Sending a preliminary notice protects everyone involved in a construction project.
With that in mind, we’ll cover what preliminary notices are, why they’re important, whether you’re required to send one and how to go about sending them.
What Is a Preliminary Notice?
A preliminary notice is a notification sent to the owner or general contractor for a construction project by another party involved in the project, such as a subcontractor or materials provider. The notice states that in the event of nonpayment the sender reserves the right to file a legal claim against the property, known as a mechanic’s lien.
Note that a preliminary notice may be called by other names, including:
- Notice of lien
- A notice of furnishing
- Notice to owner (NTO)
- Contractor’s notice to owner
- Subcontractor’s notice to owner
- Materialmen’s notice to owner
- Preliminary lien notice
- Pre lien
- Prelim
- 20-day preliminary notice
- 20-day notice
A preliminary notice doesn’t assert the recipient is late on payments and isn’t intended as a threat. It is sent as a standard operating procedure to advise construction project owners and general contractors how the terms of their contract will apply in the event of nonpayment. This is intended to promote communication, provide transparency, discourage late payments and avoid disputes. Should a payment issue arise, it can strengthen the sender’s ability to claim a lien and collect what they’re owed.
Preliminary Notice vs. Notice of Intent to Lien and Mechanic’s Lien
A preliminary notice is distinct from a couple of related types of notices which may be sent as a follow-up to a prelim in the event of payment delays:
- Notice of intent to lien (also known as a notice of intent or notice of nonpayment)
- Mechanic’s lien
Unlike a notice of intent or a mechanic’s lien, a preliminary notice is sent early in a project before any payments become due. Note that it doesn’t imply that the recipient is behind on payments and doesn’t indicate an impending intent to declare a lien. Rather, it simply gives notice of the right to file a mechanic’s lien in the event of nonpayment.
A notice of intent to lien is sent after payment has become overdue. It announces a deadline after which a mechanic’s lien will be invoked if payment isn’t made. The purpose of a notice of intent to lien is to give the recipient an opportunity to catch up on payments before an actual lien is claimed. Note that in some states, a notice of intent must be sent before a mechanic’s lien can be claimed.
If a notice of intent doesn’t generate a satisfactory response by the designated deadline, a mechanic’s lien is the next step in the escalation process. When a mechanic’s lien is filed, the party filing the lien, known as the lienholder, gains a security claim on the property, meaning that the property is now being claimed as collateral for the unpaid money the lienholder is owed.
This makes the property owner’s claim to the property title unclear, which may prevent them from selling or refinancing the property until they pay what they owe to regain clear title. Moreover, it can harm one’s credit score and make it more difficult to obtain a business loan.
What’s In a Preliminary Notice?
A preliminary notice typically provides some key pieces of information which serve to document the details of the work being provided and the amount owed:
- The sender’s company name and contact information
- The property owner’s name and contact information
- The general contractor’s name and contact information
- Lender name and contact information, if applicable
- Bond surety company, if applicable
- Property address and legal description
- Description of work or materials being provided
- Price estimate
Note that each state has its own precise requirements for which information should be included in a preliminary notice.
Why Should You Send a Preliminary Notice?
If you’re working on a construction project supplying labor or materials, a preliminary notice provides an important safeguard to ensure you get paid promptly.
To be sure, payment collection is a perennial problem in the construction industry. According to a survey by construction payment software provider Levelset. 52% of construction businesses typically get paid within 30 days of invoicing, while 16% wait 60 days or longer. In 54% of cases, the reason payments are late is because someone involved in the project is waiting on payment from the property owner.
Preliminary notices help you encourage prompt payments and avoid cash-flow problems. They help preempt late payments by communicating your professionalism and payment policy transparently to the recipient, letting them know that you’re serious about getting paid on time. These notices include a price estimate, which helps the other party plan their financing in order to pay you. Moreover, they let the other party know that nonpayment may have negative consequences for them, providing an incentive to pay on time.
In the event of late payment, preliminary notices lay the groundwork for you to claim a mechanic’s lien while making it easier to manage lien paperwork. In some states, you must send a preliminary notice in order to be able to claim a lien. Even when this isn’t the case, a prelim provides valuable documentation in the event of a billing issue.
Everyone on a Project Benefits from Preliminary Notices
Besides protecting the rights of labor and materials suppliers, preliminary notices help protect the rights of everyone involved in a construction project, starting with the property owner. A real estate owner doesn’t want to get stuck with a lien on their property because of a payment dispute between them and another party or between their general contractor and other parties.
In addition, a preliminary lien helps property owners see exactly who is owed money. This helps protect them from the risk of making double payments on the same items.
General contractors, subcontractors and suppliers benefit from preliminary notices as well because prelims help them get paid on time. The sooner payment matters get settled, the sooner construction teams can get paid and move on to the next paying project.
