In the construction industry, liens are legal claims against the property. The liens serve as security for any unpaid debts related to the construction work. A company commonly places a lien on a property until contractors receive fair payment.
However, non-payment is only one of the many factors behind construction liens.
Non-payment for services
It costs anywhere from $130 to over $500 per square foot of residential space in Tennessee to build a home. It is up to the project owner or developer to ensure that every contractor receives fair payment for the build. Contractors and subcontractors invest their labor and resources into a project and when they do not receive compensation, the construction lien is how they can secure debt.
Preserve the right to compensation
A construction lien can also serve as a proactive measure to preserve the right to compensation. When contractors file a lien, they assert their claim to the property’s value and signal to the owners that the outstanding debts need payment. In this instance, the lien serves as a legal tool for timely payments but also secures a claimant’s position if he or she needs to take legal action.
Encourage fairness
Construction liens can help keep property owners and project managers fair. Stakeholders will adhere to contractual agreements and timelines because they do not want to have to deal with the imposition of a lien. Most people prefer transparency, accountability and ethical business practices. A lien forces stakeholders to remain transparent.
Construction liens are not always punitive. In some cases, they may preserve the continuity of a construction project. Addressing payment issues promptly allows construction parties to maintain momentum.
