I pick up my office phone to hear these words: “I’m repossessing the driveway.” In my twenty-plus years practicing construction law this call is a highlight. My client was threatening to demolish a driveway because he hadn’t received payment for his concrete work. I could hear his backhoe’s engine humming through the phone. I expected sirens next.
There are multiple legal tools available to collect money: a backhoe is not one of them. Perhaps the most obvious tool is your contract. A contract allows you to make a claim against your customer for nonpayment. We’ll talk later about the most important payment terms to include in your contract. But what if your customer becomes insolvent and doesn’t pay?
Like my client, you might be tempted to ask, “Why can’t I take back my construction materials?” After all, cars, furniture, electronics, and the like get repossessed all the time. But unlike these items of “personal property,” once construction materials are incorporated into a project—like the concrete driveway—they become “real property.” When this happens, ownership of these materials automatically transfers to the property owner as a matter of law.
When you think about it, this law makes a lot of sense. Can you imagine trying to “repossess” a building’s concrete and rebar foundation, the bricks and mortar, the framing and sheet rock, the windows and doors, the plumbing, electrical, and HVAC, the floor, the roof, or the parking lot in an effort to collect your money? Absurd.
Fortunately, when labor and materials are incorporated into a project, the law provides another tool for payment: the mechanic’s lien. A mechanic’s lien allows you to make a claim against the owner’s property where you furnished your labor and materials. In fact, with a mechanic’s lien you may be able to foreclose the property and collect your money from the sale proceeds.
A mechanic’s lien makes sense on private projects. But what about public projects? When is the last time you heard of someone foreclosing a mechanic’s lien against the Wyoming State Capitol building, a courthouse, or public library? Never. That’s because mechanic’s liens do not apply to public projects. But, again, the law provides for another tool to collect money on public projects: the payment bond.
For most Wyoming public projects, the law requires that the general contractor post a payment bond or other collateral for the protection of subcontractors and materialmen. Basically this is like money sitting in a bank account. If a subcontractor or materialman is not paid, they can make a claim against the bond or other collateral for payment.
Mechanic’s lien and payment bond claims are powerful tools for collection. But the law typically allows these claims only where the owner and contractor receive notice of the potential claims so that they have an opportunity to issue joint checks, obtain lien waivers, and take other action to hopefully avoid these claims and possibly paying twice.
The Wyoming legislature created the lien and bond laws and the notice and other requirements that must be met to make those claims. We will talk about these and what you must do to preserve your claims so that if you are not paid, we have all of the tools available to collect your money.
The Breach of Contract Claim
When is payment due?
Your contract should specify when payment is due. “Net 30” (payment within 30 days of billing) is, perhaps, the most common payment timing provision. For assistance with the wording for your payment provision contact me.
What if your contract is silent as to when payment is due? Many states have prompt payment acts that impose payment terms when a contract is silent (Utah’s prompt pay act, for example, requires payment within thirty days of receipt of construction funds).
Wyoming has no prompt pay act. So, without payment terms, payment under your contract would most likely be due within a “reasonable” period of time. What’s reasonable: 30, 60, 90, 120 days, or longer? Avoid the potential fight by including payment due date in your contract.
What if your contract contains a contingent “pay-if-paid” or “pay-when-paid” clause? These clauses respectively forfeit and delay payment to the subcontractor when the owner fails to pay the contractor.
Pay-if-paid clauses affect entitlement to payment by shifting the risk of owner non-payment to the subcontractor. Sample pay-if-paid clause: “Contractor’s receipt of payment from the Owner is a condition precedent to Contractor’s obligation to make payment to the Subcontractor and the Subcontractor expressly assumes the risk of the Owner’s nonpayment.”
Pay-when-paid clauses affect the timing of payments but keep the risk of owner non-payment on the contractor. Sample pay-when-paid clause: “Contractor shall pay Subcontractor within seven (7) days of Contractor’s receipt of payment from the Owner.”
