As you come to the end of a construction project, it comes time to settle the issue of payment. By now, everyone should be paid or it should be clear who has yet to be paid for the work that they did. As the contractor, you will ask the client for the final payment to complete the contract. Before you can do this, you’ll need to send a contractor’s final payment affidavit. In this article, a group of Denver construction lawyers discusses everything you need to know about a contractor’s final payment affidavit.
The only party that needs to send a contractor’s final payment affidavit is the contractor. Subcontractors do not need to because they do not have a contract with the client. Only entities that have a contract with the client, usually the building’s owner, need to send affidavits, and it is usually only the contractor. The affidavit serves several purposes.
Notification of the End of the Contract
Receiving a contractor’s final payment affidavit signals that the end of the contract is quickly approaching. It is usually not done until the work is finished and the contractor is nearly ready to collect the final payment. Sending the affidavit is one of the final steps in the project, partly because it also provides important information on where the project stands on payment. It includes an accounting of who still needs to be paid for the contract to be fulfilled.
Documentation for Liens and Accounting
The affidavit is also used for the final notice of unsettled accounts. This includes the final amount owed to the contractor, as well as any unsettled liens on the property. Liens can be problematic for owners and they should be notified if there are outstanding liens on the property.
Important Pieces of Information to Include
There are several pieces of information that must be included in the contractor’s final payment affidavit. Failing to include these pieces may lead to problems when trying to close the contract. You must include:
- The name of the client
- The name of the contractor company and contact for the project
- The amount owed to the contractor, preferably in line item form with any relevant details included in the statement
- The names and contact information of anyone that has a lien against the property whether they have been paid or not. It must also indicate which ones have been paid
- A notary seal
It is important to make sure that you have all of the listed information on the affidavit and that it is all accurate. If you are unsure of how to write the affidavit, which is generally written in legal-speak, discuss the case with a Denver construction litigation lawyer. A lawyer can help you draft the affidavit, as well as help you get it notarized.
It Must Be Notarized
Your contractor’s final payment affidavit must be notarized to be official. The reason for this is that it will serve as a legal document to show that you did your due diligence before closing a contract. If the client accepts an affidavit that is not notarized, it may hurt you in the long run. For example, one of those lien holders could take action to have the lien paid, which could force the owner to sell the property to pay the lien. That owner may sue you for not handling that lien and not disclosing it. If the affidavit is accurate and notarized, you should be protected from the lawsuit since you did notify the owner of the outstanding lien.
Do not rely on the owner to make sure that your affidavit is accurate and notarized. He or she may not even notice or know that it needs to be legally notarized. Making sure that you follow the correct procedure offers you protection in case something goes wrong. Be proactive about making these documents accurate.
The Affidavit is Mandatory
Completing the affidavit is mandatory in many states. The owner of the property cannot legally submit the final payment until that affidavit has been submitted. States make this mandatory as a way of protecting both parties. While the affidavit protects you by creating records, it protects the owner from the lien holders. Since the owner will need to deal with the lien holders at some point, it keeps them from paying a lien twice. As the contractor, you likely handled the liens that were your responsibility. Since the owner has the affidavit, they can track who has been paid and stop lien holders from seeking payment from the owner and the contractor separately.
Failure To Hold Full Payment
Property owners are in a precarious position when it comes to final payments. Many states have laws requiring that the owner holds the final payment until the document has been submitted. Otherwise, they could be held liable for any liens that are still unsettled when the affidavit is finally handed to the owner. The owner would, essentially, lose their ability to defend themselves against those liens and have to pay the full value rather than being able to negotiate a lower amount.
The contractor’s final payment affidavits can be a bit difficult to draft on your own given the importance and the complexity of the information that must be included. Construction companies can partner with a Denver construction lawyer to draft the documents that they need. If you have questions about the contractor’s final payment affidavits or other legal documents in construction projects, contact a Denver contractor lawyer from Cotney Construction Law.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.