The Dotted Line: New Texas lien laws streamline process, but hurdles remain

This feature is a part of “The Dotted Line” series, which takes an in-depth look at the complex legal landscape of the construction industry. To view the entire series, click here.

A recent lien law change in Texas makes a complex process easier and brings it closer to those in other jurisdictions, but local bottlenecks still loom, according to industry sources.

“I think the legislature was trying to simplify things as much as possible,” said Alex Benarroche, a construction lawyer at Levelset, a New Orleans-based provider of construction payment and compliance technologies. “It definitely aligns more now with the general requirements in most other states.”

Alex Benarroche

Permission granted by Levelset

 

The issue of payments in the construction industry has gained widespread attention recently. Expansion of lien entitlements in Texas is just the latest of recent changes across the country to ensure subcontractors get paid, such as the wage theft law in New York, “pay if paid” clauses in Virginia, and cash flow issues for small and minority owned construction businesses.

A lien is a legal claim against an asset, such as property, that is used to satisfy a debt. In Texas, the new changes mean owners now need to make sure that all lower tier design professionals are paid for the project, or else they may face a lien. That’s significant, because lenders often require an asset to be free of liens before releasing new funds for a project, even one that’s ongoing.

The new laws now allow subcontractors to file liens, and expanded the list of workers who can put a “cloud on the title” of a property, complicating any future sale or ultimately forcing a sale of the property, to cover payment for their services, according to David Vanderhider, a member at Dykema, a Detroit-based law firm.

David Vanderhider

Permission granted by Dykema

 

“This particular expansion really affects architects, engineers, surveyors, landscapers and demolition contractors the most,” said Vanderhider. “Before this new law, for example, architects did have lien rights but only if they contract it directly with owners. Now as a result of the new law, those five that I mentioned, starting with architects, now have lien rights even though you’re not interacting directly with the owner.”

Not just Texas

Extending lien rights to all tiers of subcontractors is a broader trend beyond Texas, said Benarroche. For example, Ohio in 2021, Michigan in 2018 and Massachusetts in 2011 all strengthened how design professionals are protected on projects. 

New York has similar lien laws, said construction law attorney Randy Heller, a partner at New York-based Gallet Dreyer & Berkey.

“Before the owner pays his architect in full, he needs to get proof that the architect has paid all sub consultants,” said Heller. “It’s just more people out there that the owner has to be concerned about before he pays off his final retainage to the contractor.”

Randy Heller

Permission granted by Gallet Dreyer & Berkey

 

Texas was notorious for its byzantine notice requirements, procedures and deadlines associated with liens, said Benarroche. But that has changed.

Eliminating notarization provides more leeway on getting liens filed, said Vanderhider. But he also noted county-level rules still present a challenge.

“Anecdotally, many counties in Texas, which is where the lien is recorded, require notarized instruments before they will file a lien,” said Vanderhider. “So there could be an issue of a particular county not wanting to file or record the lien” without notarization, he said.

Constitutional vs. statutory liens

Nevertheless, there remain certain lien laws unique to the Texas Constitution. For example, the state allows for both constitutional construction liens and statutory liens which have different procedures

Constitutional liens are granted by the Texas Constitution for general contractors on private construction projects. These are self-executing, meaning notices and lien filings are not required for a contractor to make a claim, although there are additional protections if they are filed, said Benarroche. 

Statutory liens, on the other hand, fall under the more common type of mechanics liens granted by statute to general contractors, subcontractors and suppliers. Claimants must meet all of the statutory notice and filings requirements to file a valid claim.

The recent changes in Texas only apply to statutory lien laws. It remains unclear whether any changes to the statutory lien laws will affect constitutional lien rights, said Vanderhider.

“For now, we’re operating as if the changes to the statutory lien did not affect the constitutional lien unless and until we’re told otherwise,” said Vanderhider. “I certainly haven’t seen anything in the statute.”

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