We all want to be paid timely for work performed. All too often though, tools to protect yourself from an owner who does not pay are overlooked.
First, get it in writing. Verbal contracts on private construction contracts can be enforced, but proof is more difficult and the outcome is more uncertain. Verbal agreements invariably result in disagreement and legal expenses. Furthermore, be sure the written agreement contains all the terms and conditions you have agreed upon. Testimony to supply missing terms may not be admissible except in limited circumstances.
Secondly, on private works contracts in excess of $25,000.00 dollars, notice of contract must be recorded in the mortgage records of the parish where the work is done in order for general contractors to be entitled to a lien. That notice must also be recorded prior to commencement of the work. According to La. R.S. 9:4811, the notice:
- Shall be signed by the owner and contractor.
- Shall contain the legal property description of the immovable upon which the work is to be performed and the name of the project.
- Shall identify the parties and give their mailing addresses.
- Shall state the price of the work or, if no price is fixed, describe the method by which the price is to be calculated and give an estimate of it.
- Shall state when payment of the price is to be made.
- Shall describe in general terms the work to be done.
Please keep in mind that “naming the street or mailing address without more shall not be sufficient to meet the requirements.” The filing made with the recorder of mortgages shall contain a detailed property description including the lot and/or square and/or subdivision or township and range sufficient to clearly and permanently identify the property.
If no notice of contract is recorded, the general contractor on a private works project is not entitled to file a lien against the property. This means the general contractor must first obtain a judgment against the owner and then record the judgment to affect a lien or encumbrance on the property. It could take a year or more (even in a simple case) to work through the judicial process to obtain a judgment. Filing a lien is often the difference between getting paid and not getting paid. Contractors sometimes think the owner or the architect will record the contract for them. Take it upon yourself to make certain that these formalities are complied with.
Thirdly, if you choose to arbitrate disputes as a way to reduce the cost and time of obtaining a judgment, then you should include an arbitration clause in your construction contract. All parties must agree to arbitration, and the agreement should be in writing. Do not rely on an owner to agree to arbitrate a dispute once a dispute has arisen.
Lastly, attorneys fees can not be recovered unless provided for in the contract. On private works projects, there is generally no statute that would apply to allow for the recovery of attorneys fees from the owner in the absence of a contractual provision. It is up to you to specify in your construction contract with the owner that attorneys fees will be due in the event you need to retain counsel.
These few rules will not always keep you from having payment disputes, but may be of help to you to resolve the dispute in your favor.
Russel W. Wray is a partner in the firm of Wray & Pierce, L.L.P., in Baton Rouge, Louisiana. Questions or comments can be directed to Mr. Wray at email@example.com.