what is the purpose of a preliminary notice and, if that was not filed, does it preclude the ability to file a mechanic lien?
Represent demolition contractor who is unpaid. They were contracted by a sub-subcontractor on a commercial job in New Orleans. Our folks began work in late November and they left the job site by early February. The project is ongoing.
In Louisiana, only certain parties are required to provide preliminary notice on commercial projects.
Contractors contracting directly with the property owner (or owner’s agent) must file a Notice of Contract in the office of the recorder of mortgages in the property’s parish before beginning to work on a project valued at over $25,000. Failure to record a notice of contract when required to do so extinguishes lien rights.
If a Notice of Contract was properly recorded, material suppliers must send a notice of non-payment within 75 days of the last day of each month in which the material was delivered. Although it was previously presumed that this notice requirement was only triggered after the “last” delivery of materials, at least one court has determined that the notice must be sent for every month that unpaid materials are furnished, akin to the monthly notice requirements of Texas, or Tennessee. Failure to provide these notices, when required, is fatal to lien rights.
Equipment lessors must deliver notice to the property owner and prime contractor within 10 days from the date of first delivering the equipment to the project in order to preserve lien rights.
Additionally, any party may provide notice to the property owner to request notification of the filing of a notice of termination, abandonment, or substantial completion. This notice is called a “Notice to Owner of Obligations“. If a Notice to Owner of Obligations is given and the owner fails to notify the claimant of the filing of a Notice of Termination/abandonment/substantial, completion the owner will be liable for the claimant’s attorney’s fees.
Note, however, that a subcontractor on a commercial project has no specific preliminary notice requirements in Louisiana. A party providing labor or both labor and materials, is generally not required to provide a preliminary notice on Louisiana commercial projects. Accordingly, such a party may claim a lien provided the deadline to do so has not yet passed.
In Louisiana, subcontractors must file a lien within 60 days for substantial completion of the entire work. However, if the owner or prime contractor files a notice of substantial completion, the period is shortened to 30 days after that filing.
I fully agree with Nate’s answer, and that’s an excellent breakdown of Louisiana’s notice requirements. Let’s also take a look at the underlying purpose of preliminary notices, in a general sense.
For one, many construction businesses send these notices because they’re required too, and without sending notice, many claimants will miss out on payment claim rights, like the ability to file a mechanics lien. But as for why they’re required – preliminary notices provide property owners and prime contractors with crucial information about their projects. They paint a picture of who all is performing work on the job, and with all of the sub-tier information in-hand, owners and contractors are able to understand how the payment chain looks on their project, and understanding how the money flows will help to avoid potential payment issues. If a GC knows that their sub has their own sub-subcontractor and supplier to pay, that GC can make sure the sub-subcontractor and supplier are actually paid, and the GC can secure lien waivers from those parties once they’ve been paid in order to ease any worries about potential claims on a project. That’s only one example, but by knowing everyone on the job, it’s easier to communicate and collaborate with lower tiered project participants – so owners and GC’s should love receiving preliminary notices.
On top of that, it provides an opportunity for subs, suppliers, and really anyone who’s working on the job to make themselves known. When an owner or a GC is aware of these parties’ presence on the project, they know that’s one more person who needs to be paid – and that knowledge can help sub-tier project participants jump to the front of the line for payment. If a GC or owner knows the sender is on the job, and if they know the sender is preserving the right to make a claim, then GC and owner also know that it’s important to make sure the sender is paid. Beyond that, though, preliminary notices also provide an opportunity to communicate with other project participants, and a communicative project tends to be one with better collaboration and fewer payment claims. So, even when preliminary notice might not be required, it’s still typically a good idea to send one anyway.
Finally, while there are plenty of practical benefits to preliminary notices, I’d be remiss not to mention that there’s a less-savory benefit that owners and GCs receive from preliminary notice requirements. Notice requirements are often confusing, and regularly have strict form, information, and deadline requirements. So, there’s another practical benefit for owners on contractors where notice is required – if a construction business fails to send notice, as required, the owner or GC may be off the hook for lien claims, regardless of whether payment was actually made.