If you are involved in the residential building industry, you know times are tough.
While I agree the slowdown in the residential building market is only in a temporary rough patch, survival requires advance thinking on how to best position yourself to get paid for your work, whether you are a general contractor, subcontractor, materials supplier or professional services provider.
Put everything in writing before you begin the project
Make sure you have a signed, written contract in place ahead of time to protect your interests, and provide the property owners advance written notice of your right to lien the property if you are not paid.
Written contracts have become an industry standard and define the parties’ expectations, rights and obligations. They include terms that determine how and when you will be paid, regardless of whether you are dealing directly with the owner or with another contractor.
Rest assured, the contract need not be littered with confusing legalese or overly complicated, hypertechnical jargon. In its most basic form, the written document needs to memorialize the parties’ agreement relating to the work performed and the payment expected.
Many contractors regrettably learn the hard way that conducting business by a handshake has no place in today’s volatile market.
Spell it out
Most construction attorneys would suggest a few specific clauses or terms be included in the contract, such as those clauses that define the scope of the work to be performed, the dollar amount of the contract and payment terms and the parties’ rights, obligations, and remedies in case of a dispute.
The contract should spell out in detail when and how you will be paid and include terms that allow you to recover your attorney fees if you are forced to file a lawsuit against the nonpaying party. You may also wish to consider adding a mandatory mediation clause that requires the nonpaying party to engage in formal settlement discussions and a binding arbitration clause that will allow you to pursue your legal claim for payment in a quicker, less-formal environment than a trial court.
Drafted properly, a written contract will fulfill its purpose of protecting the parties and help avoid misunderstandings that result in nonpayment and litigation.
Know your right to lien
Liens offer a powerful method of securing payment because they ultimately provide you with the right to foreclose on the project property and to collect what is owed from the sale of that property.
Lien rights are governed by statute, and depending on your status on the project (general contractor, subcontractor, supplier of professional, laborer, etc.), with whom you have dealt and the type of construction project, you may be required to provide the owner with advance written notice of your right to lien the property.
But even in those limited situations where you are not required to provide advance notice, it is highly advisable to do so in order to set the proper tone. Following completion of the work, it is critical that you record your lien and file suit in a timely manner so that you will not lose your lien rights. In Washington, you have 90 days from the date on which you last worked to record the lien, and eight months to file a foreclosure lawsuit.
Christopher M. Veley is a member of Jordan Schrader Ramis’s Dirt Law practice group. He is a member of the Washington and Oregon state bar associations and regularly advises clients in the areas of construction, real estate and business litigation. He can be reached at chris.veley@jordanschrader.com or 360-567-3904.
