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Legal - Four common construction law misconceptions

image West W. Winter, Attorney, The Winter Law Firm, PLLC, San Antonio, TX

AUSTIN - Throughout two decades of law practice, I have heard a number of recurring legal misconceptions from clients. Four of the more common construction law misconceptions include:

 

 

 

 


Sending a lien notice will harm the working relationship
    When payment has not been received, subcontractors are sometimes reluctant to send proper pre-lien notices because of a perception that doing so will irreparably damage their relationship with the upstream parties.  It is only natural to fear upsetting the apple cart.  However, as the mechanic’s and materialman’s lien is one of the most powerful weapons for ensuring payment, failing to properly and timely send statutorily required lien notices will have adverse consequences.  Whatever the reason for non-payment, a pre-lien notice serves many valuable purposes.  Chief among these is trapping funds in the hands of the project’s owner.  This is critical because an owner’s liability to a lien claimant is limited on commercial projects to the statutory retainage and any funds which the owner should have retained upon receipt of a proper pre-lien notice.  Furthermore, general contractors and owners are typically sophisticated parties who understand the importance of securing one’s right to payment. 
 
I filed my lien, I just have to wait to get paid
    While it is essential to timely and properly perfect your mechanic’s and materialman’s lien or payment bond claim, there are also strict statutory deadlines within which you must actually file suit to foreclose or enforce your lien or bond claim.  Failing to file suit within these prescribed deadlines will likely result in the loss or extinguishment of your lien or payment bond rights.  Suit must be brought to foreclose a lien within the limitations periods mandated by Section 53.158 of the Texas Property Code (typically one or two years, depending on the type of project) or the lien will be extinguished.  A suit on a payment bond on a state public project may not be brought by a payment bond beneficiary after the first anniversary of the date notice for a claim is mailed under Chapter 2253 of the Texas Government Code. 

I missed the lien deadlines, I have no rights
    Even if you miss statutory lien deadlines, there are many avenues of potential recovery for nonpayment.  In a sham situation described by Section 53.026 of the Texas Property Code, you may still have lien rights, and if you contract directly with the project’s owner, you may have constitutional lien rights which exist independently of any notice or recording requirements.  In the absence of lien rights, you likely have available causes of action for nonpayment which, depending on the specific circumstances involved, may include breach of contract, quantum meruit, suit on sworn account, Prompt Pay Act claims pursuant to Chapter 28 of the Texas Property Code, and Texas construction trust fund claims as codified in Chapter 162 of the Texas Property Code.  Many of these claims also provide for the recovery of attorney’s fees and expenses. 

I have Insurance, so I am covered
    CGL insurance policies are loaded with exclusions and exceptions which often come into play in construction cases.  In construction defect cases, policy exclusions such as the “your work” exclusion will often operate to deny you the very defense and/or coverage which you thought you were getting.  These exclusions have frequently been the basis for denial of defense and coverage by insurance carriers and as a result, the subject of much litigation in recent years.  Work with your attorneys and insurance agents to understand your coverages and the impact of applicable exclusions.  If you are denied a defense and/or coverage, don’t give up as there may be viable arguments which can be asserted on your behalf in this evolving area of the law to obtain a defense and/or coverage. 

    West W. Winter, a LEED Green Associate, serves on the board of the Construction Law Section of the San Antonio Bar Association and has been listed as one of the Best Lawyers in San Antonio for Construction Litigation.  The Winter Law Firm represents general contractors, subcontractors, and suppliers, in all phases of the construction process, from contract formation through dispute resolution, litigation, and collection.  West may be reached via email:  west@thewinterlawfirm.com.


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Lexie Velasquez lexie@constructionnews.net