Bond Claims & Private Projects: What about Tennessee?
Are bond claim rights available on private projects? Possibly, if a payment bond is provided!
So, a Bond Claim on a Private Project?
A payment bond is typically the type of bond that provides protection for those furnishing labor and/or materials to a project. While not as common as public projects, privately bonded projects do exist. If no statute specifies the steps required to protect your rights on a private project in a certain state, you must look to the terms of the payment bond to determine the required actions. Some states, however, have statute specific to bond claims on private projects, such as California & Florida.
California & Florida Bond Claims on Private Projects
The basic provisions under California’s payment bond statute, CA Civ. Code 8600-8614, include serving a preliminary notice within 20 days from first furnishing materials or services, and serving the bond claim within 15 days from the recording of a notice of completion or cessation, or 75 days from completion or cessation, if no notice of completion is recorded.
Florida also has statute for bonded private projects. Albeit, Florida’s notice provisions have an additional layer, dependent on whether the bond is conditional or unconditional. If the payment bond is conditional, a lien may be filed against the property, along with a claim being made against the bond. However, if the bond is non-conditional, the bond will prevent liens from encumbering the property. In either event, to protect rights, a notice must be served within 45 days from first furnishing materials or services, with the bond claim, also known as a Notice of Non-Payment, being served within 90 days from last furnishing.
If the state’s statute doesn’t provide guidelines for a bond claim on a private project, your rights will likely be dictated by the terms of the payment bond & you should seek a legal opinion.
What Makes Tennessee Unique?
David Taylor explained the unique aspect of Tennessee’s statute in his article Creative Legislative Solutions to Bond off Mechanic’s Liens
“…States should follow the lead of Tennessee, which allows a copy of an existing payment bond, if it meets certain criteria, to be filed of record in the same place as the filed lien, and the filing of the bond automatically “discharges” the lien of record, just like a separate filed lien bond. No separate lien bond from a surety is needed. While the underlying dispute must still be resolved, at least the cloud on the title to the real property of the project is removed. The owner is happy. The payments continue to be made. The claimant is normally happy to now be able to sue on the payment bond.”
Tennessee has a hybrid payment-bond-turn-discharge-bond; do you think other states should adopt the same?
Keep ‘Em Straight
It’s easy to get the types of bonds confused. Don’t confuse privately bonded projects with bonded off liens.
In several states, an owner may proactively record a prevention bond so that no liens will attach to their property; instead, any future claim would attach to the prevention bond rather than to the property. Also available in many states, when a mechanic’s lien is filed, the owner of the property may remove the encumbrance from the property by filing a discharge bond (aka transfer bond, dissolution bond). When a discharge bond is substituted for a mechanic’s lien, the lien claimant proceeds against the bond, rather than against the property. The process of replacing the lien with a bond is sometimes referred to as bonding around a lien, bonding off a lien or bonding over a lien.
Don’t let your PMSI go unperfected! Check out this infographic to learn more.
- November 5: An Advanced Look at the UCC Process
- November 12: An Advanced Look at the Lien and Bond Claim Process
- November 26: Implementing a UCC Program: Overcoming Obstacles
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