Understanding Payment Issues and Construction Liens in North Carolina: A Guide for Contractors

Payment issues are an unfortunate reality in the construction industry, affecting contractors and subcontractors alike. In North Carolina, various legal avenues can help you enforce your right to payment. In this article, our team aims to provide contractors with an overview of their rights when encountering payment issues and the options available for liens in construction projects.

Payment Issues: The Contractor’s Rights

When working on a project, it’s important to always ensure the details are written down. At a minimum, this includes:

• Written Contracts: Always ensure that you have a detailed written contract with subcontractors, workers, and clients. A written agreement sets the foundation for what is expected in terms of scope of work, payment terms, and resolution mechanisms for disputes.
• Documentation: Keep comprehensive records of the project, including correspondence, invoices, and work completed. This serves as evidence should any payment dispute arise.

If a client fails to make the necessary payments, the first step usually involves providing formal notice that payment is overdue. Once you have provided formal notice of the overdue payment, more options are generally available to you, including the options of:

• Late Fees & Interest: Check your contract for clauses that allow for the addition of late fees or interest on overdue payments.
• Legal Action: If other methods fail, you can consider filing a lawsuit for breach of contract.

The Construction Lien: An Effective Remedy

A construction lien is a claim made against the property that is the subject of the construction work. This provides you, the contractor, with security for the services rendered or materials supplied.

Preliminary Steps:

• Notice to Lien Agent: In North Carolina, contractors can protect their right to file a lien by sending a “Notice to Lien Agent” to the designated lien agent for the project, typically found in the building permit. This notice should be sent as early as possible but best practice is within 15 days of first furnishing labor or materials.
• Notice of Contract: To limit the subrogation rights of lower-tiered subcontractors, within 30 days of permit issuance or being awarded the contract, General Contractors may file a “Notice of Contract” with the clerk of superior court in the county where the property is located and post said notice on the property adjacent to the posted permit. If a Notice of Contract is filed, second-tier and lower subcontractors and suppliers must serve a “Notice of Subcontract” upon the contractor in order to preserve their lien rights.

Filing a Claim of Lien:

• Timeline: The “Claim of Lien on Real Property” should be filed within 120 days after the last day labor or materials were furnished.
• Content: The lien must include your name and address, name and address of the property owner, name and address of the person you contracted with for the furnishing of labor or materials, date upon which labor or materials were first furnished and last furnished, a general description of labor or materials furnished, a property description, and the amount claimed.
• Filing Location: File the lien at the clerk of superior court in the county where the property is located.
• Service: You must also serve a copy of the lien on the property owner.

Enforcing the Lien:

• Lawsuit: To enforce the lien, a “Complaint to Perfect Lien” must be filed within 180 days after the last labor or materials were furnished. Note that this is 180 days, not 6 months—count the days to get the true deadline.
• Foreclosure: Successful enforcement may result in the sale of the property to satisfy the lien.

Subrogation

North Carolina law also allows subcontractors and suppliers to subrogate to the lien rights of the contractor to the extent the contractor is owed money from the owner. To assert a subrogated lien on real property, subcontractors and suppliers must comply with the filing requirements for a Claim of Lien on Real Property and also serve a Notice of Claim of Lien Upon Funds. The Notice of Claim of Lien Upon Funds must include the lien claimant’s name and address, a property description, the names and addresses of all people in the chain of contract, a description of the contract, and the amount claimed. The Notice of Claim of Lien Upon Funds must be served on all parties in the contract chain.

Our Construction Law Team Can Help

Payment issues can severely affect a contractor’s financial stability and project workflow. However, North Carolina law provides contractors with several tools, including construction liens, to secure and enforce their right to payment. Proper documentation and understanding of the timeline and procedural requirements are crucial for successfully navigating through these issues.

The team at Anderson Jones has been helping contractors with these issues and more for over 20 years. Contact us today to request a consultation and take the next step.