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Send or Respond to a Construction Dispute Demand Letter – Texas

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Lovein Ribman is a Texas based construction law firm who represents the construction industry in every county throughout the entire state of Texas. Our firm is led by Board-Certified Construction Attorneys (an honor held by only 135 attorneys in the state) who represent Residential and Commercial Property Owners, Commercial Tenants, Architects, Engineers, Developers, General Contractors, and every Subcontracting trade in the industry with prosecuting and/or defending every type of dispute that can arise on a commercial or residential construction Project to include disputes over non-payment or the right to withholding payment, a Contractor’s failure to pay Subcontractors/Suppliers, Mechanic’s Lien Claims, alleged defective workmanship, Project delays and delay damages, change order disputes, and Project abandonment. If you are presently in a construction dispute and need to send or respond to a Demand Letter, please contact us to schedule a consultation by calling us directly or at (888) 368-2483 or by submitting the Contact Form. Read on to learn more about the types of Demand Letters our firm commonly sends/receives for our clients on commercial and residential construction Projects and the statutes raised through these Demands.

COMMON COMMERCIAL AND RESIDENTIAL CONSTRUCTION DEMAND LETTERS

Most construction disputes start with sending or receiving a Demand Letter. Typically, a Demand Letter is sent as an attempt to informally resolve a dispute in lieu of litigation and/or to place a party on formal Notice of a statutory or contractual violation before filing a lawsuit. In the context of a construction dispute, a Demand Letter will typically: (1) set forth facts in support of the demand and statutory violations; (2) reference and apply Contract provisions; and (3) provide formal Notice of certain construction statutes, such as the Prompt Payment Act, the Trust Fund Statute, Texas Property Code Section 53 (mechanic’s lien statutes), Chapter 27 (“RCLA”), and the Deceptive Trade Practices Act (“DTPA”). Depending upon the circumstances and the goal, the tone of a Demand Letter can be either neutral or adversarial.

Payment Demand Letter: As the name implies, a Payment Demand Letter is primarily used as a means to compel a party to pay a debt. This type of demand is typically sent if: (1) the Claimant does not have Lien rights and therefore cannot file a Lien; (2) the amount in controversy is too small to justify filing a lawsuit, but the Claimant does not want to forego the amount owed without first making an attempt to collect the debt; (3) the amount in controversy is substantial enough to file a lawsuit, but the Claimant desires to make one last attempt at resolving the dispute before the lawsuit is filed; and/or (4) the Claimant is required to provide the other party with formal Notice before a lawsuit can be legally filed, e.g., CPRC Section 38. Typical statutes referenced in a Payment Demand Letter include violation of the Prompt Payment Act and the right to recover interest at 18% a year on the principal amount and attorneys’ fees, violation of the Trust Fund Statute if Project funds have been diverted from the Project, and reimbursement of attorneys’ fees under CPRC Section 38. A Payment Demand Letter is a cost-efficient method for compelling payment of a construction debt.

Notice of Claim (Pre-Lien Notice or Intent to Lien Notice) Demand Letter: Any Claimant not hired directly by the Property Owner or a commercial Tenant is required to timely serve a Notice of Claim to the Property Owner and the General Contractor before recording a Lien against the Property. The minimum statutory requirements for a valid Notice of Claim are basic, e.g., the Claimant’s name, address, and telephone number; the amount owed; the months the unpaid work was provided; and a brief statutory notice. However, a Notice of Claim should do more than just satisfy the minimum statutory requirements; it should seek to resolve the dispute in order to avoid having to record a Lien or file a lawsuit. One potential way to satisfy this goal, is to draft the Notice of Claim in the form of a Payment Demand Letter and include a summary of the relevant facts concerning the work performed and non-payment, citation to any relevant Contract provisions, and reference and application of the Prompt Payment Act, the Trust Fund Statute, and reimbursement of attorneys’ fees under CPRC Section 38.

Notice of Lien Filing Demand Letter: Within no later than five days from recording a mechanic’s Lien Affidavit, the Lien Claimant is required to serve the Lien Affidavit on the Property Owner and General Contractor (if applicable); serving the Lien Affidavit as a standalone document satisfies the minimum statutory requirements. However, doing the minimum is rarely enough to obtain the desired results. Instead of serving the Lien Affidavit alone, Claimants can use this rare opportunity to serve the Lien Affidavit as an enclosure to a Demand Letter, wherein the Lien Claimant: (1) summarizes and argues the disputed facts; (2) identifies and applies applicable Contract provisions that have been breached and the consequence of the breach; (3) informs the Debtor that pursuant to the Prompt Payment Act interest is accruing on the principal amount owed at 1.5% a month and will continue to accrue until paid in full; (4) that pursuant to the Trust Fund Statute anyone who has diverted Project funds instead of paying the Lien Claimant may be personally liable and subjected to civil and criminal liability; and (5) clearly informs the Property Owner and Debtor that if the amount owed is not paid within the stated time, that a civil lawsuit will be filed to foreclose the Lien and to enforce the above-referenced statutes. Lien Claimants who use online Lien services miss this rare opportunity since Lien services simply satisfy the bare minimum requirement of recording and serving the Lien Affidavit.

