KENTUCKY STATUTORY STOP-NOTICE

(Payment Withholding Directive & Indemnity Agreement)

[// GUIDANCE: Replace all bracketed, bold, ALL-CAPS placeholders before use. Delete all guidance comments prior to final execution.]

TABLE OF CONTENTS

I. Document Header.............................................................1
II. Definitions..................................................................2
III. Operative Provisions........................................................4
IV. Representations & Warranties.................................................6
V. Covenants & Restrictions.....................................................7
VI. Default & Remedies...........................................................8
VII. Risk Allocation.............................................................9
VIII. Dispute Resolution........................................................10
IX. General Provisions..........................................................11
X. Execution Block.............................................................13

I. DOCUMENT HEADER

1. Title. Kentucky Statutory Stop-Notice and Payment Withholding Directive (this “Stop-Notice”).

2. Parties.
   a. “Claimant”: [FULL LEGAL NAME OF CLAIMANT], a [state & entity type]
   b. “Owner/Payor”: [FULL LEGAL NAME OF OWNER OR DISBURSING PARTY]
   c. “Prime Contractor”: [FULL LEGAL NAME] (if different from Claimant)
   d. “Surety” (if any): [FULL LEGAL NAME]

3. Project. [PROJECT NAME / DESCRIPTION], located at [PROJECT ADDRESS] (the “Project”).

4. Effective Date. This Stop-Notice is effective upon the earliest of (i) service in compliance with KRS Ch. 376 and applicable Kentucky civil-procedure rules, or (ii) the date acknowledged by Owner/Payor below (“Effective Date”).

5. Governing Law & Forum. This Stop-Notice is governed by the lien laws of the Commonwealth of Kentucky (KRS Ch. 376) and other applicable state law; exclusive venue lies in the state courts of [COUNTY] County, Kentucky.

II. DEFINITIONS

For clarity and consistent usage, the following capitalized terms have the meanings set forth below. Defined terms may be used in singular or plural form and shall apply equally to all genders.

“Bond” means a payment bond, statutory bond, or other surety instrument issued by a licensed surety authorized to transact business in Kentucky, in a penal sum not less than [125 %–200 %] of the Claim Amount, conditioned to discharge the lien and/or Stop-Notice rights arising under KRS Ch. 376.

“Claim Amount” means [$____], representing the unpaid contract balance for labor, materials, services, and/or equipment furnished by Claimant to the Project through [LAST DATE OF WORK].

“Disbursement” means any payment, draw, or release of contract funds by Owner/Payor or its lender to any Project participant.

“Lien” means the statutory mechanic’s and materialman’s lien afforded Claimant under KRS Ch. 376.

“Payment Withholding Period” means the period commencing on the Effective Date and terminating upon the earliest Release Event.

“Release Event” means (a) full payment of the Claim Amount to Claimant; (b) delivery to Claimant of a Bond meeting the requirements of Section III.4; (c) written and notarized waiver and release of this Stop-Notice executed by Claimant; or (d) final, non-appealable judgment or arbitration award resolving Claimant’s Lien and Stop-Notice rights.

“Stop-Notice” has the meaning set forth in Section I.1 and is synonymous with “payment-withholding notice” under Kentucky lien practice.

III. OPERATIVE PROVISIONS

1. Statutory Notice & Directive. Pursuant to KRS Ch. 376 and other applicable law, Claimant hereby gives formal notice of its unpaid Claim Amount and directs Owner/Payor to IMMEDIATELY WITHHOLD from any Disbursement otherwise due or to become due to the Prime Contractor (or any tier thereof) a sum not less than the Claim Amount, together with any interest recoverable by statute, during the Payment Withholding Period.

2. Scope of Withholding.
   a. Ceiling. The aggregate amount withheld shall not exceed the lesser of (i) the Claim Amount plus statutory interest and costs, or (ii) the unpaid balance then owing under the applicable contract.
   b. Segregation. Owner/Payor shall segregate withheld funds in a separate, non-commingled account labelled “Lien/Stop-Notice Funds – [PROJECT]”.

