Monday, February 22, 2016

Your Contractual Notice/Claim Procedures Matter

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ConsensusDOCS Construction Management Contractual Relationships (Photo credit: Wikipedia)

Remember how I stated that your construction contract governs the “law” of your business relationship?  Remember how (at least as a subcontractor or supplier) the Virginia General Assembly stated that is no longer true in regards to pre-payment contractual mechanic’s lien waivers?  Remember that most construction contracts contain a clause or two relating to claims and the notice requirements to preserve those claims

Well, my good friends over at the Construction Payment Blog posted a great reminder that even with these three “reminders” a lower tier subcontractor could potentially waive a mechanic’s lien claim by its failure to meet the notice requirements of a contract.

The post over at that blog discusses a construction contract case in Ohio where the contract had a provision for the preservation of claims.  That provision defined when a claim accrued, the notice time required to preserve the claim and importantly stated that any claim that did not meet the terms of this provision would be irrevocably waived.  Needless to say, this case would be of little interest if the Court had allowed the claim despite the lack of proper notice.  Because of the lack of proper notice, the breach of contract claim was dismissed and the subcontractor was left unpaid.

While the case described above is an Ohio case, it does illustrate the point that as a construction professional, you absolutely must both understand (something your friendly construction attorney can help with) and follow to the letter the notice and claim provisions of your contract.  Failure to do so can be catastrophic.

Another potential pitfall of the failure to follow the contractual claim procedures in circumstances such as those described above could be the loss of your right to claim a mechanic’s lien.  Recall that the 2015 changes to the mechanic’s lien statute only apply waivers before being paid.  In most cases, your failure to follow the claim process won’t really come out as an issue until the end of the job after most of the undisputed payments have been made.  The question that would confront a Court in the case of a lien filing is whether your failure to follow the claim procedures waived just contractual claims or waived all claims, including your claim to a mechanic’s lien.  While I don’t know the definitive answer to this question, it is not one you want to have a Court ask.

What are your thoughts on this subject?  After reviewing the contractual provision described in the Payment Blog post, do you think the subcontractor waived its lien rights?  I’d love to hear from you.

As always, I welcome your comments below.  Also, I encourage you to subscribe to keep up with the latest Construction Law Musings.

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