Notice to Foreclose Mechanic’s Lien Demand Letter: If a Demand Letter was not used to serve the Lien Affidavit or if the Lien Claimant desires to provide the Debtor with one last opportunity to resolve the debt before filing a lawsuit to foreclose the Lien, then the Claimant should send a Notice to Foreclose. This is typically a brief Demand Letter which focuses almost solely on the imminent threat of a lawsuit being filed if the debt is not immediately paid.

Notice of DTPA Violations Demand Letter: The Deceptive Trade Practices–Consumer Protection Act (known as the “DTPA”) is a consumer protection statute which aims to protect consumers against certain “false, misleading, and deceptive business practices”, unconscionable actions, and breach of warranties. A violation of the DTPA is commonly alleged in a construction defect case because the DTPA expressly applies to when a Builder/Contractor breaches its own express warranty and/or the implied warranty of “good workmanlike manner” and/or habitability. A Builder/Contractor also violates the DTPA when it commits an “act or practice which, to a consumer’s detriment, takes advantage of the lack of knowledge, ability, experience, or capacity of the consumer to a grossly unfair degree” or when it engages in “false, misleading, or deceptive acts or practices”. To initiate a DTPA claim, the Homeowner is required to provide written Notice to the Builder/Contractor specifically identifying the DTPA violations and setting forth the amount of damages and fees incurred as a result of the violation. A DTPA Notice must be sent within no earlier than 60 days of filing a lawsuit. DTPA Notices are typically incorporated into one or more of the other Demand Letters set forth herein.

Chapter 27 Notice of Residential Construction Defects Demand Letter: Within no less than 60 days prior to filing a lawsuit or initiating binding arbitration against a Builder or Contractor to recover damages arising out of defective workmanship, Homeowners must first satisfy the mandatory requirements set forth in Chapter 27 of the Texas Property Code, also referred to as the Residential Construction Liability Act (“RCLA”). A Chapter 27 claim is initiated by the Homeowners (typically by and through their attorney) by sending a formal Notice to the Builder/Contractor by certified mail, which identifies in reasonable detail the known construction defects, the damages suffered, and supporting evidence. Typically, this is the first formal Notice sent to the Builder/Contractor and is a perfect opportunity to assert and reference other claims or violations. Most RCLA Notices will include formal notice of Deceptive Trade Practices Act (“DTPA”) violations for failure to honor an implied or express warranty. On Projects still under construction, it is also common to use this opportunity to demand an accounting of Project funds under the Trust Fund Statute and to provide formal Notice of Default.

Notice of Default and Request to Cure Demand Letter: Most well-drafted Construction Contracts require the non-defaulting party to provide the defaulting party with written Notice of Default and an opportunity to cure the default before the Contract can be terminated. Even if the Contract does not require formal Notice before terminating the relationship, it is typically in the non-defaulting party’s best interest to do so. A Notice of Default should specifically identify the applicable Contractual Notice provision, clearly identify each event of default, incorporate supporting evidence of the default and demand that the default be cured within the contractually mandated deadline. In addition, a Notice of Default typically includes reference to other applicable statutes and demands, such as: (1) a demand for Project accounting under the Trust Fund Statute, and (2) identification and demand for damages as a result of the default.

Demand to Remove an Invalid Lien: By far the most expeditious and least expensive method to defeat a Contractor’s threat to file an invalid Lien or remove an already filed invalid Lien, is to send the Lien Claimant a “Release of Lien” and a Demand Letter that: (1) thoroughly outlines the applicable Lien laws; (2) describes how the Lien Claimant has not or cannot satisfy these requirements; (3) identifies the defects with the Lien Claimant’s Lien documents; and (4) explains the sanctions that will be sought and imposed by the Court if the invalid Lien is filed and/or not immediately removed, i.e., $10,000.00 or actual damages if higher, plus attorneys’ fees. Over the years we have found this option to be very effective. This type of Demand can be prepared in response to a Subcontractor/Supplier/Laborer Notice of Claim, to a Direct Contractor’s verbal or written Demand threatening a Lien, or as a response to the filing of an invalid Lien Affidavit.

If you need to serve or have received a Payment Demand Letter in 2024, please contact us to schedule a consultation by calling our direct office lines or our toll-free number at (888) 368-2483, or by submitting the Contact Form.

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SEND OR RESPOND TO A CONSTRUCTION DISPUTE DEMAND LETTER
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