STOP NOTICE
(Payment Withholding Notice – Connecticut Mechanics’ Lien Context)
[// GUIDANCE: This template is designed for use by a lien claimant (typically a subcontractor, supplier, or laborer) seeking to compel the Owner and/or Construction Lender (“Stakeholder”) to withhold further payments otherwise due to the Prime Contractor until the claimant’s mechanics’ lien claim is resolved. Connecticut law does not provide a separate statutory “stop-notice” procedure akin to California; however, withholding may be effected by contract, by equitable principles, and through the bonding/discharge framework under Conn. Gen. Stat. §§ 49-33 et seq. This template is drafted conservatively to secure payment while complying with Connecticut lien statutes and common-law principles.]
TABLE OF CONTENTS
- Document Header
- Definitions
- Operative Provisions
- Representations & Warranties
- Covenants & Restrictions
- Default & Remedies
- Risk Allocation
- Dispute Resolution
- General Provisions
- Execution Block
1. DOCUMENT HEADER
1.1 Title
STOP NOTICE AND DEMAND FOR WITHHOLDING OF FUNDS PENDING LIEN RESOLUTION
1.2 Parties
a. “[Claimant]” – [INSERT Full Legal Name], a [State] [Entity Type], having its principal place of business at [Address].
b. “[Stakeholder]” – collectively, (i) “[Owner]” – [INSERT Full Legal Name of Owner] and/or (ii) “[Construction Lender]” – [INSERT Full Legal Name of Lender], each a potential disbursing party of construction funds for the Project identified below.
c. “[Prime Contractor]” – [INSERT Full Legal Name], party to the prime contract with Owner.
1.3 Effective Date
This Stop Notice is effective on the earlier of (a) the date of actual receipt by Stakeholder, or (b) ___ ⧫ ___, 20[YY].
1.4 Project Identification
Project: “[Project Name]”
Location: [Street Address, City/Town, County, Connecticut, Zip] (the “Property”)
Town Clerk’s Recording District: [Town/City]
1.5 Recitals
A. Claimant furnished labor, materials, or services for improvements to the Property pursuant to an agreement dated ___ ⧫ , 20[YY] with Prime Contractor.
B. As of the Effective Date, Claimant is owed the sum of $[CLAIM AMOUNT] (the “Claim”).
C. Claimant has timely recorded a Certificate of Mechanic’s Lien with the [Town/City] Clerk on ___ ⧫ , 20[YY] (Book ___ / Page ___) in accordance with Conn. Gen. Stat. § 49-34.
D. To protect its lien rights and avoid dissipation of construction funds, Claimant issues this Stop Notice pursuant to applicable Connecticut lien law, equity, and the contractual arrangements among the Project participants.
NOW, THEREFORE, Claimant hereby delivers this Stop Notice and demands withholding of funds as set forth herein.
2. DEFINITIONS
For ease of reference, capitalized terms have the meanings assigned below:
“Bond” – a surety bond complying with Conn. Gen. Stat. § 49-37 posted to discharge or substitute for the Lien or to release Withheld Funds.
“Claim” – the unpaid amount stated in Section 1.5(B), together with allowable interest, costs, and attorneys’ fees.
“Lien” – the mechanic’s lien recorded by Claimant, referenced in Section 1.5(C).
“Liquidation Event” – any distribution, disbursement, or transfer of Project funds to Prime Contractor or other parties that would impair Claimant’s ability to realize on the Lien.
“Release Procedures” – the procedures set forth in Section 3.5 for releasing Withheld Funds.
“Stop Period” – the period commencing on the Effective Date and ending upon the earliest to occur of (i) written Release Authorization by Claimant, (ii) posting of a Bond acceptable to Claimant, or (iii) final, non-appealable adjudication of the Lien.
“Withheld Funds” – all unpaid contract balances, progress payments, retention, and any undisbursed loan proceeds otherwise payable to Prime Contractor that are subject to this Stop Notice.
3. OPERATIVE PROVISIONS
3.1 Demand for Withholding.
Stakeholder shall immediately withhold and segregate the Withheld Funds upon receipt of this Stop Notice and shall refrain from making any payment of the Withheld Funds to Prime Contractor or any lower-tier party during the Stop Period.