In some states contingent payment clauses are unenforceable as a matter of law. I am not aware of any law in Wyoming addressing contingent payment clauses. So, the enforceability of contingent payment clauses in Wyoming is undecided. I could argue either way…
With competent legal advice, language can be negotiated to lessen the risk of pay-if-paid or pay-when-paid clauses. For example, pay-if-paid clauses may be diffused by clearly stating that despite the owner’s failure to pay, the contractor retains the duty to ultimately pay the subcontractor. Furthermore, pay-when-paid clauses may be diffused by inserting a schedule of payment dates or clearly stating when payments are due. Please contact me with any questions.
Can I collect interest?
Nothing motivates prompt payment like a late fee. In Wyoming, parties to a contract can agree to interest—at a rate of their choosing—as a late fee or finance charge. For example, it’s common for materialmen to include interest of 18% and even 24% per annum in their credit agreements.
What if a contract is silent on interest? If the parties have not agreed to a rate of interest, Wyoming law imposes a rate of 7% per annum. [Wyo. Stat. Ann. § 40-14-106(e)] (As an aside, Wyoming law imposes a post-judgment rate of 10% per annum. [Wyo. Stat. Ann. § 1-16-102]
Applying the foregoing, let’s say that the parties didn’t agree on interest in their contract, but that the creditor followed the common practice of including a provision at the bottom of its invoice or billing statement like the following:
Accounts unpaid, 30 days past date of billing, will accrue service charges at the rate of 1 ½% per month. This constitutes an annual rate of 18% per year.
Under Wyoming law, would the creditor be entitled to interest at the 18% per annum rate specified in its invoice or billing statement or the 7% per annum statutory contract rate? The Wyoming Supreme Court, addressing this exact situation, denied the creditor’s claim for interest at 18% per annum, leaving the creditor with 7% per annum; noting that “the mere appearance of a provision imposing interest on an invoice or billing statement is insufficient to establish an … agreement for the payment of interest.” Miles v. CEC Homes, Inc., 753 P.2d 1021, 1028 (Wyo. 1988).
So, if you would like to use interest as a tool to promote prompt payment at rate higher than Wyoming’s statutory contract rate, make sure to specify that rate in your contract. If you have questions about the wording to use, contact me to discuss as it may vary according to your role on the project.
What about attorney fees?
If you’re required to file a lawsuit to collect your money, you will want to be able to collect your attorney fees, too. In Wyoming, each party to a lawsuit is responsible for its own attorney fees unless an award is allowed by contract or statute.
So, if you would like to be able to collect your attorney fees, include an attorney fee provision in your contract (as discussed above with respect to interest, including an attorney fee provision in an invoice or billing statement, alone, most likely won’t cut it). Please contact me with any questions about the wording.
Attorney fees can also be awarded based on statutes. Wyoming’s mechanic’s lien, for example, provides for an award of attorney fees to the prevailing party.
What are the deadlines (statutes of limitation)?
A statute of limitation is, essentially, the deadline to file a court case. The Wyoming statutes of limitation applicable to contract claims are as follows:
- Ten (10) years for breach of a written contract
- Eight (8) years for breach of an oral contract
- Five (5) years after the debtor establishes residence in Wyoming for an action on a foreign claim, judgment or contract, contracted or incurred and accrued before the debtor became a resident of Wyoming
So, if you have a nonpayment claim, make certain to file your lawsuit before expiration of the applicable statute of limitation deadline. You snooze, you lose…. Contact me with any questions.
The Mechanic’s Lien Claim
Who is entitled to a lien?
Every contractor (which includes contractors, architects, professional engineers, and surveyors contracting with the owner), subcontractor or materialman performing any work on or furnishing (which includes selling and renting) any materials for any building or any improvement upon real property is entitled to a lien for work done or plans or materials furnished. [Wyo. Stat. Ann. § 29-2-101]
What is the extent of the lien?
