In this blog, presented by SunRay Construction Solutions and Shannon Bell, Partner, Kelly Law Partners, LLC, you will learn in-depth about these key measures.
What Protective Measures Should Be Included in Your Contract?
- When starting a project, the first essential step is having a written contract.
- Next, it is to include a "prevailing party clause."
- In Colorado, winning a contract dispute doesn't automatically mean your attorney's fees are covered; you only get them if the law or your contract says so.
- So, besides concerns about payment, make sure to ease the worry of covering attorney's fees by adding a prevailing party clause. It acts as a safety net, reducing the risk of unexpected costs if things don't go as planned.
How Can You Secure Your Lien Rights?
In Colorado, the Mechanics Lien/ Statement of Lien is a remedy created by a statute. The lien allows a construction professional, who has not been paid, to encumber the property on which the home improvements were made. Because of the impact that a lien has on the homeowner and the landowner, the statute is strictly construed. This means that if you want to record a lien and you want to protect your right to get paid through the lien, then it has to be perfect.
Here are a couple of dos and don’ts that you need to follow to perfect your lien:
A) Watch the Deadlines – You have to be extremely careful with the deadlines related to the mechanics lien.
- You must file your Statement of Lien within four months of the day on which the last material or labor was furnished. Determining the last day when you furnished materials is easy; however, you must be careful when determining the last day of furnishing labor. Typically, the last day is when substantial work is completed as per the contract or scope of work.
- Another very important action item is that you must serve the Notice of Intent to Lien by certified mail or personal service at least 10 days before the four-month deadline. What this means is that you are giving an opportunity to the people who owe you money to pay you first so that they can avoid the trouble of going through the lien process.
- If you have provided the notice of intent to lien and recorded your lien as per the above deadlines, the next step is to initiate the lawsuit to foreclose the lien, and this should be done within six months of the last day of furnishing labor/materials.
- It is very important that you adhere to these deadlines, and everybody involved, such as people in your organization or your attorney, etc., are aware of these deadlines because if you miss out on the 10-day mark or the four-month deadline, then you will lose your lien rights.
- Another critical point that you need to consider while calculating the deadline is whether the deadline is falling on a weekend or a court holiday. If it is falling on a Saturday, Sunday or court holiday, then you need to backtrack the dates and ensure that everything is in place by Friday or the day before the holiday.
- If you miss out on ensuring that your deadline is on a Saturday, Sunday, or court holiday, then you lose your lien rights.
- Also, a good practice would be to avoid waiting until the last moment to send out the notice of intent to lien or record your lien as you can easily run into unexpected problems and then you would run out of time as well.
B) Affidavit of Service – The lien form is typically a legal sized paper where you need to fill in all the required information on the first page and about four-fifths of the second page.
- Here you need to pay attention to the end of the second page where you will find a section called Affidavit of Service or Mailing Prior to Filing Lien Statement. You should not complete this section unless you have sent your notice of intent to lien.
- After the 10-day deadline has passed, then you execute this affidavit of Mechanics Lien. It is very important that you do not complete this affidavit when you are mailing the first initial notice. Only after the 10 days have passed and you have still not been paid, then you go ahead and execute this affidavit and record your lien.
- Also, when you are sending the notice through certified mail, make sure you retain the receipts so that you can show them as evidence while filling out the affidavit and recording the lien.
C) Be Accurate – As mentioned earlier, the lien statute is strictly construed which means that you must ensure that all the information is accurate, such as:
- You must properly identify all the owners and general contractors.
- You must properly identify the property, including a legal description. Providing the correct legal description will make it easier to attach property liens to the right property, so that anyone looking at the property records will have all the information about the lien on the property.
- You must properly identify the amount owed. Do not overstate the amount because then your lien might get thrown out and you will also lose your lien rights.
What Are Some of the Lien Exceptions?
Here are some key lien exceptions that you should be aware of:
- You cannot lien public lands. So, if you are hired by the Municipality or the State of Colorado, then you do not have a lien right. Instead, you will have a bond right.
- General laborers have a shorter time to record their lien. They must record their lien within two months of their work.
- Read your contract thoroughly to check if it includes a provision to waive your lien right. If your contract includes it, then it will be upheld. So, check the contract to see if includes such provisions.