3.2 Scope of Withholding.
a. The amount to be withheld shall equal the Claim plus a prudent reserve of ten percent (10%) for accrued interest, attorneys’ fees, and costs (“Reserve”).
b. If the balance of undisbursed funds is less than the Claim plus Reserve, Stakeholder shall withhold the entire remaining balance and provide written accounting to Claimant within five (5) Business Days.
3.3 Duty to Preserve Funds.
Stakeholder shall hold the Withheld Funds in a segregated, interest-bearing account at a federally insured financial institution located in Connecticut. Stakeholder shall not pledge, offset, or otherwise encumber the Withheld Funds.
3.4 Prohibition on Liquidation Events.
During the Stop Period, Stakeholder shall not undertake any Liquidation Event without Claimant’s prior written consent.
3.5 Release Procedures.
a. Bond Substitution. Stakeholder or any interested party may satisfy Section 3.1 by posting a Bond in accordance with Conn. Gen. Stat. § 49-37.
b. Claimant Release. Claimant shall deliver a written Release Authorization within three (3) Business Days following (i) receipt of full payment of the Claim, or (ii) receipt of a Bond that meets the requirements of Section 3.5(a).
c. Court Order. Withheld Funds shall be released in accordance with a final, non-appealable order of a court of competent jurisdiction.
3.6 Cooperation.
Stakeholder shall reasonably cooperate with Claimant to facilitate discovery of payment status, contract balances, change orders, and any other financial data necessary to verify compliance with this Stop Notice.
3.7 No Waiver of Lien Rights.
Nothing in this Stop Notice shall be construed as a waiver, release, or impairment of Claimant’s Lien or any other remedies at law or equity.
4. REPRESENTATIONS & WARRANTIES
4.1 Claimant’s Representations.
a. Authority. Claimant is duly organized, in good standing, and authorized to assert the Claim and issue this Stop Notice.
b. Accuracy of Claim. The Claim reflects amounts justly due and owing, exclusive of payments received or credits known to Claimant as of the Effective Date.
c. Compliance. Claimant has complied with Conn. Gen. Stat. §§ 49-33 to 49-39 in perfecting the Lien.
4.2 Stakeholder’s Representations (Deemed Upon Acceptance of Funds).
a. Capacity. Stakeholder has legal authority over the disbursement of Project funds.
b. No Prior Dispersal. Stakeholder has not, as of receipt of this Stop Notice, disbursed the Withheld Funds.
c. Notice to Prime Contractor. Stakeholder shall promptly notify Prime Contractor of the receipt and effect of this Stop Notice.
4.3 Survival.
All representations and warranties survive delivery of this Stop Notice and any satisfaction, discharge, or release until the Claim is paid in full or otherwise resolved.
5. COVENANTS & RESTRICTIONS
5.1 Affirmative Covenants of Stakeholder.
a. Accounting Deliveries. Provide Claimant an initial accounting within five (5) Business Days and monthly thereafter.
b. Bonding Information. Provide prompt written notice of any Bond posted pursuant to Section 3.5(a), including surety information and bond number.
5.2 Negative Covenants of Stakeholder.
a. No Set-Off. Stakeholder shall not reduce the Withheld Funds by set-off or counterclaim unrelated to the Claim without court order.
b. No Release of Retainage. Stakeholder shall not release contractual retention to Prime Contractor during the Stop Period.
5.3 Claimant Covenants.
Claimant shall prosecute the Lien diligently and in good faith, including timely commencement of foreclosure pursuant to Conn. Gen. Stat. § 49-35, if required.
5.4 Notice & Cure.
In the event of an alleged breach of this Stop Notice, the non-breaching party shall provide written notice and a five (5) Business Day cure period before exercising remedies, except for imminent dissipation of funds, in which case equitable relief may be sought immediately.
6. DEFAULT & REMEDIES
6.1 Events of Default.
a. Stakeholder fails to withhold or preserve the Withheld Funds as required.
b. Claimant materially misrepresents the Claim.
c. Any party violates Section 5 covenants.
