The Construction Lien Act (CLA) requires that subcontractors and suppliers serve, by certified mail or personal service, a Notice of Furnishing upon the general contractor and owners designee named in the owners Notice of Commencement. The Notice of Furnishing must be served within 20 days after first labor or material supplied. Even if the Notice of Furnishing is served after the 20 day period, the subcontractor or suppliers lien claim may not be affected. If the owner fails pays the contractor – – based upon the contractors sworn statement for the labor or material furnished by the subcontractor or supplier, then the late Notice of Furnishing will reduce or defeat the subcontractor or suppliers claim of lien by the amount of the owners payment. On the other hand, if in the interim, the owner does not pay the contractor – – based upon the contractors sworn statement – – for labor or material furnished by the subcontractor or supplier, then the lien amount will not be reduced by the late Notice of Furnishing.
As an example, an electrical subcontractor has a $10,000 lien claim, but gave its late notice of furnishing 60 days late. During the 60 day period, the owner paid the contractor a progress draw – – that included $4,000 for the electrical work – – based upon the contractors sworn statement, then the lien amount will be reduced to $6,000 ($10,000 – $4,000).
To summarize, a late Notice of Furnishing will only reduce or defeat a subcontractor or suppliers lien amount if:
1. the owner pays the contractor based upon the contractors sworn statement, and;
2. the owners payment includes an amount for the labor or material provided by the subcontractor or supplier.
From my experience, a late Notice of Furnishing only reduces or defeats a lien claim in 20-25% of cases. The point – – – give the Notice of Furnishing, even if LATE.