In this blog, presented by SunRay Construction Solutions and Jessica Murphy, Partner, Tarlow, Breed, Hart & Rodgers, P.C., construction professionals in Massachusetts can learn in detail about these provisions and all the required dos and don’ts.
What Should You Check for in Your Contract?
The first thing that you need to do is check your contract. Ideally, it is good practice to do an annual contract check, and if your contract needs to be updated, you can do it and ask your clients to re-sign it. This way you can ensure that your contract includes all the required terms and conditions, and your clients are also aware of them.
Top Three Things that Your Contract Should Include
Apart from the annual check, here are the top three things that your contract should include:
A) Proper identification of parties and signatures
- Your contract should clearly identify the party's names and include proper signatures. Signatures are important when it comes to mechanic's lien law if you need to rely on a credit app or purchase order.
- Proper identification means knowing if it is an incorporated entity, LLC, DBA, etc. You can check additional resources, such as the Secretary of State’s website to check whether the party’s name is correct.
- You can visit the site and check the corporate directory by either searching with the individual’s name, company name, etc., and ensure that the same name is included in the contract.
B) Detailed scope
- Detailed scope refers to a clear description of what exactly you are supposed to do, where you are supposed to provide the labor/materials, how many items should be provided, etc.
- All these terms should be clearly spelled out so that everybody involved in the project knows what their obligations are as per the contract.
C) Payment terms, including interest, late fees and attorney’s fees
- You must ensure that the contract includes all the payment terms. You also need to clearly list out when the interest will accrue. In Massachusetts, if the interest is not stated, then it accrues at 12% per year. This is the standard rate that will be considered if you get to the court.
- You can put in your own interest rate, and you can go up to 22% per year. Typically, you will see the rate as 18% per year which comes to 1.5% per month.
- You can also add in late fees and attorney fees. A key point to remember is that in Massachusetts, if you do not specifically state the recovery of attorney’s fees in the contract, then they are not recoverable.
How to Secure Your Lien and Bond Rights?
Here are some specifics on lien and bond rights specific to Massachusetts.
A) Enforcing a Lien
- To enforce a lien, you must have a contract signed by the party with whom you are working. If you are a supplier to a subcontractor, the subcontractor must have a signed contract.
- You also need to know the parties on the job, so that you know where your party that you are contracting with is in the chain. Are you the third or fourth-tier subcontractor supplier, or are you supplying directly to the owner or the GC, etc.
- One of the major reasons why you need to know where you fall in the scope of things is because in mechanics lien law, the further you go down the chain, you may need to file a notice of identification to preserve the full amount of your mechanics lien.
- Timing is crucial when it comes to mechanics lien. You need to ensure that you are recording and filing for suit as per the required timeframe.
- Typically, you will have 90 days from the last date that anybody works on the project to record your lien which is the first document. Then you have another 120 days from which to give the Statement of Account which is your second document. After you give your State of Account, you have 90 days from there to file your complaint.
Once you have all the deadlines in place, you need to make sure that you are recording your lien with the Registry. All the documents stated above must be recorded with the Registry. You also must continue to perfect your lien, all the deadlines, etc., which ultimately leads to filing in court with a lawsuit. One of the reasons why mechanics lien is considered to be a powerful tool in getting you paid is because when you win, it gives you the right to sell the property to satisfy your mechanics lien. This is a great leverage, especially for suppliers and subcontractors who don’t have a direct relationship with the owner.
There is one exception that you need to be aware of:
- No matter where you fall in the chain, your amount is going to be limited to the amount due to the subcontractor above you, at the time the owner receives your mechanics lien.
- So, you need to be aware of how the money is flowing in the project, especially if you are lower in the chain. It is also recommended that you start the lien process early on because as the money flows, you may reach a point where the subcontractor above you have been paid in full and there's no money for your lien. If they've been partially paid, then it will partially reduce the amount of your lien.
B) How to Avoid Pitfalls in Lien Filing?
- Keep signed delivery tickets and purchase orders as proof of materials for the lien.
- Act quickly, ideally within 45 or 60 days from your last day of work, to assess the need for a mechanics lien.
- Ensure you have enough time to gather required documents for the lien filing process.
- Consider opting for wire transfer as payment when nearing the lien deadline.
- Waiting for a check to clear might jeopardize your lien rights due to strict deadlines.
