Late last winter I opened my mailbox to find a very official letter indicating that a mechanics lien had been placed on my house.
The same thing happened to one of our customer the other day.
One of the risks in any kind of construction, solar included, is that the EPC or General Contractor does not pay the subcontractors or equipment vendors. This leaves the building owner at risk of the subcontractors coming after them for the money.
The first step that a subcontractor or equipment supplier takes if other methods of receiving payment don't work, is to place a mechanics lien on the property. This is what happened at my house and to our customer. No subcontractor I know likes to do this, but they do not have any other good legal options.
In the solar industry today we have a lot of undercapitalized EPC's. These EPC companies use the money from the current job to fund the next job. This works fine as long as the jobs keep coming and the financiers pay promptly. However if something interrupts that process then the payments from the EPC to labor and equipment companies can get seriously held up or not happen at all.
So how does a developer or financier protect themselves and the building owner from this issue?
One approach is that prior to making any payment, the developer should demand a Release of Lien from every supplier, contractor and subcontractor, which covers the materials used and the work performed on the project.
The Release of Lien is a written statement that removes the property from the threat of lien. If the contract requires partial payments be made before the work is completed in full, then get a Partial Release of Lien covering all workers and materials used up to that point in time.
This however can be challenging because if the EPC can't afford to pay subs until you pay them then the subs are hesitant to sign the waiver without a check and you end up in a classic Catch 22.
Another approach is to issue Joint or Two Party Checks . This is essentially a check to both the sub and the EPC that requires them both to sign.
On a big project it may not be viable to issue Joint Checks to all subs but I would recommend doing it at least for larger ticket items like panels, inverter, and racking.
By nature I'm the sort of person who thinks that people will do what they say and I hate adding extra work to a project, but i've learned the hard way over the last year that an ounce of prevention is worth a pound of cure in this case.