USA - ALABAMA Law and Practice Contributed by: Adam J. Sigman, Crystal H. Walls, Nathan Stotser and Katie Sinclair, Dentons
a back charge to the contractor to be deducted from payments due. As additional security for paying material suppli - ers or remedying defects and delays in construc - tion, owners and general contractors are entitled to hold back retainage; see Section 8-29-3. An owner or general contractor may retain 10% of payments to the general contractor or subcon - tractor, respectively; see Section 8-29-3(i) and (j). The retainage may only be taken from the first 50% of the payments for completion, after which “no further retainage shall be withheld”; see again Section 8-29-3(i) and (j). 7.5 Additional Forms of Security to Guarantee a Contractor’s Performance Depending on the project’s size, payment and performance bonds are the most common form of security to guarantee a contractor’s perfor - mance on a project. As a general rule, the larger the project, the more likely it is for an owner to require more expensive security on a project. Public works are required to be bonded (see Section 39-1-1), but there is no requirement for any security or bonding to be posted by a con - tractor on private work. The most common method is for the owner to require both a payment and a performance bond from a reputable surety. Other layers of security may be negotiated into the relevant contract if risk is increased. 7.6 Liens or Encumbrances in the Event of Non-payment Any party who contributes work to the property that improves the property is eligible for a mate - rialman’s lien (Section 35-11-210 et seq). The work provided must be a lasting improvement, not temporary. For example, an architect’s work
in providing plans would be lienable, whereas a surveyor’s work would not; Wilkinson v Rowe, 98 So 2d 435 (Alabama 1957). If the lienor’s work is commenced prior to the “creation” of a mortgage on the property, the lien will take priority over the mortgage; otherwise, the lien will be junior to the mortgage (Section 35-11-211). Liens may be removed from the property by transferring the lien to a bond using the statutory framework found in Section 35-11- 233. 7.7 Requirements Before Use or Inhabitation Each governmental jurisdiction has a building inspector’s office, which must issue a certificate of occupancy prior to the project being inhab - ited, and which establishes standards for con - struction in its respective jurisdiction. Inspec - tions are typically required to be conducted, and passed, prior to each phase of the work. Alabama imposes a recording tax upon the fil - ing of a deed or similar instrument conveying an interest in real estate with the county probate court where the real property is located (Section 40-22-1 et seq); the tax is USD0.50 per USD500 (rounded up) of value for the property conveyed. The obligation to pay the recording tax is on the buyer. However, the parties do commonly negotiate the economic burden in real estate sales contracts. Under Alabama law, a deed or other instrument conveying such property must include a Real Estate Sales Validation Form (RT-1) provided 8. Tax 8.1 VAT and Sales Tax Recording Tax
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