*** UPDATE See Law Changes: http://www.kmdalegal.com/construction-law/law-changes-lien-waivers-and-retainage-notices/
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Did you know that if you are having any retainage withheld from your draws that you are required to send an additional Retainage Notice? This is generally ONE notice that gets sent out towards the beginning of the project that protects your rights to lien the retainage later down the line if the Owner or General Contractor fails to pay it.
Like the other Mechanic’s Lien laws, there are specific deadlines you must follow:
- First Tier-Notice to the Owner by the 15th day of the second month following FIRST MONTH of delivery / work
- Second and Below Tiers-Notice to the Owner and the General Contractor by the 15th day of the second month following FIRST MONTH of delivery / work.
It seems like lately, and in this declining economy, contractors are “writing off their retainage” more and more frequently. They are having a harder time getting paid the retainage amounts. If, you do not want to lose the right to your retainage (which, a lot of times, are quite large amounts), you have to follow the retainage statute. If you are having any retainage withheld and are not sending a Retainage Notice letter at the beginning of the project, as set forth above, you are not protecting your rights to this money!
A lot of people don’t understand this portion of the mechanic’s lien law. The best way I can explain it is that the “typical” mechanic’s lien notice letters are not practical for retainage funds that are withheld. Because most contractors submit multiple payment applications, instead of sending a notice letter every month (because you won’t get paid on the retainage until the completion of the job which is past all bond or lien deadlines), the code allows you to simply send one letter at the beginning of the project to cover all the monies withheld for retainage. Then, if for some reason you are not paid upon final completion, you can make a bond or mechanic’s lien claim for the retainage amounts AND you have already fulfilled your “notice letter” requirements pursuant to the Texas Property Code.
Without following these rules, you have basically given the GC your retainage. As a matter of fact, I know GCs in Lewisville that count on the fact that you aren’t going to get this right when you contract with them. This is how they are able to underbid city jobs time and time again. Does this sound familiar?