Exploring Recent Changes to Tennessee’s Construction Lien Law

Tennessee has long recognized lien claims to secure payment for contractors, subcontractors, or suppliers who are owed money in connection with improving real property. The mechanic's and materialmen's lien law, codified at Title 66, Section 11 of the Tennessee Code, was significantly revised effective May 18, 2007.

The modifications clarified and simplified the procedure required to obtain and enforce a mechanic's lien. More importantly, the lien law is no longer strictly construed; rather, lien claimants need only substantially comply with the law to preserve their rights. The result? Increased probability of full and timely payment for those involved in the construction business, and expanded exposure to claims for property owners improving their real estate. This article provides an overview of the process for asserting and enforcing a lien under Tennessee's revised lien law.

I. Bifurcated Paths for Asserting Lien Rights

Virtually all mechanic's and materialmen's liens automatically attach at the time of visible commencement of improvements to the real property.¹  However, the steps which must be taken to perfect, and the timeline to enforce, lien rights under the new law depend upon one distinction: What is the relationship between the party seeking payment and the property owner? If a person or entity has a contract directly with the owner, it is a "prime contractor." ²  Any other person or entity involved in the improvement of the owner's property is a "remote contractor."³  After this fundamental determination is made, one can set about asserting a mechanic's lien.

II. Asserting a Prime Lien

Prime contractors are in direct privity with property owners and enjoy a streamlined lien preservation process. A prime contractor's lien arises at the time of visible commencement of the improvement and continues for one year after the date the improvement is completed or abandoned.⁴  Any lawsuit by a prime contractor to enforce its lien must be filed during this one year period.⁵  If a lawsuit is timely filed, the lien continues until the final decision in the lawsuit.⁶ 

A prime contractor does not have to serve or record any notice to preserve its lien rights against the property owner since the owner is aware of the contract and the work being performed.⁷  However, for purposes of preserving the priority of its lien in relation to subsequent purchasers or lienholders, a prime contractor must record a Notice of Lien with the Register of Deeds of the county where the real property lies no later than ninety days after completion or abandonment of the improvement.⁸

III. Asserting a Remote Lien

The procedure for a remote contractor to perfect its lien rights is more demanding than that for a prime contractor. First, a remote contractor must consider whether the subject property is commercial or residential. "Residential real property" is defined as a dwelling unit which serves as the owner's principal place of residence, including improvements to the parcel of property where the residence is located.⁹  While a prime contractor may obtain a lien against residential property where the owner intends to reside, a remote contractor generally may not.¹⁰  

Second, a remote lien claimant must send a Notice of Nonpayment to the owner and prime contractor within ninety days of the last day of each month within which services or materials were provided, but for which the remote contractor has not been paid.¹¹  If it does not send the Notice of Nonpayment within ninety days of the applicable month, the remote contractor loses its lien for that month.¹²  Thus, if a remote contractor's work on a project spans more than a few months, it may need to send multiple Notices of Nonpayment to preserve its rights.

The lien law sets forth specific information which must be included in the Notice of Nonpayment, including: (1) the name of the remote contractor and an address where it may receive communications; (2) a general description of the labor or materials provided; (3) the amount owed; (4) a statement of the last date the claimant performed work or provided materials; and (5) a description which identifies the property against which the lien may be claimed.¹³ The lien statute now contains a form Notice of Nonpayment.¹⁴

Service of the Notice of Nonpayment (and any other notice or document served in connection with the new lien law) may be accomplished by any of the following specified means: (1) registered or certified mail, return receipt requested; (2) hand delivery, evidenced by a properly notarized sworn statement confirming delivery; or (3) any other commercial delivery service that provides written confirmation of delivery.¹⁵ The new law creates a rebuttable presumption of completed service if one of these means of service is utilized.¹⁶

Third, the remote lien claimant must serve a written Notice of Lien on the property owner within ninety days of completion or abandonment of the improvement.¹⁷ The lien statute now contains a form Notice of Lien.¹⁸ Though overall, the Legislature accomplished a simplification of the lien process, Section 112 and its corresponding form Notice of Lien raise new questions. The language of Section 112 requires that a Notice of Lien consist only of a sworn statement of the lien amount and a reasonably certain description of the real property upon which the lien is claimed. However, the form Notice of Lien goes further, including, among other things, the lien claimant's and owner's names, the first and last day upon which services were performed or materials were provided by the lienor, and the party owing money to the lienor.¹⁹ Until the courts flesh out the requirements for a Notice of Lien in light of the conflicting statutory and form language, prudent practitioners should include all of the information reflected in the form Notice of Lien.

