Key point 7-15. A company that supplies building materials for a construction project can claim a “materialmen’s lien” against the property if it is not paid. This means that the company can sell the property to enforce its lien and recover the cost of the materials. Churches are not exempt from such liens.
In most states, a company that supplies building materials for a construction project can claim a “materialman’s lien” against the property in the event it is not paid. A lien is a security interest in property, much like a mortgage, that gives the supplier the legal right to sell the property to recover the cost of the materials. In many cases, a property owner pays a general contractor for construction materials, but the general contractor fails to pay the supplier. In such a case the owner must pay the supplier in order to avoid the sale of its property to enforce the lien. In other words, the property owner ends up paying twice for the same materials. Of course the owner can sue the general contractor, but in some cases this person cannot be found or is insolvent.
Case studies
- A company provided materials for a church construction project. Before delivering the materials, the company wrote the church a letter warning it that if the general contractor failed to pay for the materials, the company could claim a lien against the church’s property. When the company failed to receive payment from the general contractor, it sued to enforce its lien. The company sought not only payment in full for the materials it had supplied, but also finance charges and attorney fees. A court ruled that a materialman’s lien only allows a supplier to collect the full price of materials that were supplied. The supplier is not entitled to an additional amount, whether for finance charges or attorney fees, unless the contract between the parties specifically provides for it.224 Sherman v. Greater Mt. Olive Baptist Church, 678 So.2d 156 (Ala. App. 1996).
- A church entered into a contract with a contractor for the purpose of constructing a driveway and parking lot on its property (at a total cost of $12,500, including all labor and materials). The church paid the contractor the full contract price, but the contractor failed to pay the concrete supplier for $6,500 worth of concrete. The concrete supplier sued the church, demanding payment for the concrete. The church in turn sued the contractor (who could not be located). A jury ordered the church to pay the concrete supplier for the concrete, and acknowledged that the church could sue the contractor if he ever was found. An appeals court observed that under North Carolina law the church’s full payment of the contract price to the contractor extinguished the concrete supplier’s right to a “materialmen’s lien” in the church’s property, but that the church had failed to raise this defense at either the trial court or on appeal.225 Concrete Supply Co. v. Ramseur Baptist Church, 383 S.E.2d 222 (N.C. 1989).
Avoiding Double Payment of Construction Materials
It is important for church leaders to be familiar with the concept of materialmen’s liens in order to avoid paying twice for construction materials. There are a various ways to avoid such a predicament. Here are some recommendations:
(1) Only deal with reputable contractors who have been in business in your community for several years and who have an excellent reputation. Many churches use a contractor who is a member of their congregation.
(2) Withhold all payments to a general contractor in any construction project until “lien waivers” (signed by all material suppliers) are presented. The same is true for construction laborers.
(3) Insist upon a construction contract.
(4) Incorporate the lien waiver requirement into the contract.
(5) Be sure that the materialmen’s lien is restricted to the price of delivered materials, and does not include attorney’s fees, finance charges, or other “add ons.”
(6) Hold back a portion of the contract price until you are assured that all suppliers and workers have been paid.
(7) Consider asking the contractor to submit bills from suppliers and workers directly to the church, and inform the contractor that the church will pay these bills directly.
(8) Retain a local attorney to draft (or review) the construction contract, and have the attorney review the materialmen’s lien procedures under your state law. And, if your church is ever sued by a supplier seeking to enforce a materialmen’s lien, remember that the supplier may not be able to recover attorney’s fees or finance charges.