We have previously written about how changes to Texas lien law may be on the horizon and how construction groups have lobbied for changes to Texas lien law. Well, it looks like some of those changes may be might be in the works. Earlier this month, House Bill 3065 and Senate Bill 1506 were introduced in the Lone Star State.. The bills are identical, and would go into effect in May of 2018 if passed. This week, we will discuss the litany of changes that would occur under these proposed changes to Texas lien law. Because there are so many proposed changes to Texas lien law, we had to break them up into sections: The Basics; Lien Website and Filing a Lien; Notices; Liability and Priority; Waiver, Foreclosure, and Bonding Off a Lien; and finally Repealed Revisions and Recap.
Let’s start with The Basics.
This series will largely discuss the ways in which lien law will change. For more background on the current state of Texas lien laws, check out our Texas Construction Payment Resources.
The Basics
Definitions (53.001)
Under the proposed law, an “improvement” would now be defined as “a house, building, or other improvement to the real property of an owner.” This does not signify a great change in and of itself, but the statute added the following to go along with the current examples of improvements:
- improvements constructed adjacent to the real property under an original contract with the owner
- levees or embankments erected for the reclamation of overflow land along a river or creek;
- railroads.
An “owner” would now include any “person who owns any interest in real property or an authorized agent, trustee, or receiver of the person.” The statute would also define a reputed owner. This would refer to a person who is either identified as an owner in a notice of commencement or in an original contract for approval, or a person generally considered or reputed to be the owner of the real property being improved.
Lastly, “work” is clarified under the bill as including “any part of labor done, material furnished, or materials specially fabricated for the construction or repair of an improvement performed under the original contract.” Considering the recent struggles defining labor in Pennsylvania and under the Miller Act, a more specific definition may be in order.
While there were other changes to the Definitions section, these were the most consequential. Other changes were either small or will be encompassed in the other sections and posts.
Notices (53.003)
There will be a whole post on new and amended notice requirements, but here are some basic changes under the Notices section:
The general term “notice” includes any written communication required by this statute. The statute clarifies when a notice becomes effective, stating that “The effective date of the notice is the date the notice is deposited in the United States mail.”
The state would provide that a notice to an owner may be filed on the lien website (more on this tomorrow) if done according to protocol. Notice to an owner could be sent by filing with the lien website. Owners would also be able to send notice electronically by filing with the website or by email.
The statute also clears up when delivery of a notice is effective. Under this bill, the effective date of the notice is the date that it is sent to the lien website or when the email is sent. An email is considered “delivered” once it is sent (as long as the recipient is correct).
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Computation of Time (53.004)
When the last date of any required time period falls on a Saturday, Sunday, or legal holiday, the time period is extended to include the next day that is not a Saturday, Sunday, or legal holiday.
Persons Entitled to Lien (53.021)
I’ll let the statute do the work on this one…
“A person has a lien if: (1) the person labors, specially fabricates material, or furnishes labor or materials for construction or repair in this state of an improvement; and (2) the person labors, specially fabricates material, or furnishes labor or materials under or arising out of an express contract or contract implied by law between the person and the owner or the owner’s agent, trustee, receiver, contractor, or subcontractor.”
Currently, Texas lien laws are silent as to contracts implied by law.
Property to Which Lien Extends (53.022)
This section would be amended to add that “The lien extends to the interest of the owner or the owner’s successor in interest to the real property…” This alteration accounts for instances where the owner who initiated work may not be the sole owner of a property and declares that only the interest of the owner who initiated work may be liened. The lien exists even if that ownership now belongs to some successor.
The statute would also call for a limitation on lien rights in the event that work was done on property that is not owned by the person who initiated work. When a project is initiated by a person who does not actually own the underlying property, but instead owns adjacent real property, the lien rights attach to the adjacent real property that is actually owned by the person who initiated work. So if someone accidentally (or purposefully) initiates work on adjacent property, only the property actually owned by the initiator will be subject to a lien.
For work performed on the common elements of a condominium, a lien would extend to each unit owning an interest in the common elements being approved. The lien would be apportioned based on the relative ownership interest of each unit in the common element that is improved, so long as: (1) the inception of the lien is after the declaration establishing the condominiums was recorded; and (2) the work was done pursuant to a contract with either the council of owners, the condominium owners’ association, or all of the owners of the units that own an interest in the common elements being improved.
Limitation on Subcontractor’s Lien (53.024)
The amount for which a subcontractor is entitled to a mechanics lien now includes change orders and possibly delays. Specifically, the statute states that the amount includes “all additional amounts to which the subcontractor is entitled as an adjustment to the subcontract.”
Takeaway
These are just some basic alterations under the proposed changes to Texas lien law. Be on the lookout for the next post in this series regarding a proposed Texas lien website. Other posts to follow include: Filing a Lien, Notices, Priority, as well as Waiver, Foreclosure, and Bonding Off a Lien.
We regularly put out content regarding Texas lien law, so head over to the Texas tag on the blog for more on the Lone Star State.
