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Am I a general contractor or a subcontractor?

You are most likely a general contractor if:

  • You have a verbal or written agreement with the property owner, and
  • No one is telling you how to perform your work, or otherwise, does not supervise your work. (Please note that the property owner may ask you to do extra work or not to do something you agreed to do previously, but does not dictate you how you are to perform your work. )

You are most likely a subcontractor if:

  • You have a verbal or a written agreement with someone other than property owner,
  • Your work is supervised/reviewed by another contractor, and
  • Your payments come from a contractor’s company or a title company.

What steps I need to take to protect my rights when I am a general contractor?

  • Have a written signed agreement. Please note that according to Illinois law, all contracts for home repair or remodeling for more than $1,000 should be in writing. Even a simple written agreement is better than a verbal agreement as it provides more guidance to the scope of your work and any extra work orders. If you can’t draft a separate agreement, have the owner sign and accept the Estimate. Make sure all extra work orders, for which you will also bill extra, are reduced to writing. Make sure you write exactly what the extra work will be and include the extra price you will charge. Deliver the extra work order to the person who asked for the extra work to be done (the property owner) before you begin the work and retain a copy in your file.
  • Give the property owner a "Home Repair: Know Your Consumer Rights" pamphlet. Under Illinois law, all contractors who perform home repairs or remodeling work on a property occupied by owner must give the owner the pamphlet. The pamphlet can be found on http://www.ag.state.il.us/publications/pdf/homerep0403.pdf. When you give the property owner the pamphlet, fill out the required info on the pamphlet and retain the acknowledgment of pamphlet receipt signed by the owner in your file.
  • Give property owner a Sworn Statement. Under Illinois law, a contractor must provide a written list of the names and addresses of all parties furnishing materials and labor and the amount due or to become die to each to a property owner. In other words, the Sworn Statement is a list of all subcontractors and amounts you agreed to pay them for their work on the property. If subcontractors change, or the amount, you should update the Sworn Statement and give a copy to the owner.
  • Send a notice of a breach of agreement. If you performed work, but the property owner has failed to pay as agreed, stop work and send the owner a Notice of Breach of your agreement providing him with short time period to pay. If he does not pay, you should consult an attorney and consider filing a lien against the property.
  • File a Mechanics Lien against the property within four (4) months from the last day of your work on the property. To be the first in line for payment (should the property be sold/auctioned/foreclosed), you must record a lien against the property within four (4) months from the time you last performed any work on the property. The Lien must be recorded with the Recorder of Deeds of the county where the property is located. If you are outside the four months window, you can still file a lien and enforce it against the original owner (the person you had an agreement with and still owns the property) within two (2) years from your last day of work at the property. Note that you cannot file and enforce a lien against a subsequent purchaser.
  • Send a copy of the lien to property owner. You must send a copy of the Lien filed with the Recorder of Deeds to the property owner within ten (10) days of filing. Send the notice by certified mail, return receipt requested.
  • File a Foreclosure of Lien court action. To receive benefits of the Lien (be paid), you must initiate a foreclosure action within two (2) years from the last day of your work on the property. Please consult an attorney to see whether you have proper basis for filling a mechanics lien foreclosure action. If you have a corporation, you must hire an attorney to represent you in court. You, as the owner of the corporation, cannot represent the corporation in court ‘pro se’, unless you are a licensed attorney.
    • Please note that it is not enough that you record a lien against the property. If you do not file a foreclosure action within the two year window, the lien will be invalidated. The property owner can sell the property without paying you. You will lose your right to payment under the lien law. (However, you may still have some other legal remedies available, such as breach of contract or quantum meruit)
    • Beware! If you receive a letter from the property owner, or any person interested in the property, demanding that you file a foreclosure action within 30 days (enforce your lien under Section 34 of the Illinois Lien Act), you MUST do so. If you fail to file a court action with 30 days, your lien will be forfeited.

What steps I need to take to protect my rights when I am a subcontractor?