The lien covers the building or improvements and the real property of the owner on which they are situated to the extent of one (1) acre. If the improvements cover more than one (1) acre the lien extends to all the additional real property covered thereby. Notwithstanding the foregoing, if the real property subject to a lien is located in any city, town or subdivision the lien extends to the entire lot upon which the building or improvement is located. [Wyo. Stat. Ann. § 29-2-101]
The lien also extends to the owner’s real property and easements to the extent necessary to provide legal access by a roadway for ingress and egress to the building, improvements or real property subject to the lien, not to exceed forty (40) feet in width to the nearest easement, public road or highway. [Wyo. Stat. Ann. § 29-2-101]
Note: Any lien claimant enforcing a lien may have the building, improvements and real property sold under execution. However, if any party establishes that the real property, after removal of the improvement, would be in the same or similar condition as prior to the performance of the work for which the lien is claimed, the court may authorize the removal of the improvement. In addition to attorney fees and costs, the lien claimant foreclosing the lien may be entitled to reasonable costs for removing any improvement or for restoring the property to its original condition. [Wyo. Stat. Ann. § 29-2-103]
Lien against leasehold interest
If you are performing work on or furnishing materials upon leased property like a tenant build-out, for example, your lien attaches to tenant’s leasehold interest in the property, and you may:
- proceed to foreclose a lien upon the leasehold; or
- seek an order from the court for removal of any improvement. Upon establishing that the property will be in the same or similar condition as prior to the performance of the work for which the lien is claimed, the court may authorize the removal. The party foreclosing the lien may be entitled to reasonable costs for removing any improvements or for restoring the property to its previous condition. [Wyo. Stat. Ann. § 29-2-104]
While a lien against a tenant’s leasehold interest is good, a lien against the landlord’s fee interest in the property is much better. Under Wyoming law, you may have a lien upon the landlord’s and the tenant’s interest in the building and real property if:
- The landlord has agreed to pay the costs of the improvement; or
- The improvements are specifically authorized by the landlord. [Wyo. Stat. Ann. § 29-2-105]
To make this determination, we will need to obtain a copy of the lease agreement between the landlord and tenant. Please contact me for assistance.
To preserve your right to file a lien, you will need to send a Preliminary Notice to the property owner. If you are a subcontractor or materialman, you will also need to provide a copy of your Preliminary Notice to the contractor.
The deadline for sending a Preliminary Notice depends on whether you are a contractor or subcontractor or materialman.
- Contractors are required to send their Preliminary Notice to the owner before receiving any payment from the owner, including advances. (Where appropriate, I recommend that contractors include the Preliminary Notice in their prime contracts—contact me if you would like to discuss.
- Subcontractors and materialmen are required to send their Preliminary Notice to the owner (and provide a copy to the contractor) within thirty (30) days after first providing services or materials to the project.
Failure to send the Preliminary Notice within the time set forth above bars the right of a contractor, subcontractor, or materialman to assert a lien.
Note: The Preliminary Notice must be in substantially the same format and contain the same information as that prescribed by statute. Please contact me for assistance with your Preliminary Notice.
Notice of Intention to File Lien
Whether you are a contractor, subcontractor, or materialman, you are required to send a Notice of Intention to File Lien to the property owner no later than twenty (20) days before filing your Lien Statement. It is crucial that you contact me early in the process, because we will need time to send the Notice of Intention to File Lien and still be able to meet the deadline for filing your Lien Statement.
If you fail to send a Notice of Intent to Lien, your lien will be invalid. That being said, there is a case where the Wyoming Supreme Court found that the Notice of Intention to File Lien requirement was waived because it was not raised as a defense in the trial court—so, if you don’t give me enough time to send a Notice of Intention to File Lien you may still have a chance to collect your money with a lien, but it would be a much riskier endeavor. [Wyo. Stat. Ann. § 29-2-107]
Note: The Notice of Intention to File Lien must be in substantially the same format and contain the same information as that prescribed by statute. Your Notice of Intention to File Lien will carry more weight on my law firm letterhead [contact Jason]. [Wyo. Stat. Ann. § 29-10-102]
To have a lien, you must file a Lien Statement with the county clerk in the county where the project property is located. You will need to gather the following information for the Lien Statement:
- your name and address;
- the amount you claim to be due and owing;
- the name and address of the property owner;
- an itemized list describing materials delivered or work performed;
- the name of the person you claim is contractually responsible to pay the debt secured by the lien;
- the date when labor was last performed or services were last rendered or the date of substantial completion of the project;
- the legal description of the property where the materials were furnished or upon which the work was performed; and
- a copy of your contract, if available, or a summary of your contract together with a statement of the location where a copy of the contract, if written, can be obtained. [Wyo. Stat. Ann. § 29-1-312]
If you’re a subcontractor or materialman, you may not know the name and address of the owner or the legal description for the project property. No problem. Wyoming law requires that the contractor provide you with this information at the time of contracting. And if you don’t get this information from the contractor, we should still be able to figure it out (I have access to databases for property owners and legal descriptions). [Wyo. Stat. Ann. § 29-2-113].
