Don’t Forget to Send a Notice to Owner in Minnesota

 A delayed downtown Minneapolis construction project has seen its share of complications. As with many companies, construction projects and other business ventures, the COVID-19 pandemic has thrust its ugly head into the world, impacting billions of people. The Dayton's Project in downtown Minneapolis has a delayed opening due to COVID-19, and now the site is facing a mechanic's lien.

Pinnacle Drywall System Inc. filed a lien in mid-September for more than $270,000 worth of unpaid work, states the Minneapolis/St. Paul Business Journal. "This is an established practice in the industry and is well within the scope of expected business processes," said a spokesperson for The Dayton's Project in an email to the Business Journal. "The subcontractor has been paid, resulting in a short duration for this lien, which we anticipate for any other liens that arise as we finish delivering this 1.2 million-square-foot masterpiece." However, the article reports the county database does not show the lien being satisfied.

There are a number of speed bumps in Minnesota in regard to the preliminary notice to owner on private projects. "One of the principal hiccups is the lack of early attention to the Notice to Owner requirements in the many states which have them," said James Sander, Esq., with Larkin Hoffman Daly & Lindgren Ltd.

Contractors with a direct contract with the owner of the real property must provide notice, or they will lose lien rights, according to Minnesota's statutes. If there's no written contract, then the contractor has 10 days after work is agreed upon to provide the notice to the owner. Subcontractors have up to 45 days after first furnishing to provide the written notice. Material suppliers can request the name and address of the owner, and it must be provided within 10 days of the request. Failing to do so will hold the party liable for damages and expenses along with attorney fees and costs. There are other situations where the notice is not required, such as if the improvement provides or adds more than 5,000 total usable square feet or the existing property contains more than 5,000 total usable square feet.

"Many subcontractors and suppliers doing business in Minnesota still do not collect enough job information or realize that they can lose their lien rights within the first 45 days on commercial work under 5,000 square feet," noted Sander. "There are many projects like tenant build outs and convenience stores or fast food locations that might come in under 5,000 square feet and require the Notice for a lien to be valid."

According to John Fatino, Esq., with Whitfield & Eddy, PLC, "Credit professionals should be prepared to not only file the lien but be prepared to go all the way to the district court." Since Minnesota is a pre-lien state, those preliminary time frames are so important. "You need to mark these times to be first in line and to not miss the deadlines," he added. "Do the pre-lien notice immediately; have a system in place for timelines."

The notice can be dressed up, within reason, to show that as a potential lien claimant, you are excited to work with Company X and can't wait to be the supplier on the project. "People are often reluctant to send the notice as many believe it sends a bad message against the customer's creditworthiness," which it does not since it's required by law, noted Fatino.

"Take advantage of the Notice to Owner requirement as a way of announcing involvement in the project," added Sander. "This is a way of giving the owner the 'heads up' to make sure that they collect the sender's lien waiver—which of course means payment."

Liens must be filed within 120 days of last furnishing, and a notice of the filing must be sent to the owner by certified mail, states NACM's Secured Transaction Services. Lien claimants can foreclose by bringing action in the district court of the county in which the improvement is situated within one year of last furnishing.

It's nearly always an economic decision to foreclose on the lien. The example Fatino gave was: it'll cost $7,000 to file but you're only out $5,000 in unpaid invoices—might not make sense. Another scenario is the reputation approach, where lien claimants will be tenacious as a matter of principle to let others in the industry know they are not to be taken advantage of in the process.

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Tuesday, 13 April 2021

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