Building A New Home: Should You Sign Your Builder’s Contract?
Recently, friends of mine hired a contractor to install a new fence in their backyard. Their contractor provided them with a “Notice to Customer” which included the following language:
YOUR PROPERTY MAY BE LIENED.
If any supplier of materials used in your construction project or any employee of the contractor or subcontractor is not paid by the contractor on your job, your property may be liened to force payment and you could pay twice for the same work.
My friends were shocked to learn that they may have to pay for the same work twice. They asked, is this true? I told them that it is indeed true. If a supplier of materials, worker, or subcontractor is not paid, a lien may be filed against your property. If that happens, you could pay twice for the same work or, even worse, the lien could lead to a lawsuit seeking to foreclose your home. Thankfully, there are ways to protect yourself from having to pay twice.
First –Negotiate a Retainage
At the outset, you can negotiate a contractually defined percentage of the contract price – say, 5% – that you retain for a stated period of time, typically until the end of the project or at least the end of a particular stage of the project. During the time, you retain the funds, you can inspect the progress of the work and determine if it meets the contract standards. You can also contact any subcontractor or supplier that has sent you a “preliminary notice” or “notice of intent to lien” to confirm that they have been paid in full.
Second –Require Lien Releases Prior to Payment
You should include a provision in your contract to require the general contractor to provide you with lien release documents from any subcontractor or material supplier prior to you making payment. The contractor is required by Washington law to provide you with more information about lien release documents if you request it. Before making any payment to your contractor, require a signed lien release from each subcontractor and supplier whose labor and materials are supposed to be covered by that payment. (These can be “conditional” lien releases.)
Third –Use Joint Checks
To ensure that subcontractors and material suppliers (potential lien claimants) are paid, you may consider writing joint checks to the general contractor and to a particular subcontractor, or to a subcontractor and its materials provider. The check may only be cashed if the subcontractor or material supplier endorses it, which will help assure payment and eliminate the risk of the same subcontractor or material supplier recording a mechanic’s lien.
An ounce of prevention . . .
The risk of “paying twice” on your construction progress can be avoided with these steps and a well-drafted contract. You should consider contacting an attorney to ensure that you are taking all of the right steps to protect yourself financially before and during your construction project.
Also, see our Washington Lien Law Guidelines page.
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