  • Have a written signed agreement. Even a simple written agreement is better than a verbal agreement as it provides more guidance to the scope of your work and any extra work orders. If you can’t draft a separate agreement, have the owner sign and accept the Estimate. Make sure all extra work orders, for which you will also bill extra, are reduced to writing. Make sure you write exactly what the extra work will be and include the extra price you will charge. Deliver the extra work order to the person who asked for the extra work to be done (general contractor) before you begin the work and retain a copy in your file.
  • Give property owner a 60-Day Notice. You only need to provide this notice on a single family residential project. Stating it more simply, if the property on which you are working is occupied by a person or one family, or you know that the property is owned by a person as opposed to a corporation, you must serve the person with a 60-Day Notice within 60 days of your STARTING the work on the property. You do not need to provide notice on commercial or industrial projects. Send the 60-Day Notice by certified mail, return receipt requested. Also, make sure the 60-Day Notice is both verified and notarized, which simply means that you should sign the 60-Day Notice before a Notary Public before you mail it.
    • Note: that you should send this notice to property owner as soon as possible. Do not wait 60 days. When the property owner receives such notice, he/she is obligated to pay you in full directly should the general contractor fail to pay you. By providing notice, you are, in essence, forcing the property owner to make sure the general contractor pays you. In other words, if the property owner paid general contractor who failed to pay you, you could make the property owner pay you again forcing the property owner to pay twice. Therefore, the property owner will make sure that a general contractor pays you before the property owner pays general contractor any additional money.
  • Send a notice of a breach of agreement. If you performed work, but the general contractor has failed to pay as agreed, send him a notice of a breach of contract. The notice should state what work you have performed and money is owed to you. Provide the general contractor with certain time to pay you the outstanding amount. It is a good practice to send a copy of such notice to the property owner as property owner is really the person who is paying for all work done at the property. However, take into consideration that the general contractor may not take such notice well and may want to terminate your agreement for the project and replace you with another contractor. You need to determine whether the general contractor is trustworthy, or not. In any event, if your payment is more than 80 days outstanding, take the next step. …send a 90 Day Notice.
  • Send a 90-Day Notice of Lien. The 90-Day Notice is really a notice of intention to file a mechanics lien. Same format is used for all project types. You can find a sample notice at http://subscriptions.uslegalforms.com/gale/form.php?cn=US-00960BG. This notice MUST be served by certified mail, return receipt requested within 90 days of last furnishing labor or materials at the project. Please note that you must sign the Notice of Lien before a Notary. You need to send this notice to: property owner, general contractor and a mortgage lender (if any). There might be additional persons who have interest in the property and need to be served with the notice. Therefore, you should do a title search with the Recorder of Deeds of a specific county in Illinois.
  • File a Lien with the Recorder of Deeds. You must file a lien within four (4) months from the completion of your work at the property (the last time you furnished any services or delivered materials) with the Recorder of Deeds of county where property is located. Please note that the Lien must be signed by you before a notary before you file it with the Recorder of Deeds. A Lien must contain a description of your contract terms, work performed, any credits due for work not performed or repairs needed, the amount of the original contract, any extras and the amount now due. You may find a sample at http://subscriptions.uslegalforms.com/gale/search.php?c=Liens+-+Construction+-+Mechanics+-+Illinois.
  • File a Foreclosure of Lien court action. To receive benefits of the Lien (be paid), you must initiate a foreclosure action within two (2) years from the last day of your work on the property. Please consult an attorney to see whether you have proper basis for filling a mechanics lien foreclosure action. If you have a corporation, you must hire an attorney to represent you in court. You, as the owner of the corporation, cannot represent the corporation in court ‘pro se’, unless you are a licensed attorney.
    • Please note that it is not enough that you record a lien against the property. If you do not file a foreclosure action within the two year window, the lien will be invalidated. The property owner can sell the property without paying you. You will lose your right to payment under the lien law. (However, you may still have some other legal remedies available, such as breach of contract or quantum meruit)
    • Beware! If you receive a letter from the property owner, or any person interested in the property, demanding that you file a foreclosure action within 30 days (enforce your lien under Section 34 of the Illinois Lien Act), you MUST do so. If you fail to file a court action with 30 days, your lien will be forfeited.

 

The articles are provided purely for your information and do not constitute legal advice. Persons in need of legal advice related to a subject discussed in any article should contact or consult a lawyer who is qualified to practice in that area of law. While the information may prove to be helpful, each and every case must be carefully evaluated and proper course of action selected by a competent attorney. A Law Team does not assume any responsibility for any action a reader selects to take based on any of the content in these articles.