Practical Guidance for Protecting Your Right to Payment in Times of Uncertainty
As the construction industry, along with everyone else in the commercial sector, continues to grapple with the rapid spread of the novel coronavirus (“COVID-19”) throughout the United States, immediate concerns involve delayed performance, unavailability of materials and labor, and government-ordered shutdowns. Looking ahead, however, construction contractors, subcontractors, and suppliers should also pay close attention to the potential for payment disruption that could arise as a result of negative impacts to construction projects across the country.
One of the most valuable tools in the belts of downstream providers in the construction industry is the right to assert a Mechanic’s and Materialmen’s lien against real property improved by virtue of labor or materials provided. However, that right is governed by statutes that impose strict requirements upon claimants in order assert a valid lien claim. Those requirements include time-sensitive notices and strict filing deadlines, so industry professionals must remain vigilant in the best of times to ensure their rights are protected. In a time of local, statewide, and national crisis, heightened vigilance is necessary.
II. Meeting Deadlines in the Wake of COVID-19
As of March 24, 2020, twelve Texas counties have issued shelter-in-place orders for protection of Texas citizens during the COVID-19 outbreak. The majority of businesses are ordered to close, and Texas courthouses have shuttered their doors, maintaining only the minimal staff necessary to supply basic court functions. Essential businesses are excepted from application of the various shelter-in-place orders, but the definition of “essential business” varies from jurisdiction to jurisdiction. Looking ahead, it is not inconceivable access to critical facilities will become increasingly difficult, if not barred altogether. In that environment, complying with timing requirements to perfect lien rights may require alternative measures.
a. Sending Timely Notice
For subcontractors on Texas projects, perfecting a lien claim requires sending timely monthly notices for unpaid work. The content of those notices is dictated by the lien statute, and the deadlines to put the notices in the mail are explicit and strictly enforced. Contractors also have notice requirements to observe—specifically, the obligation to notify owners once a lien has been filed. Issues often arise with proving exactly when notice was actually mailed, so the accepted (and recommended) practice is to send all notices via certified mail, return receipt requested. In fact, Chapter 53 of the Texas Property Code (the statute governing mechanic’s liens on private construction projects) expressly requires certified mail delivery in multiple sections. The question then arises: What to do if certified mail is unavailable (e.g., closure of the post office or, more likely, inability to access the post office due to quarantine measures)?
Fortunately, Chapter 53 of the Texas Property Code also provides a) delivery in person is always acceptable, and b) the manner of delivery is immaterial as long as the person entitled to receive the notice actually receives it. In-person delivery is probably unreasonable given the social distancing measures currently in effect, but the carve-out for actual receipt is a viable alternative if certified mail is not an option. Our recommendation: First, attempt to send all notices by certified mail, if possible. When sent by certified mail, proof of receipt by the recipient is not required, and the certified mail receipt establishes proof of the date of mailing. If certified mail is not possible, send by regular mail and document the date and time the notice was sent. That documentation could be anything from a logbook kept in the regular course of business to a verified affidavit signed by the person who mailed the notice. Lastly, consider
“doubling up” notices and sending any notices contemporaneously by email delivery, requesting a read receipt (and by fax if you have a fax number). Some obligations of the owner (e.g. fund trapping) are only triggered if the owner actually receives notice—even if the notice was sent via certified mail. While email and fax delivery will not guarantee compliance with notice requirements, they may result in faster notification and will undoubtedly be valuable as additional evidence when a stamped receipt from the post office is unavailable.
Also, keep in mind the business entitled to receive notice may have multiple addresses. Research the corporate structure and avenues of contact via the company’s website, the “contact” section of the prime contract, the Secretary of State website, or even social media sites like Facebook. Sending to multiple addresses increases your odds of receipt by an authorized representative, which would meet the minimum requirement of actual receipt.
b. Timely Filing of Lien Affidavits
All claimants seeking to assert a lien claim against real property also have filing deadlines dictated by statute and, like the statutory notice requirements, those deadlines are strictly enforced. Whereas some aspects of compliance with the statute may be forgiven if you can prove “substantial compliance” with the requirements, filing and notice deadlines offer no leeway. Texas courts have consistently held it is not possible to substantially comply with a statutory deadline—you either make the deadline, or you don’t. Absent official action by the Texas Supreme Court to extend deadlines (more on that below), that fact will not change. Thus, regardless of any impediments, you must timely meet all filing deadlines for your lien claim to be enforceable.
