Mississippi recently enacted a new construction lien law. This article addresses certain key provisions of the new law - codified at Mississippi Code Annotated § 85-7-401 (Rev. 2014) - that apply to commercial projects.
Under Mississippi’s prior law only prime contractors held rights to a construction lien. The new law extends lien rights to subcontractors and material suppliers who have a direct contract with the prime contractor.
Further, sub-subcontractors and material suppliers who have a contract with a subcontractor who has a direct contract with the prime contractor may also have a lien. However, in order to establish this lien they must within 30 days of their first work or material delivery give notice to the prime contractor. The notice must state their contact information, who they are working for, the project they are working on, and what they are providing.
The new law sets various deadlines. The lien claimant must file a claim of lien in the office of the chancery clerk for the county where the project is located and do so within 90 days of the date that the lien claimant last worked or supplied materials. Within two business days of that filing the lien claimant must send that notice to the owner of the property. If the lien claimant is not the prime contractor, then notice must also go to the prime contractor. The lien claimant must file a lawsuit to enforce the lien within 180 days of the date the above-referenced claim of lien is filed. However, the owner or the prime contractor may shorten this time period by filing a notice of contest of the lien. Once a notice of contest is filed, the lien claimant must file its lawsuit within the earlier of 90 days from the notice of contest or 180 days from the claim of lien filing.
The new law establishes measures to help upstream parties manage their risk by learning the identity of those downstream parties who potentially might claim a lien. The owner has the right to obtain from the prime contractor a list identifying all subcontractors and material suppliers. The prime contractor has the same right against its subcontractors. A willful failure to identify subcontractors and suppliers can result in forfeiture of lien rights.
The new law includes provisions to penalize improper conduct. Failure by a prime contractor or a subcontractor to pay those working for it can result in forfeiture of that prime contractor’s or subcontractor’s lien rights. Further, not having a contractor’s license (when one is required) causes a forfeiture of lien rights. Also, if a prime contractor obtains a release from a subcontractor or supplier in order to induce payment from the owner, and then without “good cause” fails to pay the subcontractor or supplier, the prime contractor is liable to the subcontractor or supplier for three times the amount contained on the face of the release. The same rules apply against subcontractors in connection with releases and payments as to their sub-subcontractors and suppliers. “Good cause” includes, but is not limited to, any defense available pursuant to the terms of the applicable subcontract or purchase order. A person who falsely and knowingly files a lien without just cause is liable to every party injured by the filing for a penalty equal to three times the amount of the lien claimed.
The new law expressly provides for the bonding-off of liens to remove them after they are filed. Another key bond-related provision in the new law is that subcontractors, sub-subcontractors and material suppliers will not have lien rights when the prime contractor gives a payment bond providing coverage which matches that required by Mississippi’s Little Miller Act.
Under the new law advance lien waivers are unenforceable. Statutory forms are prescribed for interim payment and final payment lien waivers. If a potential lien claimant is not paid the amount called for under a conditional waiver it has executed, then in order for the unpaid party to preserve its lien claim it must within 60 days from the date of the waiver file a notice advising that it was not paid and send the notice to the owner.
As stated above, this summary addresses commercial projects. The new law makes separate provisions for residential projects. Also, since this is a summary, there are additional details that are important to any final analysis. Contractors performing work in Mississippi should contact their attorney for additional information regarding their rights and obligations under the new statutory scheme.