Tennessee
Construction Lending State Compliance Library
Last updated September 6, 2023
Disclaimer: Information on this website is provided for informational purposes only and is not intended to be legal advice or establish an attorney-client relationship. Construction law can change at any time, so the information on this website may not be the most up-to-date information available. The information on this website is posted “as is” and no representations are made that the content is without errors. Use of this website does not create an attorney-client relationship between Land Gorilla, content creators, law firms, and any other contributors to this website. Users of this website should contact their own legal counsel for advice with respect to any legal matters.
Tennessee Construction Lien Law
Lien Law Overview
Tennessee’s mechanics lien law is in favor of laborers and materialmen. Lenders are cautioned to physically inspect property for the “visible commencement of operations” and/or obtain assurance that there has been no commencement of operations from all parties involved in a particular loan transaction prior to closing.
Lien Waivers
Lien Waiver Summary
Tennessee does not have statutory lien waiver forms. Use industry best practices and lien waiver forms acceptable to the lender.
A contractor, sub-contractor, or supplier obtains lien rights first by starting the visible commencement of operations. A contractor with a written contract may establish priority of his lien right by filing a Notice to Owner and Notice of Lien.
A Notice to Owner must be filed by a contractor before commencement of improvements. Notices under the lien law are either required to be filed of record or served directly to the receiving party. The lender will need to ensure to search public records, obtain title searches at each draw, and to ensure that the owner and contractor are required to advise the lender of any notices received or provided.
Statutory Form
Not Required*
Notary
Not Required**
Electronic Signature
Acceptable
Are title companies required by law to manage construction loan disbursements?
No, but title companies are insurance companies who may require -in exchange for insurance coverage – some level of control over how loan proceeds are disbursed. If they do, the lender either must comply with the title company’s demands or risk not having coverage for the loan (or try another title company, but they tend to share best practices by location/region).
Can a mechanics lien have priority over a pre-existing mortgage in Tennessee?
The general rule is that for priority over mechanics liens, the deed of trust must be recorded prior to visible commencement of operations. If the deed of trust is recorded prior to the visible commencement of operations, then the deed of trust is superior to the mechanics liens. Mechanics liens attach as of the visible commencement of operations [excluding however, demolition, surveying, excavating, clearing, filling or grading, placement of sewer or drainage lines, or other utility lines or work preparatory therefor, erection of temporary security fencing and the delivery of materials for them]. See Tenn. Code Ann § 66-11-104(a). “Visible commencement of operations” means the first actual work of improving upon the land or the first delivery to the site of the improvement of materials, that remain on the land until actually incorporated in the improvement, of such manifest and substantial character as to notify interested persons that an improvement is being made or is about to be made on the land, excluding, however, demolition, surveying, excavating, clearing, filling or grading, placement of sewer or drainage lines or other utility lines or work preparatory therefor, erection of temporary security fencing and the delivery of materials for them. If there is a cessation of all operations at the site of the improvement for more than ninety (90) days and a subsequent visible resumption of operations, any lien for labor performed or for materials furnished after the visible resumption of operations shall attach and take effect only from the visible resumption of operations. See Tenn. Code Ann § 66-11-104(b).
A lender can lose priority over a mechanics lien claim if, a contract for an improvement is made with an owner/borrower, and the laborer/materialman has:
- served the lender with written notice of the contract for improvement by certified or registered mail before the work is begun or materials furnished by the laborer/materialman, and
- the lender gives written consent to the contract for improvements by certified or registered mail, the lien will have priority over the mortgage.
In addition, if the lender receives the written notice and fails to serve a written objection by certified or registered mail within ten (10) days after receipt of the notice, the lender’s consent will be implied by its failure to object if the notice complies with the statute by including a name and return address to which the written objection is to be served, using the method of service set forth in Tenn. Code Ann § 66-11-108.
Thus, lenders should be sure to respond to any such notice or correspondence received from a laborer/materialman.
Notices
Notice of Commencement (or similar like event)
Not applicable.
Preliminary Lien Notifications
Yes, a contractor, sub-contractor, or supplier obtains lien rights first by starting the visible commencement of operations. A contractor with a written contract may establish priority of his lien right by filing a Notice to Owner and Notice of Lien.