If your local court clerk’s office is closed or inaccessible to the public due to heightened COVID-19 protection measures, all is not necessarily lost. In 2014, Texas implemented a mandatory electronic filing system (“e-file”) statewide that is now available in all of Texas’s most populous counties. Some smaller or remote counties still lack e-filing capability, but in counties where e-file is available, lien affidavits can be readily filed online without the need to visit the courthouse (or even go outside). As a general rule, e-filed documents are deemed filed when transmitted to the filing party’s electronic filing service provider, though there are exceptions for documents filed on weekends or holidays. Like many other kinds of filings, weekends and holidays do not extend deadlines for lien claims, so if your deadline falls on such a day, it is important to file earlier to meet the deadline.
With the uncertainty surrounding what new obstacles may present themselves over the coming weeks or months, early and advance action should be treated as a universal norm with respect to preservation and pursuit of lien claims—do not wait until the last minute to get a lien affidavit on file or send a lien notice. Although e-filed documents are treated as filed as of the date of transmittal, it is possible some county clerk’s offices will shut down entirely at some point, leaving electronically transmitted affidavits floating in the ether waiting to record. You may not face a technical timeliness issue in that event (provided you have good documentation of the transmittal), but an unrecorded lien does nothing to protect your rights against third parties or prompt payment from the project owner.
Also, do not wait to determine what steps will be necessary when it comes time to file your lien claim. For projects currently underway, identify the respective counties where the work is being performed to determine whether that county clerk’s office is currently open and whether that county has e-filing capability. If not, filings will almost certainly need to be submitted by mail, since the majority of courts are closed to the public as of this writing, and thus additional information must be obtained. What is the appropriate mailing address for the county clerk? What are the filing fees required to file a lien claim? Does the county require any additional documentation in order to file a lien?
You may also need some extra time to gather all of the information you need to populate the lien affidavit itself. Some types of lien claims (e.g., mineral liens) require an itemized statement of account be included with the filed affidavit. As more and more offices and businesses are forced to work remotely, documentation once available at a moment’s notice may now take extra time to track down. Identifying the appropriate description of the property may be another hurdle. Section 53.054 of the Texas Property Code requires only a description “legally sufficient” to identify the property, but common (and best) practice is to use a legal description that includes metes and bounds information. That kind of information will not be readily available without access to title companies to research real property records, and the days of causally ringing up a landman to investigate mineral property ownership are likely on hold for the time being. Do not let lack of a thorough legal description deter you from getting something on file, however. A formal legal description is not technically required, and descriptions similar to “the dry goods store on the corner of 5thand Atlantic Avenue” have been found sufficient in the past. The test imposed by courts is whether a reasonable person could accurately identify the property using the information provided.
As for actually getting your lien on file, if submitting a physical lien affidavit via standard mail, we strongly recommend use of certified mail with return receipt requested or, in the alternative, a commercial carrier such as FedEx or UPS that can provide tracking services for your package. You should contact the county clerk ahead of time to determine all documents that should be included, but at a minimum expect to send 1) an original, notarized affidavit of the lien claim, 2) a completed check for payment of the filing fee, and 3) a cover letter requesting immediate filing of the claim.
c. Is There a Possibility Deadlines Will Be Extended?
For the most part, we are currently navigating uncharted waters. People struggling to come to grips with how quickly and severely COVID-19 impacted our communities would be forgiven for wondering how fair-weather deadlines could possibly be enforced once the dust settles. After all, many court dockets have been postponed or entirely suspended for the foreseeable future, and the county court offices themselves have barred their doors. There is even relatively recent precedent for lien deadlines to be extended in the face of disaster. In 2008, the Texas Supreme Court issued an emergency order to extend deadlines for the filing of pleadings and other matters following widespread closure of government offices due to damage sustained from Hurricane Ike.
Whether a similar extension will be ordered in the present case is unknown, but it seems unlikely as long as courthouses remain accessible via alternate means such as e-filing (an amenity unavailable following Hurricane Ike). In fact, court announcements of certain litigation-related deadlines have expressly cautioned that all deadlines established by statute (e.g., lien deadlines) will remain in effect absent any further order.
Our present advice is to continue perfection and prosecution of claims timely and without delay. Where intervening circumstances prevent or complicate compliance with any statutory requirements, take whatever alternative measures you can and document all efforts thoroughly. Give prompt notice of any and all claims and keep records of all communications. Above all, if you have any questions or concerns, or if you need assistance with the preservation or prosecution of lien claims or claims for payment, please do not hesitate to contact our offices for assistance. We are closely monitoring the situation, adapting as necessary, and we stand ready to assist in any way.