Mechanic’s liens are an essential tool for construction contractors and subcontractors seeking to enforce their right to payment. Unfortunately, the Texas’ mechanic’s lien statutes are unnecessarily complicated and contain many traps for the unwary. Recently enacted House Bill 2237, however, provides some much-needed relief for subcontractors as well as for architects, engineers and surveyors but still leaves in place the basic statutory scheme. Mechanic’s lien claimants are still well advised to seek help whenever in doubt about their rights under Texas law.
On January 1, 2022, the following changes to Chapter 53 of the Texas Property Code will take effect.
Improvement and Labor Redefined
The Legislature broadened the definition of “improvement” to include almost every conceivable aspect of a construction project and now uses that term throughout Chapter 53. Improvements now also include “a design, drawing, plan, plat, survey or specification provided by a licensed architect, engineer or surveyor.” “Labor” now includes “a professional service used in the direct preparation for the work of a design, drawing, plan, plat, survey, or specification.”
Purported Original Contractor – A New Definition
HB 2237 adds a new definition for a “purported original contractor” to include an original contractor effectively controlled by the owner or one who was engaged by the owner without a good faith intention of the parties to perform as the contractor under the contract. This change simplifies and effectively replaces the “sham contract” provisions of Section 53.026. Section 53.026 (a) has been revised and now states: “A person who labors or furnishes labor or materials under a direct contractual relationship with a purported original contractor is considered to be an original contractor for purposes of perfecting a mechanic’s lien.”
Relief for Subcontractors
Notice Requirements. Previously subcontractors had to send two notices to the owner and a different notice to the original contractor. Beginning in January, subcontractors will use the same statutory notice for both owners and contractors and will no longer be required to send two notices to an owner. To eliminate any confusion, the Legislature has prescribed forms to be used for a notice of derivative claimant (Section 53.056) and for a notice of contractual retainage (Section 53.057). The statutorily prescribed notices should reduce potential mistakes in complying with the written notice provisions of Chapter 53.
Timing of Notices. For commercial projects, a subcontractor will be required to send notice to the owner and original contractor by the fifteenth day of the third month following each month in which the subcontractor furnished labor or materials. For residential projects, the notice must be sent to the owner and original contractor by the 15th day of the second month following each month in which labor or materials were furnished. However, if the last day for compliance falls on a weekend or legal holiday, the deadline is extended to the next day which is not a Saturday, Sunday or legal holiday. Unfortunately, HB 2337 does not eliminate the requirement for multiple notices. A subcontractor who is not getting paid and continues to work will still have to provide timely notice for each month to retain their lien rights.
Delivery of Notices. Notices to the owner and general contractor no longer have to be delivered by certified mail or in person. Notices can be delivered by any form of traceable private delivery or other mailing service. Notice by the rarely used “registered mail” is no longer effective. If there is the ability to confirm receipt by the owner and original contractor, notice will likely be considered effective.
Architects, Engineers and Surveyors Fall Under “Improvement”
As noted above, work by these professionals now clearly falls within the definition of “improvement.” More critically, HB 2237 removes the requirement that such professionals provide services under a contract with the owner, or the owner’s agent, trustee or receiver. Architects, engineers and surveyors who contract with an original architect or engineer (i.e., one who contracts directly with the owner), or with an original contractor or subcontractor will be entitled to a lien for any “improvement” they prepare in connection with a construction project.
Timing for Filing Lien Affidavits Remains Unchanged
The basic deadlines for filing an affidavit claiming a mechanic’s lien in Section 53.052 have not changed. HB 2337, however, does eliminate the confusing “accrual of indebtedness” date as the event from which lien filing deadlines must be calculated. Original contractors must file the lien affidavit by the 15th day of the fourth month (for commercial projects) or the third month (for residential projects) after the month in which the work was completed, terminated, or abandoned. Subcontractors have the same deadlines which begin to run after the month in which the subcontractor last provided labor or materials.
In the case of specially fabricated materials, the same deadlines apply and start to run beginning with the “month the claimant would normally have been required to deliver the last of specially fabricated materials that have not been actually delivered.”
Affidavits of Completion Eliminated
Previously, an owner could record an affidavit of completion, provide notice to the original contractor and subcontractors, and shorten the time frame for filing of lien affidavits to 40 days after the date of completion. HB 2237 eliminates the ability of owners to shorten the lien affidavit deadline. The deadlines under Section 53.052 will control under all circumstances.
Foreclosure of Liens – Deadline to File Shortened
HB 2337 shortens the deadline to file suit to foreclose a mechanic’s lien on a commercial project. Beginning in January, a lien claimant must sue to foreclose not later than one year after the last date on which the claimant could file a lien affidavit under Section 53.052. The parties may extend that deadline by written agreement but not by more than one additional year. The agreement must be made before the expiration of the one-year deadline and must be recorded with the County Clerk. The one-year deadline for foreclosure on residential construction liens remains intact.
Problems with Timing for Retainage Lien Claims
HB 2337 provides that a “claimant other than an original contractor claiming a lien for retainage must file an affidavit with the County Clerk not later than the 15th day of the third month after the month in which the original contract under which the claimant performed was completed, terminated, or abandoned.” Section 53.052(d).
However, the Legislature left intact Section 53.103 which provides that a claimant has a lien on the reserved funds if the claimant sends the required notices and “except as allowed by Section 53.057(d), files an affidavit claiming a lien not later than the 30th day after the earliest of the date: (A) the work is completed; (B) the original contract is terminated; or (C) the original contractor abandons performance under the original contract.”
So, what is the actual deadline? Is it the 15th day of the third month after completion, termination or abandonment by the original contractor or 30 days after the earliest of those events? Retainage claimants would be well advised to comply with the 30-day deadline in Section 53.103 as it is unclear whether owners are required to hold on to the retainage beyond that deadline. If a claimant misses the 30-day deadline, it may still have a valid lien claim if it complies with the later deadline in Section 53.052(d) but does so at its risk.