The Owner Will Not Pay. A Contractor's Options in Texas

Why is the owner not paying?

The answer decides the strategy. Owners stop paying for three reasons: they dispute the work or the amount, they have a cash problem, or they are simply using the contractor as a lender. Each calls for a different first move.

If the owner claims the work is defective or incomplete, Texas law lets him withhold money in a good faith dispute, but only up to 100 percent of the disputed difference on commercial projects and 110 percent on a house, duplex, triplex or fourplex (Tex. Prop. Code § 28.003). Everything above that is still due. Ask for the owner's reasons in writing; a vague complaint about quality that appears for the first time after the invoice is weak evidence of a good faith dispute.

If the owner has a cash problem, the property itself becomes the security, and the lien deadline becomes the most important date on the calendar. If the owner is stalling, the interest and fee exposure described below usually changes his math.

What does the Prompt Payment Act give me?

Three things on private projects. First, a due date: an owner who receives a written payment request for work properly performed must pay it, less any amount lawfully withheld, not later than the 35th day after receiving the request (Tex. Prop. Code § 28.002). Second, interest: an unpaid amount accrues interest at 1.5 percent each month, starting the day after the due date, until the payment is delivered or judgment is entered (§ 28.004). Third, a court may award costs and reasonable attorney's fees in an action to enforce the chapter (§ 28.005).

The Act also gives a contractor on a non-residential project the right to suspend performance. If the owner fails to pay the undisputed amount on time, the contractor may stop work on the tenth day after giving the owner, and in some cases the owner's lender, written notice that payment has not been received and that the contractor intends to suspend (§ 28.009). A contractor who suspends properly need not return until paid, including demobilization and remobilization costs, and is not liable for suspension damages unless he was told in writing before stopping that payment was made or a good faith dispute exists. The suspension right does not apply to single-family houses, duplexes, triplexes or fourplexes, or to government projects. The Texas Prompt Payment Act explains each deadline.

Should I file a lien?

Usually yes, if the deadline has not passed, because a lien converts an unsecured debt into a claim against the land and the owner's lender starts paying attention. An original contractor who contracted directly with the owner does not have to send pre-lien notices; he files a lien affidavit with the county clerk no later than the 15th day of the fourth month after the month his work was completed, terminated or abandoned, or the third month on a residential project (Tex. Prop. Code § 53.052), and sends the owner a copy within five days (§ 53.055). A homestead needs a written contract signed before the work started, by both spouses if the owner is married (§ 53.254).

A lien is only as good as the paperwork. Filing late or omitting a required element gives the owner a fast route to remove it and can expose the claimant to a fee award. How mechanic's liens work in Texas covers the mechanics, and the deadline guide in this library owns every date.

What does a breach of contract claim add?

Attorney's fees and a judgment that follows the owner, not just the property. A contractor who proves a breach of a written or oral contract may recover reasonable attorney's fees from an individual or a business organization under Tex. Civ. Prac. & Rem. Code § 38.001, as long as the claim was presented and not paid within 30 days. The contract may also carry its own fee clause, which applies on its terms.

Where there is no signed contract, or the owner argues the written one does not cover the work, Texas allows recovery of the reasonable value of work the owner knowingly accepted. Quantum meruit and unjust enrichment explain when that claim is available.

Example

Suppose a Fort Worth mechanical contractor submits a $220,000 pay application on a commercial project and hears nothing for seven weeks. The owner never sent a written dispute notice. On day 36 interest began at 1.5 percent a month. The contractor sends a ten-day suspension notice under the Prompt Payment Act, calendars the lien affidavit deadline for the 15th day of the fourth month after his last month of work, and sends a demand letter that states the principal, the accrued interest, the lien deadline and the fee exposure under § 38.001. Owners who were stalling usually pay or negotiate at that point; owners who cannot pay reveal it, and the contractor still has the lien.

What should the demand letter say?

The amount due by pay application, the contractual and statutory due dates, the interest accrued to date and the daily rate going forward, the date the lien affidavit will be filed if payment is not received, and the fee statutes that will apply in suit. Attach the pay applications and any approvals or inspections that show the work was accepted. Leave out threats that cannot be carried out and anything about the owner personally. What to include in a demand letter for an unpaid invoice has the structure.

What mistakes cost contractors the most?

• Continuing to work for months on promises, until the lien deadline for the early months has passed.
• Stopping work without the written notice the contract and § 28.009 require, which hands the owner a breach claim.
• Signing an unconditional lien waiver with a pay application before the check clears.
• Letting the owner's complaints about quality go unanswered in writing, so the record shows only his version.
• Billing for extra work that was never put in a signed change order, then losing the argument over whether it was authorized.

When to bring in a litigator

When the first payment is more than a few weeks late on a project of any size, because the lien clock is running and a misstep in the suspension notice or the affidavit cannot be undone. A short consultation can fix the sequence: notice, lien, demand, suit or arbitration. Tina Wysk represents contractors and owners in payment disputes in Dallas–Fort Worth courts and in arbitration.