Many contractors still believe they can work off a handshake and an estimate. Those days have long passed, and a construction contract is needed today more than ever to protect you and your interest as a residential contractor or subcontractor.
Sites such as Rocketlawyer seem like they are the perfect answer to drafting your own construction contract. They make claims of amazingly low cost deals for all your contract needs. Will a contract from one of these sites protect you as a contractor or subcontractor doing work in Arkansas? Absolutely not. Arkansas Construction laws are specific to the State of Arkansas and the online form contract simply won’t cut it. Many notices must be given in a construction contract and each notice will depend on the type of construction work being done by the contractor. Websites that offer low cost contracts do not make their contracts specific to the laws of the state requested. In fact, they usually use the same language in all their contracts and merely change the name of the state on the contract. You should never use a form contract from one of these websites.
Absolutely. Mechanic’s liens are legal documents that essentially reserve the rights of the person who filed the lien to seek unpaid compensation. They are usually filed by contractors, subcontractors, or suppliers that never received payment for work that they performed or materials that they provided on the property. Placing a lien on someone’s property causes a severe penalty to the homeowner and/or commercial property owner. A Mechanic’s or Materialman’s Lien will “cloud the title” to the property. This means that the lien will appear in public records. This also means that any lien must be paid off before the homeowner can sell, refinance, or borrow against the equity on their property. In practical terms, placing a lien on a property creates a major nuisance for any owner of the property. Creating this nuisance will help get you, as the contractor or subcontractor, the money you are owed for the work you have completed.
In the summer of 2017, the Arkansas Legislature revised the Arkansas Mechanic’s and Materialman’s Lien Statute A.C.A. 18-44-115. This revision has created harsh penalties for contractors and subcontractors who fail to get the “Important Notice to Owner” signed before the construction project begins.
A.C.A. 18-44-115 states “No lien upon residential real estate containing four (4) or fewer units may be acquired by virtue of this subchapter unless the owner of the residential real estate, the owner's authorized agent, or the owner's registered agent has received, by personal delivery or by certified mail, a copy of the notice set out in this subsection.” This notice must be in the contract and signed before any construction work begins. This Notice must also be stated exactly as it is written in the statute. While getting a lien placed on property can be a very effective way to get payment for work completed yet the homeowner has failed to pay for, it is the 2017 revision that has caused great concern when dealing with unpaid construction work.
In 2017, this statute added a section which states, “ If a residential contractor fails to give the notice required under this subsection, then the residential contractor is barred from bringing an action either at law or in equity, including without limitation quantum meruit, to enforce any provision of a residential contract.” This provision is a severe penalty for any contractor who has done work and not been paid. Quantum Meruit is Latin for "as much as he deserved," the actual value of services performed. Quantum meruit determines the amount to be paid for services when no contract exists or when there is doubt as to the amount due for the work performed but done under circumstances when payment could be expected.
This change also bars a contractor from being able to sue for unjust enrichment. Unjust enrichment occurs when Party A confers a benefit upon Party B without Party A receiving the proper restitution required by law. This typically occurs in a contractual agreement (such as a residential construction project) when Party A fulfills his/her part of the agreement and Party B does not fulfill his/her part of the agreement. In other words, it is much like Quantum Meruit. You, as the contractor or subcontractor, have completed residential construction work for your client, your client has benefited from the work you completed, yet your client/homeowner refuses to pay for your services.
By adding in this language, the Arkansas Legislature has effectively taken away a contractor’s right to recover any monies owed to them if they fail to have this pre-construction notice signed. Not only will the contractor be barred from being able to place a lien on the property, but now they will not be able to sue and recover the money owed to them for materials used and work completed as well. While I personally believe there is a constitutional argument to the validity of this provision, it is the law we must work within for the time being. In other words, be forewarned that as a residential contractor or subcontractor you may lose a lot of money on a construction project should you fail to have this notice in your contract.
If you are a contractor or subcontractor who does work on residential properties, you MUST have a contract with this notice placed at the end of it. This notice must be stated verbatim as it is defined in A.C.A. 18-44-115. And, this notice MUST be signed by the homeowner/client. It is important for you as a contractor or subcontractor to have an attorney familiar with construction law and construction contracts to protect your business interest and make sure you get paid for the work you complete for your clients. At WH Law, we have drafted several construction contracts and argued successfully when disputes arise out of any disagreements over the contracts or construction services performed by our clients. If you are a contractor who works without a contract or has an out of date contract, please give us a call today so that we can help protect you and your business.