Steps an Owner can take to Protect Against Mechanic’s Liens in South Dakota

When talking about mechanic’s liens in South Dakota, many business owners are only aware of some steps, but remain unaware of all the steps that can be taken to protect against some of the possible hardships caused by mechanic’s liens. A mechanic’s lien is a legal claim made against real estate by suppliers or contractors that have not been paid for the work performed or materials supplied on a construction project. A prime example - Lien waivers. Lien waivers should be required prior to an owner releasing any final payments and/or during the project to ensure subcontractors and others were either paid or waived their lien rights. Below we will explore additional steps you can take to protect your company when it comes to mechanic’s liens.

Visibility is Key. Every owner should provide preliminary notice which includes contact information to everyone working on the property. The owner should know and keep precise records of who is performing work and let each contractor and sub-contractor know that visibility is preferred during and after the project. Project visibility can provide protection in the area of mechanic’s liens and also other litigation.

Keep Detailed Records. One issue that an owner may face is that they do not know who all is working on the property or supplying materials. Even if it appears cumbersome to keep track of all the suppliers, contractors and subcontractors, it can prevent a whole lot of trouble later on. One way to ensure knowledge of all who work on the property is to work in a clause in the contract requiring such actions to be done by the general contractor as well as posting notice of the owner’s information in visible areas in the property.

Proof of Payment. Always include a provision in the contract with the general contractor that proof of payment of all suppliers and those who worked on the property is required prior to final payment. Final payment can also be postponed in the contract until 120 days or so after completion in order to assure a mechanics lien is not filed. In lieu of that (or in conjunction with), the owner can also require performance bonds or other security.

Get it in Writing. After a project is complete, an owner can and should request in writing any person that may have a lien after the completion of a project to provide an itemized and verified accounting of a potential lien claim. Thereafter, an owner can make final payments directly to who is owed rather than releasing funds elsewhere or put the name of who is owed on the check prior to releasing elsewhere.

Know Your Rights as Owner. Pursuant to statute, owners are third-party creditors of contractors. This means that owners can direct contractors to make payments to suppliers and others who worked on the property and can let those others know that that direction has been made.

As a business owner, it is in your best interest to not get stuck with mechanic’s liens and to take every precaution to avoid them. If you would like a review of your contract or advice on how to avoid mechanic’s liens, contact our attorneys in Omaha, Sioux City, or Sioux Falls. We can work with you to avoid a construction nightmare.