For contractors and subcontractors, late payments can be an all-too-familiar part of the construction industry. Many assume the best of intentions—maybe the check is still in the mail? Maybe there was an emergency around-the-clock project? When it eventually becomes clear there is a problem, many will still try to work it out themselves. But all the while, the deadlines for establishing liens on the project rapidly approach.
Mechanics’ liens allow contractors, subcontractors, suppliers, and other construction professionals to lien on a construction project for which they have not been paid. Mechanics’ liens function synonymously with materialmen’s liens (which are for suppliers of building materials or equipment) and may also simply be called “construction liens” depending on the state.
Every state has different mechanics’ lien statutes, and in a city like Memphis where the metropolitan area extends over three states, it can be a confusing maze of deadlines and time windows. Missing a filing deadline by one day can mean the extinguishment of any lien rights. Similarly, commercial owners with properties in multiple states are often left wondering whether it was Arkansas or Mississippi that requires a pre-work notice of lien rights from the contractors (hint: it’s neither for commercial projects).
This series discusses some of the different deadlines and filings for mechanics’ liens. It is important to note that many of the statutes have specific requirements for the content of the notices and how they are filed or served. Each state has nuanced differences, but all require strict conformity with the statutes to create enforceable liens.
Tennessee’s Lien Laws
Tennessee statutes use the terms “prime contractor” and “remote contractor” to distinguish between general contractors and subcontractors. A prime contractor is one who has a contract directly with the owner (this is called “contractual privity” with the owner). A remote contractor does not have contractual privity with the owner but instead has contractual privity with either a prime contractor or another remote contractor.
Prime Contractor (General Contractor)
If you are a prime contractor, you are required to give a notice of lien rights before beginning construction, but failure to do so does not actually affect your lien rights. Tenn. Code Ann. §§ 66-11-203, -206(c). Failure to give this notice could supposedly lead to criminal prosecution.
Your mechanics’ lien attaches (i.e., becomes enforceable against the owner) when you begin work on the project, and your lien continues for one year after the date the entire project is completed or abandoned. Tenn. Code Ann. §§ 66-11-104(a), -106.
To establish the priority of your lien against other secured creditors, you must perfect the lien. You perfect the lien by recording a Notice of Lien with the Register of Deeds. If you file the Notice of Lien within 90 days after the improvement is completed or abandoned, the priority date of your lien is backdated to the date your work began. Tenn. Code Ann. § 66-11-112(a). If you file the Notice after that 90-day window, the lien is still perfected, but your priority date is the date you filed.
Although you are not required to file a Notice of Lien to enforce your attached lien against the owner (but see the next paragraph), it is highly recommended to file the Notice and establish the priority date against any other potential creditors. Regardless of the perfection, the lien expires one year after the date the project is completed or abandoned. Tenn. Code Ann. § 66-11-106. You must commence a lawsuit to enforce your lien before that one-year expiration date.
If the owner files a Notice of Completion, then you must file the Notice of Lien and this must be filed within 30 days or your lien expires. Tenn. Code Ann. § 66-11-143(e)(2)(B). If the project is residential, your time window is only 10 days to file your Notice of Lien. Tenn. Code Ann. § 66-11-143(e)(2)(A).
Remote Contractors (Subcontractors)
If you are a remote contractor, you do not have to serve any sort of notice prior to beginning the work, unlike in some other states.
First, you must serve a Notice of Nonpayment on both the owner and the prime contractor within 90 days of the last day of each month within which you provided labor or materials. Tenn. Code Ann. § 66-11-145. If your labor or supply of materials spans multiple months, you must still serve the Notice within 90 days from the last day of each month—not just the final month. As a result, you may need to serve multiple Notices of Nonpayment depending on the timing and if the project is still ongoing. See CMT, Inc. v. West End Church of Christ, No. 03A01-9511-CH-00383, 1996 WL 64003 (Tenn. Ct. App. Feb. 15, 1996). If you fail to serve a Notice of Nonpayment within the 90-day window, you lose your lien rights. Id.
Next, you must serve a Notice of Lien within 90 days of the full project being completed or abandoned. Tenn. Code Ann. § 66-11-115. Unlike a prime contractor where the Notice of Lien merely perfects the lien, your Notice of Lien is required for enforceable lien rights. Id. You must then commence the lawsuit to enforce the lien within 90 days of filing the Notice of Lien. Id.
If the owner files a Notice of Completion, then you only have 30 days to file the Notice of Lien or your lien expires. Tenn. Code Ann. § 66-11-143(e)(2)(B).
For residential projects, you have no lien rights as a remote contractor. Tenn. Code Ann. § 66-11-146(a)(2).
If you are an owner of a project, the important thing to remember is that the time windows are very strict. If a contractor misses the window by just a day, you have a defense against the lien because it may have been extinguished.
Unlike other states, contractors are not required to give you a notice to preserve their lien rights prior to beginning work on the project. Although the statutes require prime contractors to give you a notice, the statute goes on to say that failure to give the notice does not actually affect the contractor’s lien rights. Tenn. Code Ann. §§ 66-11-203, -206(c).
Just because no Notice of Lien has been filed does not necessarily mean that there is not a lien on your project. For prime contractors, their liens attached as soon as they began to work on the project. An attached lien is enforceable against you. For a prime contractor, the Notice of Lien simply perfects the lien, which establishes its priority against any other creditors. But you can change this by filing a Notice of Completion.
You can file a Notice of Completion to begin to cut off any unregistered liens. When you file and serve this Notice, your project’s prime contractors must file a Notice of Lien to preserve their liens rights. All prime and remote contractors must file their Notice of Lien within 30 days of your Notice of Completion, or their liens are extinguished. Tenn. Code Ann. § 66-11-143(e)(2)(B).
If you are a homeowner and the project was residential, the Notice of Completion changes that filing window to 10 days. Tenn. Code Ann. § 66-11-143(e)(2)(B). Additionally, for residential projects, any remote contractors (contractors who do not have a contract directly with you but instead have a contract with your prime contractor) do not have lien rights. Only prime contractors have lien rights on residential projects.
You can serve a demand on any lienors to commence the lawsuit to enforce their liens. If do you so, then the lawsuit must be commenced within 60 days or the lien is forfeited. Tenn. Code Ann. § 66-11-130.