Curtis A. Welch
503.972.2529
 

Washington Contractors Lose Lien Rights For Failure To Deliver A Disclosure Statement

May 2017

Curtis A. Welch
503.972.2529

Published in the Sussman Shank LLP Newsletter and the
Southwest Washington Contractors Association Newsletter


Contractors who contract directly with the owner on a Washington residential project (for four or fewer residential units), where the contractor's bid or contract price is over $1,000, and on smaller commercial projects in Washington (where the contractor's bid or contract price on the commercial project is between $1,000 and $60,000), must provide a statutory form of Disclosure Statement to the owner prior to the contractor commencing work on the project. Failure of the contractor to provide the owner with the Disclosure Statement results in the contractor losing his or her right to file a construction lien.

The form of Disclosure Statement is set forth in RCW 18.27.114 and, in general, sets forth the contractor's registration number with the Washington Department of Labor & Industries, the amount of the contractor's bond or cash deposit, and that the owner has the right to require the contractor to provide original lien release documents from each subcontractor and supplier on the project. The Disclosure Statement must be in substantially the same form as the form in RCW 18.27.114.

The Disclosure Statement, also known as a Notice to Customer, is often confused by contractors with the Notice of Right to Claim a Lien. Thus, contractors may mistakenly provide the owner with a Notice of Right to Claim a Lien when a Disclosure Statement is required. The Disclosure Statement and Notice of Right to Claim a Lien are two entirely separate forms, and providing the wrong one results in the contractor losing his or her lien rights.

In contrast to a Disclosure Statement, the Notice of Right to Lien is not required of persons contracting directly with the owner or his or her common law agent, whereas on residential projects and smaller commercial projects, subject to the limited exceptions discussed below, the Disclosure Statement is required to be provided when the contractor contracts directly with the owner.

Any contractor contracting directly with the owner on certain projects, not just general contractors, must provide the Disclosure Statement.

The Disclosure Statement requirements apply not only to general contractors, but also to any contractor or provider contracting directly with the owner.  For example, if a carpet installer who ordinarily works as a subcontractor to a general contractor happens to contract directly with the owner to perform work on a residential project or small commercial project, the installer must provide the Disclosure Statement to the owner.

Delivery/Time of Delivery

As stated above, the contractor must deliver the Disclosure Statement to the owner prior to commencing work.  The contractor must also ensure that the owner signs the Disclosure Statement itself to acknowledge that the owner received the Disclosure Statement. The Department of Labor & Industries requires a contractor to retain a signed copy of the Disclosure Statement in his or her files for a minimum of three years and to produce a signed or electronic signature copy of the Disclosure Statement to the Department upon request. Because of this requirement, and the risk of loss of lien rights, the contractor should deliver the Disclosure Statement to the owner in person and wait for the owner to sign and date it, instead of the contractor mailing the Disclosure Statement to the owner by certified or registered mail.

A recommended procedure is for the contractor to attach the Disclosure Statement to his or her contract with the owner, and require that the owner sign and date the original Disclosure Statement and to also sign and date the contractor's copy.

A Disclosure Statement is not required if the owner is a contractor acting as a contractor, and it is not required of suppliers.

The Disclosure Statement need not be given if the contractor is contracting with another contractor. Accordingly, if the owner of the project is a contractor acting as a contractor, there is no need to provide a Disclosure Statement. Care should be taken in relying on this exemption because, even if the owner is a registered contractor, unless the owner is performing construction activities (defined under RCW 18.27.010 (1)) on the same project, the contractor-to-contractor exemption does not apply.

In addition, persons who only supply materials, supplies, or equipment, and do not provide labor to fabricate or install, are not required to provide the Disclosure Statement.

Further, the Disclosure Statement requirement does not apply to public works projects.

Failure to provide the Disclosure Statement when required is a violation of the Washington Consumer Protection Act.

Other than the consequence of losing his or her lien rights, the contractor who fails to give the Disclosure Statement when required is deemed to be guilty of an infraction under the Contractor Registration Act. Such an infraction is deemed to constitute a violation of the Washington Consumer Protection Act, which exposes the contractor to monetary penalties.

Conclusion

Because of the significant consequences of failing to provide a Disclosure Statement when required, a contractor should always provide one to the owner, even if the contractor doubts that he or she needs to do so.


If you have any questions about lien rights in Washington or Oregon, please contact Curtis Welch at cwelch@sussmanshank.com or 503-227-1111.


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