Texas has fairly complicated rules on filing a mechanics lien. There are different requirements to follow depending on your role in a project, and there are also different notices that you must serve in order to protect your rights to full payment.
One such notice is the Texas Notice of Retainage, also known as the Notice of Contractual Retainage. In Texas, property owners are obligated to withhold 10% of the contract price until after the project has been completed, terminated or abandoned. Serving a Notice of Retainage protects your right to receive the retained amount.
This guide will walk you through the steps in serving a Texas Notice of Retainage in order to protect your rights to claim payment from the funds retained by a property owner. Be aware that this notice is different from the Texas monthly preliminary notice or the fund-trapping notice. This notice is, therefore, an additional document that you must serve if you want to secure full protection for your lien rights.
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What is a Texas Notice of Contractual Retainage?
A Notice of Contractual Retainage is a document that informs a property owner you have entered an agreement for retainage with the party who hired you for a project, usually a general contractor or a subcontractor. If you do not receive the retained amount accordingly, the property owner will be liable for paying it.
Why serve a Notice of Retainage?
Since it is mandatory for property owners to withhold 10% of the contract amount until after a project has wrapped up, it is also common practice for general contractors or subcontractors to withhold a certain fraction of the full payment from all the construction parties that work under them. The amount that is withheld is called the “retainage.”
The 10% retainage kept by the property owners may be used to cover for the costs in case the construction parties perform a poor job or fail to complete a project. However, if everything has been done properly, the retainage gets disbursed to the general contractors who must then consequently release the withheld amount to the lower-tier parties.
As with any construction project, payment disputes may arise and you may not receive the remaining amount that has been initially retained by your contractor or subcontractor. You may file a mechanics lien to recover this retained amount. In order to file a valid mechanics lien, you must first serve a properly prepared Notice of Contractual Retainage on or before the prescribed deadline.
When to serve a Texas Notice of Contractual Retainage
Subcontractors and material suppliers looking to preserve their rights to file a mechanics lien on retainage must serve a Texas Notice of Contractual Retainage by the following deadlines:
The first deadline corresponds to the 30-day period after you finished your work on a project. The second deadline corresponds to the 30-day period after the general contractor’s contract with the property owner has been terminated or abandoned. This implies that if the original contract gets terminated prior to your completion of your job, the deadline for serving the Notice of Retainage also gets shorter.
It is, however, considered a good business practice to serve the Notice of Contractual Retainage early on, preferably within the first few weeks after you start working on a project. This allows you to notify the property owners that the party who hired you will be withholding a portion of your payment and that the owners will be liable if you do not end up receiving the retained payment.
What happens if you don’t serve a Notice of Retainage in Texas?
Failing to serve a Notice of Contractual Retainage will cost you your right to file a mechanics lien to recover the retainage. Note that as long as you fulfill the monthly fund-trapping notice requirements in Texas, you will still have the right to file a lien for your contract amount minus the 10% retainage.
How to serve a Texas Notice of Contractual Retainage
1. Prepare your Texas Notice of Contractual Retainage
The Texas Notice of Contractual Retainage form must contain the following:
- The name and address of the claimant
- The name and address of the party with which you have a retainage agreement
- The name and address of the property owner
- A statement regarding the existence of a requirement for retainage per Texas law
- The percentage and the estimated sum of the amount being withheld
2. Serve your Notice of Contractual Retainage on the appropriate parties
You must serve the Notice of Contractual Retainage on the property owner and on the general contractor, if your agreement is with a subcontractor. You must deliver the notice via certified mail with return receipt requested, and you must keep all mailing documents as proof of compliance with this notice.
Keep in mind that this notice is not a substitute for the Texas monthly fund-trapping notice and is a different notice requirement altogether. Unlike a fund-trapping notice, the Texas Notice of Contractual Retainage is only served once and is not a recurring monthly requirement.
Best Practices When Serving a Notice of Contractual Retainage
1. Serve the Texas Notice of Contractual Retainage early
The deadline for serving the Notice of Retainage is not after you have completed your tasks on a project or the original contract has been terminated or abandoned. However, you are still encouraged to serve this notice as early as possible, preferably within the first couple weeks of your first day of work.
2. Keep a copy of your Notice of Contractual Retainage
You are encouraged to keep a copy of every notice that you serve, especially because Texas has complex notice requirements. By organizing your lien-related notices and keeping track of when they have been sent out, you have a lesser chance of missing an important notice deadline.
3. Ensure that you have documented proof of mailing your notice
Not only must you keep copies of the Notice of Contractual Retainage, but you must also keep the mailing records related to serving this notice and all other Texas notices that you send. When you keep a record of your mailing receipts, you also keep a documented proof that you have complied with the rules in the event that the validity of your mechanics lien gets questioned.