Note: Your Lien Statement must be in substantially the same format and contain the same information as that prescribed by statute. Lien Statements can be tricky. I have prepared many Lien Statements and can assist you with the process [contact Jason].
Deadline for filing Lien Statement
The deadline for filing a Lien Statement depends on whether you are a contractor, subcontractor, or materialman. Contractors must file their Lien Statement within one hundred fifty (150) days and subcontractors and materialmen within one hundred twenty (120) days of the earlier of:
- the last day when work was performed or materials furnished under contract;
- the date of substantial completion* of the project; or
- with respect to a subcontractor, after the last day he performed work at the direction of the contractor or other person authorized to provide direction.
* The “date of substantial completion” is presumed to be the date the owner records a Notice of Substantial Completion for the project. The Notice of Substantial Completion only applies to contractors, subcontractors, and materialmen to whom the owner sends a copy of the Notice of Substantial Completion within five (5) days of recording the same.
Note: The Notice of Substantial Completion must be in substantially the same format and contain the same information as that prescribed by statute. A Notice of Substantial Completion can be attacked. If you would like assistance defending against a Notice of Substantial Completion—or, I suppose, if you’re an owner who would like to file a Notice of Completion—please let me know if you like assistance [contact Jason].
Extending deadline to file Lien Statement
There may be times when you want to extend the deadline for filing a Lien Statement because you are being promised payment. Fortunately, under Wyoming law deadline can be extended by agreement up to twice the time within which the Lien Statement would have to be filed in accordance with the deadlines set forth above. The agreement must be:
- signed by the owner, the contractor and any other parties to the contract; and
- filed with and recorded by the county clerk in the manner provided for a Lien Statement. [Wyo. Stat. Ann. § 29-2-106]
Note: The lien rights of persons not signing the agreement are not affected by it. In other words, you can’t rely on someone else’s agreement to extend your lien rights. Agreements to extend lien rights are relatively complicated. Please contact me for assistance with your agreement [contact Jason].
Notice of Filing Lien
Within thirty (30) days after filing your Lien Statement, we will need to send a Notice of Filing Lien to the property owner, informing the owner of the lien. Failure to send a Notice of Filing Lien would not affect the validity of your lien. But I always recommend sending a Notice of Filing Lien, because that communication may get you paid without the expense of a foreclosure action. [Wyo. Stat. Ann. § 29-1-312]
Note: The Notice of Filing Lien must be in substantially the same format and contain the same information as that prescribed by statute. I have found that sending the Notice of Filing Lien on my law firm letterhead is impactful [contact Jason].
Priority of Liens
Lien priority is important. What if you are performing work for furnishing materials on a project where the property is worth $1M. And what if there is a trust deed against property for $1M. If your lien comes before the trust deed, there is most likely plenty of equity to get you paid. But if your lien comes after the trust deed, so there is no equity in the property, a foreclosure and sale of the property may not get you any money.
The way priority works is simple. All liens relate back to the commencement of any construction work or repair of the premises or property. So, let’s say that the excavator commenced work on day 1 and the $1M trust deed was recorded on day 10. If the contractors, subcontractors, or materialmen aren’t paid and file liens, their liens all related back to day 1 and have priority over the $1M trust deed. In the inverse is, of course, also true: if the $1M was recorded on day 1 and work commenced anytime thereafter, the lender’s trust deed would have priority.