Notice of Completion
Yes. Tenn. Code Ann. §66-11-143. This is a statutory form by the state that can be filed by the owner or owners agent to shorten the time frame for parties to file liens at the end of construction. Typically it reduces the time from 90 days to 10 days. Additionally, a project owner (or their agent) must simultaneously record and serve the notice of completion on the contractor on the project. This is not an “and/or” scenario. Should the project owner do one without the other, the notice of completion has no weight, and the deadline remains at 90 days.
Should the project owner properly record and serve the notice of completion, general contractors on residential projects have just 10 days from the date the notice of completion was filed to file their liens or suits. General contractors on commercial projects will have 30 days to take action. Residential subcontractors generally do not have lien rights in Tennessee, but commercial subs have 30 days when the notice of completion is recorded and served.
Note that substantial completion occurs when:
- Receives a use and/or occupancy permit from a gov’t agency
- Received a certificate of substantial completion from the architect/engineer; or
- Begins to use, or could have begun to use, the improvement.
Who Must File It?
Only the Owner or Owner’s Agent can file the Notice of Completion
When Must it be Filed?
Promptly upon completion.
Download Tennessee Notice of Completion Form
Fill out the form and the document will be sent to your email.
Disclaimer: This form is provided for informational purposes only and is not intended to be legal advice or establish an attorney-client relationship. It is posted ‘as is’ and we do not warrant that it is the most current version. Users of this form should consult their legal counsel before using this form for their particular transaction.
Title
Tennessee uses ALTA title commitments that allow for the Construction Loan Update Endorsement, which is used when the lender requests endorsements as additional disbursements are made. It gives coverage up to the new outstanding mortgage balance and shows whether any other instruments have been filed and recorded since the last title update. The endorsement also ensures the priority of the insured mortgage over instruments that are not specifically listed in the endorsement. Since the title company has a stake in the disbursements, you may find that they exercise some due diligence relating to construction draws.
Prompt Pay Act
Tennessee’s retainage laws are located in the Prompt Pay Act (T.C.A. Section 66-34-101, et. seq.) Title 66 – Property Chapter 34- Prompt Pay Act.
Note that the Prompt Pay Act has applicability that can be found in Section 66-34-(701-703). Most importantly the provisions for the chapter regarding the Prompt Pay Act (which includes retainage requirements under the Prompt Pay Act) shall not apply to contracts for the construction of, or home improvement to, any land or building, or that portion thereof which is used or designed to be used as a residence or dwelling place for one (1), two (2), three (3) or four (4) single family units.
Prompt Pay Act (PPA) Overview
Notwithstanding the above-mentioned exceptions to the PPA, If the prime construction contracts exceed $500,000, it is mandatory that the owner place the retainage into a separate, interest-bearing escrow account with a third party. This may also be interpreted as the lender who is in control of the funds.
The Owner or Lender must release retainage to the original contractor within 90 days of substantial completion.
In Tennessee, contractors, owners and lenders need to hold retainage funds in a separate escrow account.
Per the Prompt Pay Act, any public or private project, retainage cannot exceed 5%.
The laws are mandatory and cannot be “waived” by contract, either the construction contract or loan agreement.
The failure of an owner, prime contractor, or lender to comply is not only a criminal violation but if the escrow mandate is ignored, the owner has to pay the contractor a daily penalty of $300 from the very first day that retainage was withheld and not escrowed.
Contractor Licensing
Contractor Requirement: For projects $25,000 and above, Tennessee’s Department of Commerce and Insurance requires a contractor’s license. There are several different classifications which are accessible here.
For projects less than $25,000, a license must be obtained in the following areas:
- Home Improvement (HI) License ($3,000 and up)
- Electrician – Limited Licensed Electrician (LLE)
- Plumber – Limited Licensed Plumber (LLP)
- HVAC – See Electrician or Contractor
Under the Tennessee mechanics lien law, if a contractor is required to be licensed but has not fully complied with title 62, chapter 6, no statutory lien can be established. That doesn’t mean that the contractor may not have other means to get paid, e.g., contract law.
To obtain a contractor’s license, an applicant must either complete a guaranty agreement or obtain a bond for $500,000 or $1,000,000 for unlimited monetary limits. The bond requirements are accessible here.
Subcontractor Requirement: Subs performing electrical, mechanical, plumbing, HVAC, roofing, and masonry, are required to be licensed as a contracted when the project is $25,000 or more ($100,000 or more for masonry). Subs also have to be licensed when there are more than 1 subs on a project.
Contractor Warranties: Implied warranty of workmanship for 1 year.
Have Questions?
Reach out if you have any comments or questions about our state resources.
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