- If presented with a check, inform them about filing a mechanics lien; once the check clears, the lien can be removed.
- Timely action is crucial for preserving your lien rights.
C) How to Recover Under a Bond?
- There are two types of bonds – performance bond and payment bond. The type of bond will be clearly mentioned on the bond itself, on the top middle, in bold. The payment bond is of great importance for contractors, subcontractors and suppliers.
- When dealing with bonds, it is very important to know your relationship to the bond principal. Typically, the owner will require the general contractor to post the bond, meaning the GC is the bond principal.
- So, if you don’t get paid, and you are a subcontractor or a supplier who has a direct relationship with the bond principal, then you have one year from the date when the payment was due to file a suit for your non-payment issue. Ideally, it is recommended that you give a notice under a bond because the bonding companies will usually make the payment if it is due.
- If you do not have a direct relationship with the bond principal, then it is mandatory to give a notice within 65 days of when you have not been paid. This notice must be given to the bond principal and the company. You still have a year to file the suit; however, you also must send out the notice.
This is why it is important to get a copy of the bond at the beginning of the project itself, so that if later you do find yourself in a payment issue, you have all the details, such as the bond number, name of the bonding company, etc. handy.
In Massachusetts, bonds are required on public projects, and you cannot put a mechanics lien on a public project. Sometimes, a project owner may also post a private bond on private projects. So, if a private project has a bond on it, then you have your mechanics lien rights as well as bond rights. The bond timing will be determined by the bond's language. Hence, it is important tant it is to get a copy of that bond early on.
How to Accept Payment?
Finally, let’s look at how to accept payments. When it comes to getting paid, it is not as simple as just getting a check. You need to ensure that you are really getting paid. Here are the top three action items to make sure that getting paid really resolves it for you.
- Require wire (or certified funds) to release claims. Many law firms are no longer allowing certified funds to be treated as immediately available. So, the recommended mode of payment is to get it wired. Although certified checks are acceptable, you must ensure that you get those immediate funds.
- Review scope of release or lien waiver. If you are going to give up your rights at the time of providing the lien release or waiver, make sure that you thoroughly review the scope of the release. In most cases, the lien waivers are overly broad and include just a general waiver. However, you can limit it to being a lien waiver for the amount you have been paid.
- Request mutual release. It is always good practice to make sure that all the releases are mutual releases. So, if you are giving up on your rights to sue them because you have been paid, then you also need to know that the job is done and over. Ensure that all the claims are going to be extinguished.
In conclusion, these key pointers and action items serve as a comprehensive guide for construction professionals in Massachusetts to navigate the intricate landscape of payments, ensuring fair compensation for their hard work and contributions. Stay informed, stay protected.
Don't risk payment delays! Secure your rights with SunRay's legal experts. Call 800-403-7660 today and get paid what you deserve.
Is it necessary to send the Notice of Identification to General Contractor?
In Massachusetts, sending a Notice of Identification is not a statutory requirement for second-tier and lower subcontractors. However, it can be a strategic and beneficial practice in certain situations. A Notice of Identification is typically sent to the general contractor to inform them of the subcontractor's involvement in the project. While it may not be legally mandated for second-tier and lower subcontractors, it can serve as a proactive measure to establish communication, demonstrate transparency, and potentially streamline the payment process.
What is a Massachusetts Notice of Contract?
For subcontractors on residential projects in Massachusetts, securing lien rights involves two key steps. First, file a Notice of Contract to officially start the lien process. Once the property owner receives this notice, it sets the maximum lien value—no more than what you're owed by the party you contracted with, typically the general contractor. Remember, you have a 90-day window from substantial completion to file the lien.
Who can file a Massachusetts Notice of Contract?
All general or prime contractors, as well as parties with a direct contractual link to a property owner, can file the Notice of Contract. While there aren't specific licensing prerequisites for general contractors to file this notice, it's essential to be aware that Massachusetts may impose penalties on anyone conducting work without a valid license, if their profession necessitates one.
What is the next step after you file a lien on a property in Massachusetts?
The second step is to submit a Statement of Account within 120 days from substantial completion. This triggers a countdown to foreclosure, starting 90 days from the recording of the Statement of Account. Staying on top of these timelines is crucial to ensuring the enforcement of your lien rights.