When payment disputes come up, construction parties are able to file a mechanics lien to recover payment from delinquent clients. The right to file a mechanics lien is exclusive to the construction industry and it empowers construction parties to ensure that they get rightfully paid for the work that they do.
However, the right to file a mechanics lien must be protected. In Tennessee, you will lose your right to recover payment via a mechanics lien if you do not serve the correct notices on time.
One of the notices that must be served in Tennessee is the Notice to Owner. Parties who are about to enter into a contract with a property owner must serve a valid Notice to Owner in order to keep their lien rights.
This guide will answer your questions on how to serve a valid Notice to Owner in Tennessee, from the specific information you need to include in the form to the best practices that you must keep in mind.
Who must serve a Tennessee Notice to Owner?
All contractors who will have a direct contractual relationship with a property owner must serve a Notice to Owner. The Notice to Owner requirement, therefore, primarily applies to general contractors and material suppliers who will directly supply to the property owner.
Be aware that your contract with the property owner does not have to be written. Oral agreements count, except for parties who are working on owner-occupied residential projects with 4 units or fewer. Otherwise, oral contracts will still necessitate you to serve a Notice to Owner to protect your lien rights.
When to serve a Notice to Owner in Tennessee
The Notice to Owner must be served before you start working on a project. For contractors working on an owner-occupied residential building with 4 units or fewer, your Notice to Owner must be incorporated into the contract before it is signed.
What happens if you do not serve a Notice to Owner?
Serving a Notice to Owner is a mandatory step in protecting your lien rights. If you do not serve a valid Notice to Owner, your mechanics lien will not be valid and will therefore not be attached to a property’s records.
Keep in mind that one of the reasons why a mechanics lien is very effective in getting you paid is because it gets attached to a property’s records, which are available to the public. Potential buyers and financiers will see your mechanics lien and will think twice about investing in the property, consequently incentivizing property owners to settle outstanding payments.
How to serve a Tennessee Notice to Owner
1. Prepare the Tennessee Notice to Owner form
The Tennessee Notice to Owner form must contain the date when you serve the notice and your complete legal or business name. The notice must contain certain statements from Tennessee lien statutes.
The Notice to Owner must be written in substantially the following form:
Delivered this _______________________________________ day of _________ , 20 _________ , by _____________________________________ , Contractor.
The above-captioned contractor hereby gives notice to the owner of the property to be improved, that the contractor is about to begin improving the property according to the terms and conditions of the contract and that under the provisions of the state law (§§ 66-11-101 66-11-141):
(1) There shall be a lien upon the real property and building for the improvements made in favor of the contractor, mechanic, laborer, founder or machinist, who does the work, or furnishes the materials for such improvements for a duration of one (1) year after the work is finished or materials furnished;
(2) Except as modified by § 66-11-146, every person contracted with or employed to work on the buildings or to furnish materials for the same with the above-named contractor shall have a lien on the property for that person’s work or material; provided, that such person notify the owner in writing within ninety (90) days after the completion of the improvement, which lien will continue for ninety (90) days after such notice;
(3) Except as modified by § 66-11-146, these liens can be enforced even though the contractor has been paid in full if the contractor has not paid the persons who furnished the labor or materials for the improvement.
2. Serve the Notice to Owner on the property owner(s)
Once your Notice to Owner form is ready, you must serve it on the property owner via registered or certified mail. Make sure to choose the option to have a return receipt so you have proof that you have duly served the notice.
Note that for parties working on a residential project with 4 units or fewer, your Notice to Owner must be part of the contract that you will sign with the property owners.
Remember that for all other parties, the Notice to Owner must be served before you start working on a project. Otherwise, your lien rights get revoked.
Best practices when serving a Notice to Owner in Tennessee
1. Keep a Tennessee Notice to Owner template
The Notice to Owner in Tennessee does not take much time to prepare, so it will be greatly helpful if you keep a template and use it every time you are about to enter into a contract for a new project.
You just have to be mindful that certain projects will require you to incorporate the Notice to Owner into the contract instead of serving it as a letter. If you are working on an owner-occupied residential property with one to four units, include the Notice to Owner in your contract with the property owner(s).
2. Ensure that you have a proof of compliance with the notice requirement
For all notices and lien-related documents, it is best practice for you to organize them and make sure that you have all the documented proofs to prove your claim in case it gets questioned. Keep the mailing and stamp receipts for your Notice to Owner so you can prove that you have complied with Tennessee’s notice requirement.
3. Make sure that you serve the Notice to Owner on time
Always remember that the Tennessee Notice to Owner must be served before your first day of work. Some states have their notice deadlines after you have started working on a project, but if you are a general contractor n Tennessee, make sure that you send the Notice to Owner before you furnish labor or materials to the property.