3. No Further Disbursements. During the Payment Withholding Period, Owner/Payor shall not disburse retained funds or collateralize same for any purpose inconsistent with the protections of Claimant’s Lien and Stop-Notice rights unless expressly authorized in writing by Claimant.

4. Bonding-Off Procedure.
   a. Election. At any time, the Prime Contractor or an authorized Surety may discharge this Stop-Notice by tendering a Bond to Owner/Payor and Claimant.
   b. Form & Content. The Bond shall (i) be in at least [125 %] of the Claim Amount, (ii) name Claimant as dual obligee, and (iii) recite compliance with KRS Ch. 376.
   c. Effect. Upon satisfactory receipt of the Bond, Owner/Payor may release all withheld funds, whereupon Claimant’s security shall transfer to the Bond and this Stop-Notice shall be deemed released.

5. Release of Stop-Notice. Within [5] business days after a Release Event, Claimant shall execute and deliver to Owner/Payor a notarized release in form reasonably satisfactory to discharge of record all Stop-Notice and Lien claims secured hereby.

IV. REPRESENTATIONS & WARRANTIES

1. Claimant represents and warrants that:
   a. It has furnished labor, materials, or services for the improvement of the Project as described herein;
   b. The Claim Amount is justly due and owing, has not been paid, and no set-offs exist;
   c. It has complied, or will timely comply, with all filing, service, and recording requirements of KRS Ch. 376; and
   d. It possesses full authority to execute and deliver this Stop-Notice.

2. Owner/Payor makes no representations as to the validity or amount of the claim but acknowledges receipt of this Stop-Notice and agrees to act in accordance with its terms.

3. Survival. The representations and warranties herein shall survive any Release Event to the extent necessary to enforce indemnity or pursue remedies arising from a breach occurring prior to such Release Event.

V. COVENANTS & RESTRICTIONS

1. Claimant Covenants.
   a. Good-Faith Prosecution. Claimant shall prosecute its Lien claim in good faith and without unreasonable delay.
   b. Cooperation. Claimant shall furnish supplemental information reasonably requested by Owner/Payor to confirm the basis of the Stop-Notice.
   c. Partial Releases. Upon receipt of partial payment, Claimant shall execute partial releases proportionate to amounts received.

2. Owner/Payor Covenants.
   a. Compliance. Owner/Payor shall maintain the withholding required under Section III until a Release Event;
   b. Notice to Contractor. Owner/Payor shall promptly deliver a copy of this Stop-Notice to the Prime Contractor and any Surety of record;
   c. Accounting. Owner/Payor shall provide Claimant, upon written request, a statement of funds withheld and any disbursements made pursuant to court order.

VI. DEFAULT & REMEDIES

1. Events of Default. The following constitute default:
   a. Failure of Owner/Payor to maintain withholding as required;
   b. Disbursement or pledge of withheld funds contrary to Section III;
   c. Failure of Claimant to timely perfect its Lien under KRS Ch. 376;
   d. Material misrepresentation by any Party regarding the Claim Amount or facts underlying this Stop-Notice.

2. Notice & Cure. The non-defaulting Party shall provide written notice specifying the default. The defaulting Party shall have [10] business days to cure, except no cure period applies to unauthorized disbursement of withheld funds.

3. Remedies.
   a. Temporary & Permanent Injunction. Claimant is entitled to seek ex parte and/or preliminary injunctive relief to prevent disbursement of withheld funds;
   b. Damages. The non-defaulting Party may recover direct damages, statutory interest, and reasonable attorney fees;
   c. Reinstatement. In the event of wrongful release of funds, the court may order reinstatement of the withheld amount and such other relief as equity requires.

