On January 21, 2010, the Minnesota Supreme Court held that contractors and subcontractors must give pre-lien notice to preserve their mechanic’s lien rights in single-family residential developments.
A pre-lien notice is a written notice informing the owner that a lien may be filed against the owner’s property if payments are not made to the contractor or subcontractor. This notice must comply with the language specified in the mechanic’s lien law, which dictates the wording, the size and style of the font, and how the notice is delivered to the owner.
Minnesota’s mechanic’s lien law generally requires that contractors and subcontractors, to preserve and later enforce their lien rights, give pre-lien notice to owners. Those lien rights are lost when the contractor or subcontractor fails to give proper pre-lien notice. The law, however, excludes most commercial construction from this requirement. Where an exception in the statute applies, pre-lien notice is not required to preserve lien rights.
One of the exceptions to the pre-lien notice requirement is for a development of "more than four family units when the improvement is wholly residential in character." The common view has been that this exception applied to both multi-unit buildings and multi-lot residential developments. Most contractors, therefore, have not given pre-lien notice when grading the site, installing utilities or building roads in single-family residential developments.
To the surprise of most construction attorneys, this view was rejected by the Minnesota Supreme Court in its January 21, 2010, decision in S.M. Hentges & Sons, Inc. v. Mensing. In that case, two contractors on a large residential development both liened the owner’s property. One of the contractors, Hentges, had given pre-lien notice to the owners, while the other, SEH, did not. SEH argued that it wasn’t required to provide pre-lien notice for a single family residential development.
The Minnesota Supreme Court ruled that SEH lost its lien rights because it did not provide pre-lien notice to the owners. The court held that the "fourunit" exception only applies to multi-unit buildings and does not apply to single-family lots. In other words, a contractor does not need to give pre-lien notice when preparing to work on a project with four or more residential "units," such as apartments, townhouses or condominiums, but it does need to give notice when working on single-family residential developments. The court stated that the purpose of Minnesota’s pre-lien notice statute is to protect homeowners from liability to unknown lien claimants. The court stated that it will construe pre-lien notice requirements liberally to uphold protections for property owners.
Impact on Contractors and Subcontractors
Going forward, contractors and subcontractors who work on single-family developments must provide pre-lien notice to the owner to preserve their lien rights. It is important to keep in mind that the statutory notice requirements provided in Minn. Stat. § 514.011 are slightly different for contractors than they are for subcontractors.
Contractors must give pre-lien notice for all work on residential subdivisions unless the contractor is not going to sub out any of the work. If the contractor has a written contract with the owner, the notice must either be incorporated in or attached to the contract. If not incorporated or attached, the notice must be delivered to the owner within ten days after contracting for the work.
Subcontractors must give pre-lien notice. The notice must be delivered to the owner within 45 days after the subcontractor first furnishes labor, skill or materials.
Regardless of whether any possible exception might apply, a contractor’s or subcontractor’s lien rights will be protected if the statute is followed and proper pre-lien notice is provided to the owner.