6.2 Remedies.
a. Injunctive Relief. Claimant may seek temporary, preliminary, and permanent injunctive relief, including ex parte relief if necessary, to prevent dissipation of funds.
b. Constructive Trust. Stakeholder acknowledges that, upon default, the Withheld Funds are subject to a constructive trust in favor of Claimant.
c. Attorneys’ Fees. The prevailing party in any action arising from this Stop Notice is entitled to recover reasonable attorneys’ fees and costs.
d. Cumulative Remedies. All remedies are cumulative and not exclusive.
7. RISK ALLOCATION
7.1 Indemnification (Bonding Requirements).
a. By Bond Principal and Surety. Upon posting of any Bond under Section 3.5(a), the principal and surety jointly and severally indemnify Claimant against all losses, costs, and expenses (including reasonable attorneys’ fees) incurred due to failure to pay or satisfy the Claim.
b. Survival. Indemnity obligations survive satisfaction, discharge, or release of this Stop Notice.
7.2 Limitation of Liability.
Stakeholder’s monetary liability to Claimant is capped at the amount of the Withheld Funds, except in cases of willful misconduct or fraud.
7.3 Force Majeure.
Neither party is liable for failure to perform non-monetary obligations due to force majeure events, provided prompt written notice is given and diligent efforts to mitigate are undertaken.
8. DISPUTE RESOLUTION
8.1 Governing Law.
This Stop Notice and any dispute arising herefrom are governed by the mechanics’ lien statutes and other laws of the State of Connecticut, without regard to conflict-of-laws principles.
8.2 Forum Selection.
Exclusive jurisdiction and venue lie in the Superior Court of the State of Connecticut sitting in the judicial district where the Property is located.
8.3 Arbitration.
Not applicable; the parties irrevocably waive any contractual right to compel arbitration of disputes relating to this Stop Notice.
8.4 Jury Waiver.
Not applicable.
8.5 Injunctive Relief Preservation.
Nothing herein limits the right of any party to seek equitable or injunctive relief in accordance with Section 6.2(a).
9. GENERAL PROVISIONS
9.1 Amendments & Waivers.
Any amendment or waiver must be in a writing signed by Claimant and Stakeholder. No waiver shall be deemed continuing unless expressly stated.
9.2 Assignment.
Claimant may assign its rights under this Stop Notice to a financing or factoring entity upon written notice. Stakeholder may not assign obligations without Claimant’s prior written consent.
9.3 Successors & Assigns.
This Stop Notice binds and benefits the parties and their respective successors and permitted assigns.
9.4 Severability.
If any provision is held invalid, the remaining provisions remain in full force, and the invalid provision shall be construed to most closely reflect the parties’ original intent.
9.5 Integration.
This Stop Notice constitutes the entire agreement relating to the withholding of funds pending lien resolution and supersedes all prior oral or written communications on that subject.
9.6 Counterparts; Electronic Signatures.
This document may be executed in counterparts and by electronic means (e.g., DocuSign), each of which is deemed an original and all of which constitute one instrument.
10. EXECUTION BLOCK
IN WITNESS WHEREOF, the parties have executed this Stop Notice as of the Effective Date.
CLAIMANT
[Legal Name of Claimant]
By: ____
Name: ____
Title: _____
Date: ___ ⧫ _, 20[YY]
[Notary Acknowledgment, if desired or required by contract]
OWNER (Stakeholder)
[Legal Name of Owner]
By: ____
Name: ____
Title: _____
Date: ___ ⧫ _, 20[YY]
CONSTRUCTION LENDER (Stakeholder)
[Legal Name of Lender]
By: ____
Name: ____
Title: _____
Date: ___ ⧫ _, 20[YY]
[// GUIDANCE: 1) Attach copy of recorded Certificate of Mechanic’s Lien as Exhibit A. 2) Serve this Stop Notice via a method providing proof of receipt (e.g., certified mail, return receipt requested, or statutory overnight delivery) to both Owner and Lender. 3) Calendar statutory deadlines: a Connecticut lien foreclosure action must be commenced within one year from the lien recording date (Conn. Gen. Stat. § 49-39). 4) Verify any contractual notice provisions (addresses, additional recipients) and incorporate them above if required.]