Written by Tyler Wright, Associate
This is the first in a multi-part blog series addressing
potential pitfalls that project owners, contractors, subcontractors, and
project financers may encounter on Texas construction projects. Texas
mechanics’ lien laws have long been some of the most complex lien laws in the
country, and Chapter 53 of the Texas Property Code, as many know by now, was substantively
amended for the first time in decades for projects beginning in 2022. Rather
than rehashing those amendments, this blog series highlights some of the lesser
known (or lesser followed) provisions of the Texas Property Code that still can
catch unwary parties off guard, and illustrates how proactive measures on the
front end of a project can mitigate disputes later.
This first post recaps the two primary subcontractor notices that
must be provided before claiming a lien and that remain applicable after the
Chapter 53 amendments. Then it addresses project completion, including scenarios
involving termination of the contract or abandonment by the original
contractor.
Subcontractor Notices. To preserve their lien rights, subcontractors must provide two
key notices before claiming a lien under the Texas Property Code. Unpaid Claim
notices under Section 53.056 must be sent by the 15th of the third month for
every month a subcontractor works on a commercial project. Retainage Notices under
Section 53.057 must be sent within 30 days after the subcontractor completes all
of its work on the project, though they also may be included with Unpaid Claim
Notices. This timing inconsistency can create a trap for both owners and
subcontractors during the closing months of a project.
Affidavit of Completion. When the project is complete, the owner may file an
Affidavit of Completion to establish prima facie evidence of the completion date,
which governs lien claim deadlines. The owner must file the Affidavit within 10
days of completion; otherwise, the filing date itself becomes the prima facie completion
date. The owner must then send a copy of the Affidavit to any subcontractor
that has already provided an Unpaid Claim Notice or a Retainage Notice, within
3 days of filing and within 10 days of any subsequent notice. For any subcontractor
that previously requested notice of completion, the owner must send a copy of
the Affidavit within 10 days of the request, or by the filing date, whichever
is later.
A savvy subcontractor often will include a request for notice
of project completion within an Unpaid Claim Notice or Retainage Notice. It is
important for owners to note, therefore, if a subcontractor’s request was made
at least 10 days before the Affidavit’s filing, the copy must be sent on the filing
date, not within 3 days after. Failure to send the copy of the Affidavit by the
applicable deadline causes the owner to lose the benefit of prima facie
evidence of the completion date as to the unnotified subcontractor.
Notice of Termination and Contractor Abandonment. If the owner terminates the
contract or the original contractor abandons the project, the owner must notify
each subcontractor within 10 days that requested notice of termination or
abandonment. The owner also must send notice to each subcontractor that
previously sent an Unpaid Claim Notice or Retainage Notice, regardless of
whether the subcontractor specifically included a request for notice of
termination or abandonment. If the owner fails to provide notice, the affected subcontractor
is excused from the Retainage Notice requirement and may file its lien for
retainage by the 15th of the third month after the project is completed or
abandoned, without prior notice.
Why this Matters: Owner’s Obligation to Withhold Retainage. The owner’s notice obligations
matter because they directly affect the owner’s duty to withhold retainage
under Chapter 53 and provide certainty releasing retainage and closing out the
project. The Property Code requires an owner to withhold retainage only for 30
days after the project’s completion, termination, or abandonment, but an owner
might be wise to withhold retainage for at least 30 days. Because the
statute permits subcontractors to include Retainage Notices in Unpaid Claim
Notices, which are not due until the 15th of the third month, an inherent
timing conflict arises at the end of the project between the required 30-day
retainage withholding period and the later Unpaid Claim Notice deadline.
To mitigate this conflict, subcontractors should promptly
provide Retainage Notices upon completing their work, and owners should be
diligent in sending the copy of the Affidavit of Completion and any notice of
termination or abandonment. Additional mitigation efforts available to owners,
such as conditions precedent to payment, will be discussed later in this blog
series.
