Mechanic's Lien Update

In the last legislative session, the Texas Legislature significantly amended Chapter 53 of the Texas Property Code, the statute governing mechanic's liens. 

This post summarizes some of the key changes affecting general contractors and subcontractors on commercial projects.  The amendments govern all construction projects where the prime contract (the contract between the owner and general contractor) is entered into on or after January 1, 2022. 

If the prime contract was entered into before this date (even though construction begins after the date), then the old version of the statute still applies.  Yes, that means we will be dealing with competing application of the old version of the statute versus the new version of the statute for years to come.  Fun!

Now to the updates—

1. Notice Requirements Updated

Second-tier subcontractors, meaning subcontractors that do not have a contract with an original contractor (most commonly the general contractor), no longer have abbreviated notice requirements to preserve lien rights.

• Prior Law: Second-tier subcontractors had two different notice requirements to preserve lien rights related to the nonpayment for labor and materials.  They had to send notice of nonpayment to the original contractor no later than the 15th day of the second month after providing labor and materials.  They then had to send an additional notice of nonpayment to the owner and original contractor no later than the 15th day of the third month after providing labor and materials. 
• New Law: The second month notice has been removed.  Now a second-tier contractor need only provide notice of nonpayment to the owner and original contractor no later than the 15th day of the third month after providing labor and materials.  Note if work continues after this notice is sent, additional notices for the updated amount due and owing could be required.  The three month time window applies for each month labor and materials were provided, not when the work was concluded. 
• Practical Impact: In effect, the updated law treats first-tier and second-tier contractors the same.  Lower-tier subcontractors no longer need to worry about shortened notice deadlines.

2. Calculation of Deadlines

The statute now removes previous ambiguity when a deadline falls on a weekend or legal holiday.  Under revised Section 53.003(e), if a deadline falls on a weekend or legal holiday, the deadline is moved to the next non-weekend day or legal holiday.

3. Notices By Certified Mail No Longer Required

The statute formerly required notices to be served via certified mail.  Under revised Section 53.003(b), service can now be accomplished by certified mail or "by any other form of traceable, private delivery or mailing service that can confirm proof of receipt."  In other words, you can now serve notices via FedEx, UPS, etc.  Mailrooms across the state rejoice!

4. No Direct Contract Required for Architects, Engineers and Surveyors

Under the old version of the law, architects, engineers and surveyors only had statutory lien rights if they had a direct contract with the owner of the property.  Under revised Section 53.021, this requirement has been removed.  Therefore, architects, engineers and surveyors that contract with a general contractor (or even subcontractor) now have statutory lien rights.

5. Changes to Statutory vs. Contractual Retainage

The revisions to Chapter 53 of the Texas Property Code update the language and requirements related to asserting a lien on retainage.

Under the old version of the statute, i.e., applying to all projects with a prime contract entered into before January 1, 2022, the concept is broken up into statutory retainage and contractual retainage.  Statutory retainage is the ten percent (10%) owners are required to hold back during the course of a project from payments to original contractors.  On the other hand, contractual retainage refers the retainage withheld from subcontractors as part of an agreement with an original contractor or higher-tiered subcontract, also often in the amount of ten percent (10%).

The new version of Chapter 53 applying to all projects with a prime contracted entered into on or after January 1, 2022, eliminates the term "statutory retainage."  Instead, this concept is replaced by the term "reserved funds."  The term "retainage" now only relates to what was formally considered "contractual retainage."

The new version of Chapter 53 also streamlines the deadline for subcontractors to file mechanic's liens as it relates to what was formally referred to as contractual retainage.  In the old version of Section 53.057, there were four potential different deadlines applicable to timely filing a lien.  The new version of Section 53.057 makes it clear that so long as a subcontractor timely provides notice of a contractual retainage claim (or now simply a retainage claim), the subcontractor has a perfected lien as to retainage, if the lien is recorded by the 15th day of the 3rd month after the original contract under which the subcontract was working was completed, terminated or abandoned. 

This is a new deadline given that it relates to the 15th day of the 3rd month; therefore, extra attention is warranted on this point.  The deadline only applies to a lien on retainage.  Other deadlines may apply to liens on funds trapped under Section 53.056. 

The deadline also only applies to subcontractors.  Original contractors may still record liens up to the 15th day of the 4th month after the original contract was completed, terminated or abandoned. 

6. New Required Notice Forms

The updated versions of Sections 53.056 (unpaid labor and materials) and 53.057 (contractual retainage) now require the use of statutory form notice letters specifically laid out in the text of the Property Code.

7. Shorter Statute of Limitations to Foreclose on a Lien

Under Section 53.158, the deadline to foreclose on a statutory mechanic's lien has been reduced from two (2) years to one (1) year after the last date a lien claimant could have filed a lien affidavit pursuant to Section 53.052.  Lien claimants will be required to be more diligent in judicially exercising their lien rights.  Note—this only applies to statutory liens. Original contractors can still arguably seek to enforce a constitutional mechanic's lien for up to four years.

8. Notarizations No Longer Required for Lien Waiver

Under the new version of Section 52.281(b), a lien waiver is no longer required to be notarized.  The signature of the claimant or authorized agent of the claimant is sufficient.  However, many owners (and general contractors) will likely require notarization as a safety mechanism to prevent later claims that a lien waiver was signed without the lien claimant's authorization.

9. Summary Motion Changes

Pursuant to Section 53.160, in a suit to foreclose on a lien or to declare a lien invalid or unenforceable, a party objecting to the validity or enforceability of the lien may file a motion to remove the lien claim on an expedited basis for certain specifically identified reasons.  The revised language requires that parties must be given notice of at least 30 days before the hearing date on the motion (notice of 21 days was previously required).  The revised statute also now expressly allows for expedited discovery as part of the summary motion proceeding.

10. Quick Reference Chart Regarding Deadlines

Click here to access the reference chart regarding the various notice and recording deadlines to perfect a mechanic's lien on a commercial project.  The chart references the relevant requirements both under the old and new versions of Chapter 53.