If a subcontractor or supplier on a Louisiana construction project is not paid in full, it can file a lien against the owner’s property and sue the owner for payment even though it did not contract with the owner and even if the owner has fully paid the general contractor. This can occur on any project involving any physical change to real property in Louisiana. See La. Rev. Stat. § 9:4808(A).
The owner can avoid the foregoing if, before any work begins, it: 1) obtains a Payment Bond that complies with statutory requirements; and 2) files the Payment Bond attached to a Notice of Contract in the mortgage records of the Parish where the Facility is located. La. Rev. Stat. § 9:4802(C).
The Payment Bond must guarantee the payment of all amounts owed by the general contractor from a solvent, legal surety. La. Rev. Stat. § 9:4812(A),(C). The required amount of the bond varies depending on the price to be paid to the general contractor (100% of the price for projects under $10,000.00 to 25% of the price for projects in excess of $1,000,000.00 but no less than $333,333.00). La. Rev. Stat. § 9:4812(B). The Payment Bond must be attached to the Notice of Contract when it is filed. La. Rev. Stat. § 9:4812(A).
The Notice of Contract must be signed by the owner and the general contractor and it must state:
- The legal property description of the property upon which the work is to be performed and the name of the project;
- The identity of the parties and their mailing addresses;
- The price of the work or, if the price is not fixed, an estimated price and the method by which the price will be calculated;
- The date when payment of the price will be made; and
- A general description of the work.
La. Rev. Stat. § 9:4811(A). The Notice of Contract cannot simply identify the Property’s mailing address; it must identify the Property by a full “legal property description,” which, typically, can be obtained from the deed. See La. Rev. Stat. § 9:4831(C).
If a Notice of Contract has not been filed, subcontractors and suppliers have a sixty-day period to file a lien, which begins running on the date of substantial completion, the owner’s abandonment of the work, or the filing of a Notice of Termination. La. Rev. Stat. § 9:4822(C).
Even if a Notice of Contract has not been filed, the risk of liability to subcontractors and suppliers can still be reduced by filing a statutory notice referred to as a “Notice of Termination” because this filing will fix the end date for filing a lien. If the owner neglects to file a Notice of Termination, it can still argue that the lien was filed outside the sixty-day deadline, but it can be very difficult and costly to prove without a Notice of Termination.
The Notice of Termination may be filed when the Project reaches substantial completion, when the owner abandons the Project, or when the general contractor has defaulted under the terms of its contract with the owner. La. Rev. Stat. § 9:4822(E). The Notice of Termination must be signed by the owner and must:
- “Reasonably identify” the property and the work performed;[1] and
- Certify that the work has been substantially completed, or abandoned by the owner, or the contractor is in default under the terms of the contract.
La. Rev. Stat. § 9:4822(E).
If a Notice of Contract is filed, it is critical that the owner also file a Notice of Termination upon substantial completion. Otherwise, the general contractor’s period for filing a lien will be extended indefinitely. (Suppliers and subcontractors, however, have no lien rights where a proper Notice of Contract is timely filed regardless whether the Notice of Termination is filed or not.)
Shannon Holtzman has more than 25 years experience in commercial litigation and appellate matters, including the representation of facility owners in construction-related disputes. She regularly advises clients with respect to construction contract issues, risk management, compliance with the Louisiana Private Works Act, and pre-litigation dispute resolution.
[1] If a Notice of Contract has been filed, the Owner can satisfy this first requirement by referencing the Notice of Contract and the names of the parties to the Contract. La. Rev. Stat. § 9:4822(E)(1).
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