In Tennessee, like most states, there is a statutory means by which a person or company who provides labor or materials for the improvement of real estate can secure payment for the work or materials. Tennessee’s mechanics’ or materialmen’s lien statute was overhauled in 2007 to make it easier to understand and more simple; however, the statute remains full of potential pitfalls and rife with deadlines of various types that can be costly for the unwary. We recommend hiring a commercial real estate attorney to ensure your rights are protected.
Although the statutory changes in 2007 require that the statute “be construed and applied liberally to secure the beneficial results, intents, and purposes” of the statute, “strict compliance” with the statute is still required. Tenn. Code Ann. § 66-11-148; Sequatchie Concrete Co. v. Cutter Labs., 616 S.W.2d 162, 165 (Tenn. 1980). To have a lien, the claimant must have improved the real estate in some way or have contributed to the improvement, such as by furnishing materials. The statute defines “Improvement” and essentially states that improving real property means creating a change to it, cleaning it up, or enhancing or embellishing it. Tenn. Code Ann. § 66-11-101(5). Under the statutory definition, landscaping the property or activities of that nature qualify as improvements, so it does not have to be construction activity in the strictest sense to be considered an improvement under the statute. The lien attaches automatically “from the time of the visible commencement of operations.” § 66-11-104(a).
A person or company who has a direct contract with the owner of the property, such as a general contractor, has 1 year from completion of the work (or from date of the last delivery of materials supplied) to file a lawsuit to enforce his lien. § 66-11-106. When the owner and direct lien claimant have a direct contract, the claimant does not have to serve or record any notice on the owner regarding the lien. However, he does have to record a Notice of Lien in the register’s office within 90 days of competing the work to give notice of the existence of the lien to third parties. § 66-11-112(a) (suggested form of notice of lien included in statute).
A remote contractor (or person or company who does not have a direct contract with the owner of the property) generally only has lien rights with respect to commercial real estate because indirect liens generally do not attach to “residential real property,” which is also a term defined in the statute. § 66-11-146. A remote contractor must comply strictly with numerous statutory requirements to perfect and enforce his lien. He must send a Notice of Nonpayment to both the owner and the contractor within 90 days of the last day of the month in which work, services, or materials not paid for were provided. § 66-11-145 (suggested form of notice of nonpayment included in statute). The statute enumerates very specific information that must be included in the Notice of Nonpayment, which are listed below:
- The name of the remote contractor and the address to which the owner and the prime contractor in contractual relation with the remote contractor may send communications to the remote contractor;
- A general description of the work, labor, materials, services, equipment, or machinery provided;
- The amount owed as of the date of the notice;
- A statement of the last date the claimant performed work and/or provided labor or materials, services, equipment, or machinery in connection with the improvements; and
- A description sufficient to identify the real estate against which a lien may be claimed.
A remote contractor must also send a Notice of Lien within 90 days of the completion of the improvement or 90 days of the date on which materials were last supplied. § 66-11-112. The Notice of Lien must also be recorded in the land records to give notice of the lien to third parties. A remote contractor has 90 days from the date of service of the Notice of Lien to commence his lawsuit to enforce the lien. § 66-11-115.
An owner of residential or commercial real estate can force any potential lien holders to assert their lien after the project is completed. The owner does so by filing a Notice of Completion to which any potential lienholders must respond within 10 days if the property is residential or 30 days for commercial real estate. § 66-11-143.
- This area of the law is somewhat complex and requires strict compliance with the statute. If you are faced with a situation involving a mechanics’ or materialmen’s lien, you may want to consider hiring a commercial real estate attorney with experience in this area to assist you.
- Remote contractors have more difficulty complying with this statute. They sometimes fail to send timely Notice of Nonpayment because they focus on the date that work was billed rather than when it was actually performed or when the materials were actually delivered. Additionally, the Notice of Nonpayment must be served within the 90 day timeline, not mailed by the 90th day. Whether you are a remote or direct contractor, strict compliance with the statute’s timeline is essential. The time deadlines in the statute serve as a type of statute of limitations with respect to lien rights, so it is crucial to understand and follow all of the time deadlines.
- It is also critical to commence the lawsuit to enforce the lien within the statutory time frame. There is also a requirement that the complaint filed must be a verified complaint. All of these specific requirements are why it is particularly important to involve a commercial real estate attorney or construction litigator in these types of matters.
- Some contractors also lose their lien rights by failing to respond to a Notice of Completion. Contractors must be familiar with the Notice of Completion and respond within the appropriate 10 or 30 day deadline to protect their rights. From the owner standpoint, owners should use the Notice of Completion mechanism once their project is completed, if they believe there may be existing liens that could arise subsequently. It is a valuable mechanism to resolve the lien issues efficiently once a project has been completed.