What if a foreclosure sales nets $500K, but the lien claimants are collectively owed $1M. How does the $500K get divided? Under Wyoming law, all construction liens are on equal footing regardless of when they were filed. The $500K would be prorated among the lien claimants according to the amounts of their respective claims. [Wyo. Stat. Ann. § 29-1-402]
Note: Lien priority fights often come down to when work commenced in relation to when trust deeds were recorded. Do yourself a favor, take photos of the site showing the commencement of work so that if a dispute arises, we can use the photos as evidence of when work commenced—a picture truly is worth a thousand words. I won a big priority case, and it all came down to the photos. Please contact me with any questions.
Assuming you haven’t been paid yet, you will need to commence a foreclosure action—i.e., file a lawsuit, within one hundred eighty (180) days after your Lien Statement was filed—otherwise your Lien Statement will expire and be unenforceable. [Wyo. Stat. Ann. § 29-1-401]
Note: You will want to engage a construction lawyer to enforce your lien. Your attorney will determine where to file the lawsuit and whether district or circuit court is appropriate, and handle any issues related to arbitration or mediation [contact Jason].
Substitute security to satisfy lien
The owner, contractor, or a subcontractor can have your lien released by depositing with the court having jurisdiction over the lien claim a corporate surety bond, letter of credit, cash or cash equivalent of established value approved by the court having jurisdiction over the lien claim in the county where the lien was filed in an amount equal to one and one-half (1 ½ ) times the amount of the lien.
Upon depositing the security and entry of an order of the court accepting the security, the lien against the property will be discharged (by the filing of a Notice of Satisfaction of Lien issued by the court) and released in full, and the security is substituted for the lien.
Contractors, subcontractors, and materialmen sometimes think that having their lien bonded off is a bad thing. It’s not. Once your lien has been satisfied by the substitution of the security, we can file an action against the security. If we obtain a judgment, you get your money from the security, no foreclosure proceedings, and not priority disputes. [Wyo. Stat. Ann. § 29-1-501]
Note: You will need an attorney to handle this matter. Please contact me for assistance.
Notice of Satisfaction of Lien
Within thirty (30) days after receiving payment, you must
- release your lien by filing a Notice of Satisfaction of Lien with the county clerk where your Lien Statement was filed, and
- send a copy of the Notice of Satisfaction of Lien to the owner.
[Wyo. Stat. Ann. § 29-1-313]
In the midst of celebrating receipt of payment, it’s easy to forget to file a Notice of Satisfaction of Lien. Don’t. If you fail to file a Notice of Satisfaction as set forth above, you may be liable for actual damages (caused by the Lien Statement clouding title), plus damages of up to $100 per day until the Notice of Satisfaction of Lien is filed. [Wyo. Stat. Ann. § 29-1-314]
Note: The Notice of Satisfaction of Lien must be in substantially the same format and contain the same information as that prescribed by statute. Please contact me for assistance with your Notice of Satisfaction of Lien [contact Jason]. [Wyo. Stat. Ann. § 29-10-106]
Attorney fees and costs
In an action to foreclose a lien, the prevailing party is entitled to recover from the non-prevailing party all costs and expenses reasonably associated with the action, including but not limited to reasonable attorney fees. [Wyo. Stat. Ann. § 29-1-401]
You, of course, want to be the prevailing party. To prevail, you must do everything correctly. I would recommend engaging a construction lawyer. Please contact me to discuss.
The Payment Bond Claim
A public entity* that enters a contract with for a public work** where the contract price exceeds $150,000.00 must require the contractor before beginning work under the contract to furnish the public entity a bond. If the contract price is $150,000.00 or less, the public entity may require the contractor to furnish any other form of guarantee approved by the public entity. [Wyo. Stat. Ann. § 16-6-112]
* “Public entity” means the state of Wyoming, any state office, board, council, commission, separate operating agency, department, institution or other instrumentality or operating unit of the state, including the University of Wyoming, any political subdivision of the state, any county, city, town, school district, community college district or any public corporation of the state.
