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A primer for contractors: Getting paid -- fact or fiction?

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As a contractor, getting paid for work completed isn't always as easy as collecting onsite or sending an invoice. Hellmuth & Johnson construction law attorney Blake Nelson answers fact or fiction when it comes to collections, interest and liens and Minnesota state law.

It is legal to charge 18% per annum (or 1.5% per month) interest to all customers on past due balances.

Fiction. When contracting with an individual (as opposed to an entity), the maximum interest that may be charged on past-due accounts is 8% per annum if you have a written contract.  Business to business contracts may call for a higher rate of interest. However, unless you have a contract with the property owner calling for higher amount, mechanic’s lien claims allow for a lower interest rate based on Minnesota state law, which is currently 4% per annum.

As subcontractor, if a project requires a pre-lien notice and I serve one within 45 days of my first date of work, my lien rights will always be protected.

Fiction. While in most cases this is true, the longer you wait to serve a pre-lien, the more you risk losing your lien rights. If the property owner pays the general contractor for your services before receiving your pre-lien notice, your lien rights are extinguished. It is always smart to send your pre-lien immediately after you begin work.

As a subcontractor, if I do not preserve my lien rights I can still sue the property owner if I am not paid.

Fiction. Unless your contract was directly with the property owner, your only recourse against the property or the property owner is a mechanic’s lien. If you do not preserve those lien rights, you may then only pursue the party that hired you.

Engineers, land surveyors and architects may enforce mechanic’s liens for non-payment.

Fact. Engineers and land surveyors gained the protection of mechanic’s liens through statutory amendments in 1973 and 1974. Architects may enforce mechanic’s liens if their contributions ultimately play some role in the improvements to the real estate in question. The fact that an architect’s contribution is not actually visible on site does not defeat its lien.

If I do not have any lien rights there is no way to collect my money.

Fiction. While a mechanic’s lien is a great collection tool, it is not the exclusive remedy. You may sue the entity that hired you for breach of contract, regardless of any lien rights. 

Not all types of work are lienable.

Fact. Minnesota law requires that the work actually constitute an improvement to the real estate and not simply ordinary repairs. An “improvement” is defined as “a permanent addition or betterment of real property that enhances its capital value and that involves the expenditure of labor or money and is designed to make the property more useful or valuable, as distinguished from ordinary repairs.” In other words, installing a new HVAC system is lienable, but simply repairing an existing system might not be.

Blake R. Nelson chairs Hellmuth & Johnson's Construction Law Group. He can be reached at bnelson@hjlawfirm.com or 952-746-2131.