VII. RISK ALLOCATION

1. Indemnification (Bonding Requirements). Prime Contractor and any Surety jointly and severally agree to indemnify, defend, and hold harmless Owner/Payor from and against all claims, liabilities, losses, costs, and expenses (including reasonable attorney fees) arising out of or related to the Stop-Notice, the underlying Lien, or any failure of the Prime Contractor to pay Claimant.

2. Limitation of Liability (Payment Withheld). Owner/Payor’s total liability to Claimant under this Stop-Notice shall be limited to the lesser of (a) the amount actually withheld pursuant hereto, or (b) the Claim Amount, except in cases of willful misconduct or bad-faith disbursement of withheld funds.

3. Force Majeure. No Party shall be liable for failure to perform obligations hereunder where such failure is caused by events of force majeure, including but not limited to acts of God, governmental orders, or other events beyond the reasonable control of the affected Party; provided, however, that this Section shall not excuse Owner/Payor’s obligation to maintain withheld funds once actually segregated.

VIII. DISPUTE RESOLUTION

1. Governing Law. This Stop-Notice and any related dispute shall be governed by the laws of the Commonwealth of Kentucky, without regard to its conflict-of-laws rules.

2. Forum Selection. The Parties submit to the exclusive jurisdiction of the state courts located in [COUNTY] County, Kentucky for any action arising out of or relating to this Stop-Notice or the Lien.

3. Arbitration. Not applicable.

4. Jury Waiver. Not applicable.

5. Injunctive Relief. Each Party reserves the right to seek provisional or injunctive relief, including payment stoppage orders, in the designated forum to preserve the status quo pending final adjudication.

IX. GENERAL PROVISIONS

1. Amendments & Waivers. No amendment or waiver of any provision of this Stop-Notice shall be effective unless in writing and signed by the Party against whom enforcement is sought.

2. Assignment. No Party may assign or delegate its rights or obligations hereunder without prior written consent of the other Parties, except Claimant may assign its claim and attendant security to a financing institution without such consent, provided written notice is given to Owner/Payor.

3. Successors & Assigns. This Stop-Notice binds and benefits the Parties and their respective successors and permitted assigns.

4. Severability. If any provision is held invalid or unenforceable, the remaining provisions shall remain in full force and effect, and the invalid provision shall be interpreted to fulfill its intended economic effect to the maximum extent permitted by law.

5. Integration. This Stop-Notice constitutes the entire agreement and notice between the Parties concerning the subject matter and supersedes all prior or contemporaneous communications.

6. Counterparts & Electronic Signatures. This instrument may be executed in counterparts, each of which shall be deemed an original, and all of which together constitute one instrument. Signatures delivered by facsimile, PDF, or other electronic means shall be deemed originals.

X. EXECUTION BLOCK

IN WITNESS WHEREOF, the Parties have executed this Stop-Notice as of the dates set forth below.

CLAIMANT

By: _____
Name: [PRINTED NAME]
Title: [TITLE]
Date: _______

OWNER/PAYOR

By: _____
Name: [PRINTED NAME]
Title: [TITLE]
Date: _______

PRIME CONTRACTOR (if joining for indemnity)

By: _____
Name: [PRINTED NAME]
Title: [TITLE]
Date: _______

SURETY (if Bond furnished concurrently)

By: _____
Name: [PRINTED NAME]
Title: [TITLE]
Date: _______

[Notary acknowledgments may be attached as required under Kentucky law.]

[// GUIDANCE:
1. Service Requirements – Kentucky generally requires personal service or certified mail to the Owner and any party obligated to disburse funds. Confirm local rules before serving.
2. Filing Deadlines – This Stop-Notice does NOT extend the statutory deadline (typically six months from last furnishing) for recording a Statement of Lien in the County Clerk’s office.
3. Amount to Bond – Many practitioners use 125 % of the claim; adjust to match KRS or project-specific requirements.
4. Retain Proof – Retain certified mail receipts, affidavits of service, and copies of any receipts evidencing withheld funds for potential litigation.
]