The Construction Counselor

On May 23, the Iowa Court of Appeals issued its ruling in a case centered on interpretation of a commercial sub‑subcontractor pre‑lien notice requirement under Iowa law in the matter of C&S Lease Services v. Northern Natural Gas Company. Attorneys Jodie McDougal and Jack O’Brien represented the owner, Northern Natural Gas. The Court of Appeal’s holding that such pre-lien notice — set forth in Iowa Code § 572.33(2)(a) — must be “clear, deliberate, and purposeful” aligns with longstanding Iowa precedent that lien statutes are strictly construed, and those seeking to enforce a lien must be careful to comply with statutory requirements or risk waiving their rights.

The Statutory Notice Requirement

Iowa law gives “[e]very person who furnishes any material or labor” on a construction project the right to file a mechanic’s lien. Iowa Code § 572.2. However, that right comes with explicit requirements and restrictions. One such restriction on commercial projects is outlined in Section 572.33(2)(a), which limits the mechanic’s lien rights of sub-subcontractors (in other words, persons working for a subcontractor as opposed to the general contractor or owner). The statute states that a “person furnishing labor or materials to a subcontractor shall not be entitled to a lien” unless the person provides the general contractor or owner-builder “a one-time notice” containing their “name, mailing address, and telephone number” and “the name of the subcontractor” they are working for within 30 days of starting work on the project. Iowa Code § 572.33(2)(a). The sub-subcontractor must also certify on their lien that they provided this notice. Iowa Code § 572.33(2)(b).

Even prior to this case, there was no dispute that Section 572.33(a)(2) was a strict requirement given its clear language. Prior case law in Iowa had also already established that equitable circumstances did not excuse or waive this requirement. LM Constr. LLC v. Altoona Hospitality LLC, No. 17‑1060, 2018 WL 3654847, at *2 (Iowa Ct. App. Aug. 1, 2018) (holding a sub-subcontractor was required to provide the notice even though it did not know the identity of the general contractor). Under such circumstances, a sub-subcontractor may still pursue contractual or equitable relief, but it does not have the right to a mechanic’s lien under the statute.

For more information on pre-lien notice requirements, please see our other blog entry available here: Iowa Pre-Lien Notice Requirements for Lower-Tiered Subcontractors.

The Court’s Decision

The case involved a sub-subcontractor on a commercial project who was essentially concealed from the general contractor; the subcontractor had passed along all invoices and documents in its own name without ever referencing the sub-subcontractor on those invoices. The subcontractor then accepted payment for the work and allegedly never relayed funds to the sub-subcontractor. Even though it had not provided any notice and had no contact with the general contractor or owner throughout the project, the sub‑subcontractor filed a mechanic’s lien.

Citing Section 572.33(2)(a), the owner argued that they never had the chance to monitor payments to the sub-subcontractor because the sub-subcontractor never provided the required notice. Had the notice been given, the owner could have required the subcontractor to forward payment and obtain lien waivers as appropriate. In the absence of any clear notice, the sub-subcontractor was forced to rely on incidental communications as fulfilling the requirements of the statute. Specifically, the sub-subcontractor relied upon a blank email about training documents that happened to be forwarded to the general contractor which contained the information required by the statute (its name, address, and telephone number and the name of the subcontractor) by virtue of its employee’s signature block and various email domain names. The email did not contain any context or reference to notice or sub-subcontractor status.

The Iowa Court of Appeals found that this incidental email did not constitute the notice contemplated by Section 572.33(2)(a) (“We conclude the legislature did not intend for statutory notice to be satisfied by information buried within incidental correspondence.”). Instead, the Court interpreted the statute’s requirement of a “one-time notice” as an “expectation of an individual, discrete, and intentional communicative act.”  In other words, the statute “requires a purposeful communication conveyed in a manner to alert the general contractor of the sub-subcontractor’s pre-lien notice.” The Court concluded that accepting the email at issue as notice would fail to provide notice at all and undermine a general contractor’s ability to monitor payments, control construction financing, and prevent lien filings and disputes. (“Allowing an isolated signature block embedded in an unrelated forwarded email to satisfy the statutory notice requirement would undermine the protection the legislature intended to afford. Such an interpretation would permit notice to be retroactively pieced together from incidental correspondence and impair a general contractor’s ability to meaningfully monitor and manage lien exposure.”).

Ultimately, the Court reasoned that in order to fulfill the notice requirement of Section 572.33(2)(a), the sub-subcontractor’s communication to the general contractor or owner-builder must be the “clear, deliberate, and purposeful communication the statute contemplates.”

Key Takeaways

• Owners, general contractors, subcontractors and sub-subcontractors should all keep in mind that mechanic’s liens offer valuable protections under Iowa law but only if the statutory requirements are strictly followed.
• When it comes to providing statutory notices, communications should be clear and deliberate. Incidental communications cannot be cobbled together after the fact to satisfy the statute.
• A key purpose of Iowa’s mechanic’s lien statutes is to uphold sound construction financing and ensure everyone gets paid. Thus, it is best practice to avoid surprises, and project participants should implement clear notice and payment-tracking procedures early in the construction process to avoid costly lien disputes.
• The ruling is particularly important for owners and general contractors because the notice requirement is intended to allow project participants to monitor payment flows and proactively manage mechanic’s lien exposure.

If you have questions regarding anything addressed in this article, please contact Jodie McDougal or Jack O’Brien.