Fourth, in order to preserve its lien priority in relation to subsequent purchasers or lienholders, a remote contractor is required to record its Notice of Lien with the Register of Deeds of the county where the real property lies no later than ninety days after completion or abandonment of the improvement.²⁰ The new law eliminates the confusing "gap period" created by the old law.²¹ Now the law is simplified to provide one deadline for remote contractors to serve and record a Notice of Lien.

IV. Enforcement of Liens

The process for enforcing a mechanic's lien is the same whether it is a prime or remote lien, but the applicable time frames for doing so are different. To enforce a lien, both prime and remote lienors must file an action seeking the issuance of a writ of attachment against the subject real property.²² The complaint or civil warrant must be filed under oath, must set forth the sum claimed, the facts, and a description of the subject real property, and must be served on the owner.²³ A prime contractor must file the action within one year after the date that the improvement is completed or abandoned.²⁴ A remote contractor must file the action within ninety days of the service of its Notice of Lien.²⁵ In its discretion, the remote contractor also may serve the complaint or civil warrant upon the prime contractor or an intervening remote contractor with whom the remote contractor at issue is in direct privity.²⁶

Under the old law, lienors were required to obtain the issuance of the writ of attachment before the expiration of the statutorily prescribed period. With the new law, the enforcement action need only be filed within the statutorily prescribed period.²⁷ Even if the writ is not issued or served within the time for filing suit, the lien now is preserved until a final decision is rendered in the suit.²⁸ Under the new law, the clerk of court shall require the plaintiff, whether a prime or remote lienor, to execute an attachment bond before issuing the attachment.²⁹ The bond must be executed with sufficient surety and be payable to defendant in the amount of $1,000 or the amount of the lien claimed, whichever is less.³⁰  The defendant may seek an increase in the amount of the bond for good cause.³¹

After satisfaction of its lien, a lienor is required to release its lien within thirty days after service of written notice demanding release.³² If the lienor fails to do so, it will be liable to the owner for all resulting damages and costs, including reasonable attorneys' fees.³³

V. Conclusion

The extensive revisions to Tennessee's mechanic's and materialmen's liens largely accomplished the Legislature's goal of clarifying and simplifying the lien process. However, a lien claimant should consult with counsel to ensure that the necessary steps are taken to preserve, perfect and enforce its lien in accordance with what remains a complex statutory scheme.

¹Tenn. Code Ann. § 66-11-102 (2007). There is an exception for owner-occupants of one-family or two-family detached unit homes, and property improved at the direction of a lessee who is not the owner's agent. Id.

²Id. at § 101(12).

³Id. at § 101(14).

⁴Id. at §§ 102 and 106.

⁵Id. at § 106.

⁶Id.

⁷See, Id. at § 112.

⁸Id.

⁹Id. at § 146(a)(1).

¹⁰Id. at § 146(a)(2). An exception exists where the owner of residential real property and the prime contractor are the same person. Id. at 146(b)(2). 11 Id. at §§ 115(a)(1) and 145(a).

¹¹Id. at § 145(b). However, the remote lienor still has a claim for any retainage. Id.

¹²Id. at § 145(a)(1)-(5).

¹³Id. at § 145(d). In addition to the items specifically required by the language of the statute, the form Notice of Nonpayment includes a description of the project. Id.

¹⁴Id. at § 149(c).

¹⁵Id. at § 149(d).

¹⁶Id. §§ 115(a)(2) and 112(a).

¹⁷Id. at § 112(d).

¹⁸Id.

¹⁹Id. at § 112.

²⁰Previously, a lien claimant was required to record its Notice of Lien within either ninety days after the lienor's contract expired or was terminated or ninety days after completion of the entire improvement. In effect, that process often resulted in a gap period beginning ninety-one days after the lienor completed its work on the project (or its contract otherwise expired), until the completion of the improvement as a whole. If the lien claimant recorded its Notice of Lien during the gap period, it had not properly preserved the priority of its lien.

²¹Id. at § 126.

²²Id.

²³Id. at § 106.

²⁴Id. at § 115(b).

²⁵Id. at § 126(2). If the remote contractor does not do so, the owner may later include those parties via third-party complaint or cross-claim. Id.

²⁶Id. at § 126(3).

²⁷Id. at §§ 106 and 115(b).

²⁸Id. at § 126(4).

²⁹Id.

³⁰Id.

³¹Id. at § 135(a).

³²Id.