Late last year, the Texas Legislature made a number of changes to the Texas Property Code that will impact not only construction contractors, but also owners of construction projects. Those changes apply to all private commercial construction projects where the original contract between the owner and contractor is signed on or after January 1, 2022. Some of the significant changes follow.
First, the lien notice requirements were changed to simplify the notice process. The new law prescribes statutory forms for the required pre-lien notices, reduces the number of required notices, and allows additional methods of delivery of the notices. The take-away is that the methods previously used by contractors, subcontractors and suppliers to perfect liens when they are not being paid will no longer suffice.
Second, architects, engineers, surveyors, landscapers and demolition contractors can now file liens when they are not paid. This significantly expands the scope of construction industry companies that can now take steps to protect their right to get paid for their work.
Third, the procedure for filing a lien for retainage (now the “reserved fund”) has been simplified, and conflicting statutory provisions have been resolved. This applies if the claim is only for retainage. If the claim includes retainage and a claim for unpaid labor or materials, then other provisions may apply.
Fourth, lien waivers, commonly used in commercial construction projects, no longer have to be notarized to be effective. However, owners and contractors may want to require notarization, especially if there is a potential need to record the waiver in county real estate records.
Finally with respect to the lien process, the time for bringing suit to enforce a lien has been reduced from 2 years to 1 year unless there is an extension agreement signed by the owner. If the enforcement suit is not brought within that time, then the lien becomes unenforceable. This change makes it easier for owners to wait it out in cases where the lien is questionable without incurring significant legal fees in a suit to remove the lien.
The 2021 legislation also changed the long-standing law in Texas that construction contractors can be liable for design defects even if they did not participate in the design process. The rationale was that being in the business, contractors should be able to recognize design defects and address them during the construction process. Under the new law, contractors are no longer responsible for design defects unless they provided the design (e.g. design-build contracts). The new law removes a significant risk from both general contractors and subcontractors. There are some exceptions, including those for “critical infrastructure facility” and EPC projects.