Two of the most basic premises of a construction contract are that the contractor expects to be paid, and the property owner expects to own the work after payment is complete. Therefore, pre-liens are an important tool for protecting contractors and property owners. Executed properly, pre-liens ensure owners are made aware of any contractor working on their property, and they give contractors and sub-contractors means to assure payment for their services.
Protection for Property Owners
Real estate improvement projects, both commercial and residential, can involve a surprising number of contractors and paperwork. You may have one general contractor that hires sub-contractors that, in turn, hire their own sub-contractors. When payment is made, the property owner must be able to trust that each company will be paid as agreed. One way this is assured is through the pre-lien process.
Within a prescribed amount of time after any agreement, the property owner must be notified of any contractors, subcontractors and material suppliers working on their property. This way, the person writing the check can keep records to make sure each contractor is paid their portion of the contracted price. If they pay an invoice received directly from a sub-contractor, that amount may be deducted from the balance paid to the general contractor. In turn, as each contractor is paid, most states require the contractor to sign a lien release.
Protection for Contractors
Paperwork is, for many contractors, a necessary hardship. It can be easy, especially for small businesses, to fall behind in paperwork such as invoicing and issuing pre-liens. It is especially important to issue pre-liens as required by law. As with any company, the amount owed to your company for completed work is considered an asset, and it may help to remember the old mantra: C.Y.A. – Cover Your Assets. Establishing a process to ensure pre-liens are submitted promptly can aid your cash flow and help reduce costly legal battles. If you are unsure of pre-lien requirements, detailed information regarding liens can be found with the county recorder where the work was performed.
For property owners needing a contractor in the construction field and contractors interested in learning more, visit the Contractor’s Association of Minnesota online for contractors in your area and other resources related to construction in Minnesota.