Lien Law Update:
There have been recent changes to the Tennessee Lien Laws having significant effects on notice, retainage, and prompt payment requirements in the construction industry. The new Tennessee legislation went into effect July 1, 2020, and had the most impact on Notice to Owner requirements, essentially inversing the requirements on who must submit such a notice and simplifying the standard form.
As of the new July 1, 2020 changes, only prime contractors working on owner-occupied, residential projects of 1-4 units must send a Notice to Owner, as long as the owner intends to live there after construction. Contractors for other types of projects are no longer required to submit a Notice to Owner. This is precisely the inverse of the prior rules, as prime contractors working on residential projects were previously exempt from sending such Notice. Additionally, the Tennessee legislature simplified the language that must be included in the Notice.
Other significant changes made relate to retainages and the Prompt Pay Act. As of the July 1st changes, retained funds not deposited into an escrow account accrue damages beginning from the date the retained funds are first withheld. However, as of these changes, these fees are expressly to be considered to be “damages” and not to be a “penalty”. The legislature also added Section 66-34-103(e)(4) exempting public entities from these and other late retainage penalties and damages.
The July 1, 2020 amendments also made it so that bankruptcy is not a defense for failure to release retainage or trust funds when due and expressly increased interest penalties for late construction payments to 1.5% per month on contracts not specifying an interest rate. This is a marked increase compared to the previous rate of 2% less than the formula rate per annum for contracts not specifying an interest rate.
the legislation created new form language to be used when giving a notice of
intent that prompt payment laws will be invoked, which may be sent on its own
or within a contractor’s Notice of Nonpayment.