they won't work with us again if we do that. What are our options here? Could we list a $1 contract amount, or is that risky? What if we listed the higher marked-up amount?

1 reply

May 29, 2020

Minnesota sets the required language of preliminary notices by statute. § 514.011 Subd. 2. states that every party who does not contract directly with the property owner: "must, as a necessary prerequisite to the validity of any claim or lien" provide a preliminary notice in a particular form. The required form includes the statement "To the best of our knowledge, we estimate our charges will be ………………………… (value of service or material)." Accordingly, the plain text of the law requires a (good faith) estimate of the total charges. While this doesn't necessarily mean that the number must be completely exact, it can be dangerous to enter a drastically reduced estimated amount. The value of a mechanics lien in Minnesota, should one become necessary, is the value of the work done / materials provided. However, a party defending against a subsequent lien claim would surely use the the fictitious $1 contract amount as a defense against the lien 1) in that there was not a good faith effort to comply with the notice requirement, which is designed to give a property owner visibility into potential lien liability; and 2) that the value of the work was limited to that estimated amount (or close to it) and that, accordingly, the lien is either overstated or the claimant has been sufficiently paid for the work. It would likely be less risky to include the marked-up amount, as that is a closer representation of the total lien liability for the project related to the claimant's work. It is never best practice to intentionally include incorrect information on a notice or lien document, however. From a practical standpoint, however, it is generally unlikely that a slightly inflated preliminary notice (NOT lien) would invalidate any future lien claim, as only an estimate of the work to be provided is necessary.

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