** “Public work” includes alteration, construction, demolition, enlargement, improvement, major maintenance, reconstruction, renovation and repair of any highway, public building, public facility, public monument, public structure or public system.
What if the public entity fails to obtain a payment from the contractor? In some states (Utah, for example), a public entity that fails to obtain a payment bond can be held directly liable to unpaid subcontractors and materialmen. This not the case in Wyoming. There is no recourse against a public entity for failing to obtain a payment bond. So, if you are relying on a payment bond to get you paid, I would recommend determining at the outset whether a payment bond is available for the project. Please contact me if you would like assistance tracking down a payment bond.
Who is entitled to protection?
Any person performing any work or labor or furnishing any material or goods of any kind which were used in the execution of the prime contract, conditioned for the performance and completion of the prime contract according to its terms, compliance with all the requirements of law and payment as due of all just claims for work or labor performed and materials furnished in the execution of the prime contract. [Wyo. Stat. Ann. § 16-6-112]
For construction projects where
- the general contractor’s contract is for more than $150,000.00; and
- the general contractor posts on the construction site a prominent sign citing the pertinent statute and stating that any subcontractor or materialman shall give notice to the general contractor of a right to protection under the bond or guarantee and that failure to provide the notice shall waive the subcontractor or materialman’s protection under the bond or guarantee,
subcontractors and materialmen must send a Preliminary Notice to the general contractor to preserve their right to make a claim against the payment bond or other guarantee. Failure to give a Preliminary Notice where required waives the subcontractor or materialman’s protection under the payment bond or guarantee.
Note: If there is any question as to whether a Preliminary Notice is required, I would recommend sending one, it may get you paid. Please contact me with any questions or for assistance with your Preliminary Notice.
If required (see above), subcontractors and materialmen must give their Preliminary Notice to the general contractor no later than sixty (60) days after the date on which they first furnished services or materials. [Wyo. Stat. Ann. § 16-6-121]
Note: I would recommend sending your Preliminary Notice sooner than later. Waiting until close to the deadline could result in a dispute over the date you first furnished services or materials.
The Preliminary Notice must (1) state that it is a notice of a right to protection under the payment bond or guarantee, (2) be signed by the subcontractor or materialman, and (3) include the following information:
- The subcontractor or materialman’s name, address and phone number and the name of a contact person;
- The name and address of the subcontractor’s or materialman’s vendor; and
- The type or description of the materials or services provided.
[Wyo. Stat. Ann. § 16-6-121]
Note: It is important that your Preliminary Notice is accurate. Please contact me for assistance with your Preliminary Notice. [Wyo. Stat. Ann. § 29-10-106]
The Preliminary Notice must be sent to the general contractor by certified mail, electronic means (such as email) or delivered to and receipted by the general contractor or his agent (notice by certified mail or electronic means is effective on the date the notice is mailed or sent electronically). [Wyo. Stat. Ann. § 16-6-121]
Note: If you elect to send your Preliminary Notice by email, I recommend using Microsoft Outlook’s “Request a Delivery Receipt” and “Request a Read Receipt” functions (under “Options”) (or an equivalent), so that you have proof that your Preliminary Notice was sent to and received by the general contractor.
An action against a payment bond or other form of guaranty must be commenced within one (1) year after the date of “final completion” of the project. [Wyo. Stat. Ann. § 16-6-115]
Subcontractors and materialmen might ask how they can determine the date of “final completion.” Under Wyoming law, the public entity owner is required to post the date of final completion for project on the state procurement website or its entity’s official website. [Wyo. Stat. Ann. § 16-6-116] Please contact me for assistance in determining the date of “final completion.”
Note: At the commencement of the action notice must be given to the obligee named in the payment bond or other guarantee as prescribed by statute. I can give this notice as part of the lawsuit.
Wyoming’s public payment bond statute does not provide for an award of attorney fees. We will have to rely on your contract to recover any attorney fees. And even if you don’t recover attorney fees, recovering something is better than nothing.