- Homeowner’s exception is a powerful tool for the homeowners. What it basically means is that if the homeowner has paid the contract in full, then you cannot lien their land. This exception will be considered as a valid defense, and it will bar your lien rights.
- Although it is important to adhere to the deadlines we discussed earlier, there is an exception wherein you can provide an extension notice which will buy you an additional four months to record your lien. You do not have to share or mail this notice extension with everyone. So, this is a good option to bear in mind if you find that you are at the end of the four-month mark and you still need to record your lien.
- Finally, you need to pay attention to ‘substantial completion’ if the project is abandoned. If the project you are working on is abandoned, it will be deemed substantial completion in three months.
How Can You Secure Your Bond Rights?
Your bond rights are going to come up when you are involved in governmental projects.
- In Colorado, a bond is required for any state projects over $100,000 and local public projects over $50,000.
- You can have a payment bond and a performance bond.
- A good practice would be to get a copy of the bond at the beginning of the project. You don’t want to wait until the end of the project or when a dispute arises to start looking for a copy of the bond. Also, if you ask for a copy of the bond, they must provide you with it.
- Although it is not required to file a notice of intent for state projects in Colorado, it is recommended that you go ahead and file it.
- The bond will outline the timing and process for submitting the bond claim.
- In Colorado, you have only 6 months after the project's completion to initiate legal action on a bond claim.
- You will need to file a Verified Statement of Claim. It is a common template wherein you will need to provide basic information, such as project name, contract number, claim amount, name of the contractor, etc.
What is a Disburser Notice?
A lot of people are unaware of the disburser notice. You need to have the same standing as a lien claimant to do a disburser notice. It is basically a mechanism for you to go to the party who is holding the money and letting them know through the disburser notice that you have not been paid for the work performed.
- The Notice of disburser requires the disburser to pay you directly the amount due.
- A ‘disburser’ includes a construction lender, or anyone else who receives construction funds from the lender, owner, or contractor to be disbursed from time to time as work on the project progresses.
- If the disburser fails to release the funds to you, then they may become liable for getting you paid.
What are the Different Types of Waivers that You Should Check?
The final topic that we will focus on is exchanging a check for a waiver which is common practice. There are four general types of lien waivers:
- During Construction/Progress Payment
- Conditional Waiver and Release Upon Progress Payment
- Unconditional Waiver and Release Upon Progress Payment
- End of Construction/Final Payment
- Conditional Waiver and Release Upon Final Payment
- Unconditional Waiver and Release Upon Final Payment
A) Conditional Waiver and Release Upon Progress Payment
- This is the lien waiver that you will use when you are asked to provide a lien waiver on progress payment. This means you have still not been paid, but you don’t have to worry about not getting paid because the waiver is conditioned on that.
- So, if you have signed the waiver but have still not been paid, then release is not considered to be effective.
B) Unconditional Waiver and Release Upon Progress Payment
- Like your conditional waiver, this unconditional waiver is also used during the construction project but the key difference here is that you are asserting in your waiver that you have received the progress payment.
The key difference between conditional and unconditional with progress payments is – will be paid and has been paid.
C) Conditional Waiver and Release Upon Final Payment
- This is like the conditional waiver and release upon final payment where you are signing the waiver which is conditioned that the waiver will be effective only if you have received the final payment.
D) Unconditional Waiver and Release Upon Final Payment
- Finally, we have the unconditional waiver and release upon final payment wherein you are acknowledging in the waiver that you have received the final payment.
The key difference between conditional and unconditional with final payments is – will be paid and has been paid.
So, these are some of the key tools and measures that you can use to make sure that you are getting paid for the work you have performed on a construction project.
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Do I Need to Send a Colorado Preliminary Notice?
Is Colorado Notice of Intent Required?
Who must serve a Notice of Intent in Colorado?
What happens if you don't serve a Colorado Notice of Intent?
How to File a Statement of Lien in Colorado?
Filing a Statement of Lien in Colorado involves several steps. Here are the simplified 4 steps:
- Step 1 - Notice of Intent to Lien
- Step 2 - Prepare Your Mechanics Lien
- Step 3 - Timely File Your Lien
- Step 4 - File the Mechanics Lien