Lurking in the depths of the Contractor Registration Act (Chapter 18.27 RCW) is an important statute that has the potential to eviscerate lien rights if not satisfied by contractors furnishing improvements on certain projects in Washington. RCW 18.27.114 requires that contractors working on residential projects or commercial projects of limited scope furnish a Model Disclosure Statement Notice to Customer (“Disclosure Statement”) prior to commencing work.
The form of this document and additional information required of a contractor can be found on the Washington Department of Labor & Industries (“L&I”) website. The Disclosure Statement advises the contractor’s customer (upfront in the contract documents usually, and prior to the commencement of work) of his/her rights and responsibilities, discloses the contractor’s registration and bonding requirements, and warns the customer of the contractor’s right to file a lien claim in the event of nonpayment.
More specifically, the notice is required of any contractor agreeing to perform any project:
(a) for the repair, alteration, or construction of four or fewer residential units or accessory structures on such residential property when the bid or contract price totals $1,000 or more; or
(b) for the repair, alteration, or construction of a commercial building when the bid or contract price totals at least $1,000 but less than $60,000.
Substantial compliance is sufficient, but contractors should track the statutory form as closely as possible (i.e., using lowercase and uppercase 12-point font and bold type as appropriate and consistent with the form).
A few other points to consider with regard to the Disclosure Statement:
- The contractor must retain a signed copy of the Disclosure Statement in his/her files for a minimum of three years, and produce a signed or electronic signature copy of the Disclosure Statement to L&I upon request.
- No contractor may bring or maintain any lien claim based on any contract to which the notice requirements apply without alleging and proving that the contractor has provided the customer with a copy of the Disclosure Statement.
- Failure to comply constitutes an infraction under the provisions of the statute.
- Note that the form contains a place for the customer to acknowledge receipt of the disclosure in writing.
- L&I periodically updates these requirements, so it would be a good idea to consult with the website on a routine basis (perhaps quarterly) to ensure that the requirements have not been materially altered or enlarged.
Depending upon a party’s role in the project, the Disclosure Statement can be used effectively as a sword or a shield. Failure to provide this document to the customer prior to the work can have dire consequences for the contractor, as lien rights could be lost. Therefore, it would be wise for contractors to include a copy of the Disclosure Statement as an exhibit attachment to the contract with the customer. Likewise, in their initial assessment of any lien claim filed by a contractor, project owners should consider whether the contractor provided the Disclosure Statement prior to starting the work.