The Tennessee Prompt Pay Act Requires Retainage to Held Separately and Imposes Penalties for Non-Compliance

After representing contractors and suppliers over the years, I’ve learned a good deal about the Tennessee Prompt Pay Act, which is found at Tenn. Code Ann. § 66-34-101, et. seq.

The Act has a lot of protections for real estate contractors, but one significant part to know is in Tenn. Code Ann. § 66-34-104, titled “Escrow; portion of contract price.” This statute governs those construction contracts that require retainage.

Under § 66-34-104(a), any retainage “shall be deposited in a separate, interest-bearing, escrow account with a third party which must be established upon the withholding of any retainage.” Under § 66-34-104 (b), “the funds shall become the sole and separate property of the prime contractor or remote contractor to whom they are owed….” Finally, the owner/general contractor must provide written notice that the escrow account has been set up, including the name of the bank, the account number, and the amount of funds on deposit.

The requirement that retainage be placed in a third party, separate account (not in the owner or the General Contractor’s accounts) is designed to protect contractors by: 1) making sure that money is, in fact, set aside for payment to contractors; and 2) held in the name of or for the benefit of the contractors.

There’s a $300 a day penalty for non-compliance. That doesn’t sound like much, but it can add up over time (especially on large, long term jobs).

It is those large, long term jobs that involve the most money being retained and, as a result, the deep pocketed owners who think they have the most bargaining power to refuse to comply with the retainage requirements. 

My advice to contractors is to confirm compliance with the escrow account requirements. Do it early in a project. If the project goes bad, it may be too late.

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The $25,000 General Sessions Judgment Limits May Apply on Appeal, Unless the Claims are Amended

I enjoy practice in General Sessions Courts. Once you get past the utter chaos, unpredictability, and potentially long lines at the elevators, you may be able to obtain an enforceable judgment in less than 4-6 weeks after filing your lawsuit. That’s the fastest justice in the State.

Remember, though, that the monetary limit in General Sessions is $25,000.

Given the speed advantages, some lawyers will sue for a lesser amount to have their lawsuits heard in Sessions (i.e. the debt is $27,0000, and they sue for $24,999.99).  Then, if they lose the case or if it’s appealed to Circuit Court, the lawyers know they can always increase the action to the full amount in Circuit Court.

Such amendments are allowed under Tenn. Code Ann. § 16-15-729, which says the Circuit Court “shall allow all amendments in the form of action, the parties thereto, or the statement of the cause of action, necessary to reach the merits, upon such terms as may be deemed just and proper. The trial shall be de novo, including damages.”

But, don’t think the informality of Sessions practice carries over into Circuit Court.  The Tennessee Supreme Court’s opinion in Brown v. Roland, 357 S.W.3d 614, 616 (Tenn. 2012) held that a party is limited to their damages sought until and unless an actual amendment is made to the complaint. 
This is an interesting case, because, by implication, an amended complaint may also be required to add parties and causes of action.
In Sessions Court, it can feel like “anything goes.” It’s not a court of record, and the Judges let litigants have some procedural leeway in presenting their claims. Under the Brown case, that leeway stops upon appeal.

There’s a 15 Day Limit to Continuances in Tennessee Detainer Actions

Landlording is a hard business. If you don’t think so, wait until the first time you have to sue your tenant to evict them.

In Tennessee, the process is done by a “detainer” warrant, and it’s a full blown court proceeding, which is generally done in General Sessions Court.

In these proceedings, the landlord wants the proceeding resolved as soon as possible, while the tenant wants to stretch out the proceeding as long as possible. Who doesn’t like to live rent free, right?

Tenn. Code Ann. § 29-18-118 provides some protection for landlords. That statute allows the judge to continue a matter, but only to a time not exceeding 15 days.

The only exception the statute provides that would allow for a longer period of time is: (1) if the parties agree to a longer time; (2) the 15 days ends at a time when there’s no court; or (3) the party asking for the continuance pays “the costs.” (Here, the costs means they pay, at the time of the request, the rent due for that period, plus any other amounts due/incurred during that period.)

So, the tenant might get a delay–note that the statute isn’t absolute, it says “may”–but there’s an absolute limit to the delay. No Tennessee case–published or unpublished–provides any exception that allows for a longer continuance to this statute.