General contractors face a dilemma when a client refuses to honor the payment schedule spelled out in a construction contract. If you are a general contractor struggling with a non paying client, do you need a construction attorney to file for nonpayment of contract?
You face both good news and bad news whenever a client refuses to honor the payment provision of a construction contract. The good news is your company is protected by laws and regulations that require clients to honor their contractual obligations. On the other hand, the bad news is the laws and regulations put in place to protect your construction company can be confusing at best.
A construction attorney helps you make sense of the laws and regulations that protect your company, which might include filing for the nonpayment of a construction contract.
Stop Work on the Project
The first step to take involves ceasing all work on the project. A large number of states provide general contractors with the right to suspend work due to nonpayment. California has enacted a Stop Work Notice provision that allows a general contractor to present a stop work notice if the contractor has not received payment within 35 days of the payment coming due. Consult with your construction attorney to learn more about the California Stop Work Notice law.
File a Mechanic’s Lien
Although you might find common ground with the homeowner refusing to honor the payment agreement written into the construction contract, you can expect to deal with homeowners that refuse to change their stance when it comes to paying for construction work. Maybe the homeowner has a complaint about one of the suppliers or subcontractors. Perhaps, the homeowner is not pleased with the outcome of the project. Whatever the reason, the remedy for nonpayment might be to file a mechanic’s lien against the homeowner’s property.
A mechanic’s lien, which you file with the county records office, represents the formal legal notice that you have submitted a claim against the homeowner for nonpayment of contract.
Sue for Breach of Contract
Even if you and your construction attorney decide not to file a mechanic’s lien against a homeowner for nonpayment of contract, you can take legal action by filing a civil lawsuit that seeks monetary damages. You file a breach of contract lawsuit in a civil court or small claims court, depending on the value of the claim. Construction contract disputes valued at less than a few thousand dollars typically end up in front of a small claims judge.
Key types of evidence for a civil lawsuit that seeks monetary damages include a copy of the contract between you and the homeowner, before and after photographs of the home improvement project, and copies of the demand letters sent for payment.
Be Proactive: Arrange Progress Payments for Home Improvement Projects
The most effective strategy to prevent a homeowner from refusing to honor the payment provision of a contract is to establish a payment schedule. You should ask for a small percentage of the contract price upfront, and then schedule several payments that mark the end of each stage of a construction project.