Am I Legally Required to Send a Preliminary Notice?
Whether you’re legally required to send a preliminary notice depends on what laws and regulations apply in your state.
Within states, requirements may vary for prime contractors, subcontractors and material suppliers. In some states, prelims are only required for some projects involving certain types of jobs or jobs valued above certain amounts. In other states, prelims are required only under certain conditions such as when a notice is requested or when specific paperwork is filed by a party on the project.
Here’s a summary of which states have preliminary notice requirements for primary contractors, subcontractors and materials suppliers. Note that this information is subject to change. Check with your state’s current requirements before beginning a project. Even if you aren’t legally required to send a preliminary notice, doing so can encourage timely payments and help you protect your rights if an issue arises, making this a best practice.
States With Preliminary Notice Requirements for Primary Contractors
- Alaska
- Arizona
- Arkansas
- California
- Florida
- Idaho (for some projects)
- Iowa (for some projects)
- Louisiana (for some projects)
- Minnesota
- Mississippi (under certain conditions)
- Missouri
- Montana
- New Hampshire (monthly notice required)
- North Carolina
- Oklahoma (for some projects)
- Oregon
- Rhode Island
- South Carolina
- South Dakota
- Tennessee
- Texas (for some projects and under certain conditions)
- Virginia (for some projects)
- Washington (for some projects)
- Wisconsin (for some projects)
- Wyoming
States With Preliminary Notice Requirements for Subcontractors
- Alabama (for some projects)
- Alaska
- Arizona
- Arkansas
- California
- Florida
- Georgia (under certain conditions)
- Illinois (for some projects)
- Indiana (for some projects)
- Iowa (for some projects)
- Kentucky
- Maryland
- Massachusetts (sub-subcontractors only)
- Michigan
- Minnesota
- Mississippi
- Missouri (written consent from property owner required prior to commencement of work)
- Montana
- Nevada
- New Hampshire (monthly notice required)
- New Mexico
- North Carolina
- Ohio
- Oklahoma (for some projects)
- Oregon
- South Carolina
- South Dakota
- Tennessee (monthly notice required)
- Texas (monthly notice required)
- Utah
- Virginia
- Washington
- Wisconsin
- Wyoming
States With Preliminary Notice Requirements for Materials Suppliers
- Alabama (for some projects)
- Alaska
- Arizona
- Arkansas
- California
- Florida
- Georgia (under certain conditions)
- Illinois (for some projects)
- Indiana (for some projects)
- Iowa (for some projects)
- Kentucky
- Louisiana (including monthly notice requirement)
- Maryland
- Massachusetts (sub-subcontractors only)
- Michigan
- Minnesota
- Mississippi
- Missouri (written consent from property owner required prior to commencement of work)
- Montana
- Nevada
- New Hampshire (not required but considered best practice)
- New Mexico
- North Carolina
- Ohio
- Oklahoma (for some projects)
- Oregon
- South Carolina
- South Dakota
- Tennessee (monthly notice required)
- Texas (monthly notice required)
- Utah
- Virginia
- Washington
- Wisconsin
- Wyoming
How Do You Send a Preliminary Notice?
To create a preliminary notice, you must include whatever information your state requires for prelims. This typically includes contact information for all parties involved, an address and legal description for the relevant property, a description of work or materials and a price estimate..
Note that your state will specify which parties you are required to provide the notice to. This may include the property owner, general contractor and lender in some instances. You may elect to send copies to everyone involved on the project for full transparency.
For documentation, keep a copy of your notice for yourself and send copies to other parties via certified mail with a return receipt requested, unless another method of delivery is specified by your state..
Pay Attention to Deadlines
Most states have deadlines for how soon you must send a preliminary notice to retain your right to claim a lien. The countdown for the deadline typically starts when you begin providing labor or materials. For instance, in some states such as California, you have 20 days after you begin providing labor or materials, which is why a prelim is sometimes called a 20-day notice. If you miss your deadline, you may lose your right to claim a lien or you may be limited in what you can claim a lien on.
Use Preliminary Notices To Reduce Risk of Nonpayment
A preliminary notice advises property owners or general contractors of your right to declare a mechanic’s lien in the event of nonpayment. It includes basic information about the parties involved in the construction project, the work or materials being provided and the estimated price.
The purpose of a preliminary notice is to discourage nonpayment and to protect your rights in the event a payment dispute arises. Moreover, it serves to protect other parties involved in a construction project. In some states, you are legally required to send a preliminary notice in order to claim a lien. But it’s a best practice even when not required.
You can use a template to create a preliminary notice or hire an attorney to create one. Be sure to send your notice by the deadline required by your state using the stipulated delivery method, keeping documentation for recordkeeping. So, follow these guidelines to help discourage late payments and protect your right to claim a lien should a payment issue arise.
