In short
Texas has over 400 AI data centers operating or under construction statewide. Texas Observer These projects run on aggressive timelines with layered contractor and subcontractor tiers, which puts payment and lien rights front and center.
The core mechanic’s lien law is in Chapter 53 of the Texas Property Code. Tex. Prop. Code ch. 53 It gives anyone who furnishes labor or materials for an improvement on real property a lien against the property if they follow strict notice and filing deadlines. On a non residential project, a subcontractor or supplier must send a pre lien notice by the 15th day of the third month after the month the unpaid work was done. Tex. Prop. Code § 53.056(a-1) Except as provided by Subsection (c) or (d), a claimant other than an original contractor claiming the lien must file an affidavit with the county clerk not later than the 15th day of the fourth month after the later of the month the claimant last provided labor or materials or the month the claimant would normally have been required to deliver the last of specially fabricated materials that have not been actually delivered. Tex. Prop. Code § 53.052(b) Suit to foreclose must be brought within one year of the last day the claimant could file the lien affidavit. Tex. Prop. Code § 53.158, Law firm analysis
Texas Property Code Chapter 28 requires prompt payment down the chain (35 days for the owner to pay the prime contractor, 7 days from the contractor to the subcontractor after receiving payment). Tex. Prop. Code ch. 28 During the progress of work and for 30 days after completion, the property owner must reserve 10 percent of the contract price or 10 percent of the value of the work as a fund that secures payment of lower tier claimants. Tex. Prop. Code § 53.101, Tex. Prop. Code § 53.102 Under Section 56.054 of the Business and Commerce Code, enforcement of a contingent payment clause is not unconscionable if the contingent payor proves it exercised diligence in ascertaining and communicating in writing to the contingent payee, before the contract becomes enforceable against the contingent payee, the financial viability of the primary obligor and the existence of adequate financial arrangements to pay for the improvements, and either made reasonable efforts to collect the amount owed to the contingent payor or made or offered to make at a reasonable time an assignment of its cause of action against the obligor for the amounts owed to the contingent payee and offered reasonable cooperation in the contingent payee’s collection efforts, if the assigned cause of action is not subject to defenses caused by the contingent payor’s action or failure to act. Tex. Bus. & Com. Code § 56.054 And a contractor, subcontractor, or owner, or an officer, director, or agent of one, who receives construction trust funds and intentionally or knowingly misapplies them without first paying beneficiaries can face criminal liability under the Construction Trust Fund Act. Tex. Prop. Code ch. 162 For AI data center sponsors, lenders, general counsel, and the contractors and subcontractors who build these projects, the deadlines are unforgiving and missing one can forfeit rights.
Who can claim a mechanic’s lien on a Texas AI data center project
A mechanic’s lien is a claim against real property that secures payment for work or materials that improved the property. On a large AI data center campus, a single project may involve dozens of contractors and hundreds of subcontractors and suppliers. Each one may have lien rights if they follow the rules.
The Texas Property Code gives a lien to a person who, under a contract with the owner or the owner’s agent, trustee, receiver, contractor, or subcontractor, labors or furnishes labor or materials for the construction or repair of an improvement, or specially fabricates material for an improvement. Tex. Prop. Code § 53.001(2)(E) An improvement now also includes design, drawings, plans, plats, surveys, or specifications provided by a licensed architect, engineer, or surveyor. Tex. Prop. Code § 53.001
The statute defines three main types of claimants, and the distinction matters because each type has different notice and deadline obligations.
- Original contractor: a person contracting with an owner either directly or through the owner’s agent. On any work there may be more than one original contractor for purposes of this chapter. Tex. Prop. Code § 53.001(7), Tex. Prop. Code § 53.002
- Subcontractor: a person who labors or has furnished labor or materials to fulfill an obligation to an original contractor or to a subcontractor of any tier to perform all or part of the work required by an original contract. Tex. Prop. Code § 53.001(13)
- Purported original contractor: an original contractor who can effectively control the owner or is effectively controlled by the owner through common ownership of voting stock or ownership interests, interlocking directorships, common management, or otherwise, or who was engaged by the owner for the construction or repair of improvements without a good faith intention of the parties that the purported original contractor was to perform under the contract. A person who labors or furnishes labor or materials under a direct contractual relationship with a purported original contractor is considered to be an original contractor for purposes of perfecting a mechanic’s lien. Tex. Prop. Code § 53.001(7-a), Tex. Prop. Code § 53.026(a)
This last category is important for AI data centers because an owner may form a special purpose entity to act as the general contractor. If that entity is not truly independent, the subcontractors below it may be able to perfect their liens as if they contracted directly with the owner, bypassing the original contractor claim deadlines.
Design professionals, licensed architects, engineers, and surveyors, have had lien rights since the 2021 amendments to Chapter 53, even when their contract is not with the owner directly but with a general contractor or another subcontractor. Tax alert Before that, they generally needed a direct contract with the owner.
For example, on the Crusoe/Lancium Clean Campus in Abilene, Mortenson served as the EPC contractor for the electrical infrastructure. Mortenson Mortenson would be an original contractor if its contract was directly with the project owner. The subcontractors who built the substation, ran the transmission lines, and installed the switchgear would be subcontractors. Each must send its own notices.
The notice you must send before filing a lien on a non-residential project
For a commercial project like an AI data center, anyone who is not an original contractor must send a notice of claim for unpaid labor or materials before filing a lien affidavit. This is often called a pre-lien notice or a preliminary notice. For projects other than residential construction projects, the deadline is the 15th day of the third month following each month in which the unpaid labor or materials were furnished and for residential construction projects, the deadline is the 15th day of the second month. Tex. Prop. Code § 53.056(a-1) For specially fabricated materials that have not yet been delivered, the deadline runs from the month the materials would normally have been delivered.
The notice must be sent to both the property owner and the original contractor. Tex. Prop. Code § 53.056(a-1) It must substantially comply with the statutory form set out in the statute, and it may include an invoice or billing statement. Tex. Prop. Code § 53.056(a-2), Tex. Prop. Code § 53.056(a-3)
A critical point for multi tiered projects, before the 2021 amendments, lower-tier subcontractors had to send an additional separate notice to the general contractor by the 15th of the second month. House Bill 2237 eliminated that duplicate requirement. For commercial projects, all derivative claimants below the original contractor send a notice to both the owner and the original contractor by the 15th of the third month following each month labor or materials are furnished. For residential projects, a derivative claimant must send the notice of claim by the 15th of the second month after the month the labor or materials were provided. Law firm analysis, Tex. Prop. Code § 53.056
Original contractors do not have to send a pre-lien notice. Tax alert They can move straight to filing a lien affidavit.
The method of sending the notice matters. It must be delivered in person to the party or their agent, sent by certified mail, or sent by any other traceable private delivery service that can confirm proof of receipt. Tex. Prop. Code § 53.003 If notice is sent by certified mail, deposit or mailing of the notice in the United States mail constitutes compliance with the notice requirement. This rule does not apply if the law requires receipt of the notice by the person to whom it is directed. If the recipient actually receives the notice, the method does not matter. Tex. Prop. Code § 53.003
The lien affidavit deadline and how to count it
The lien affidavit is the document filed with the county clerk that creates the public record of the lien. For non-residential projects, the deadlines are as follows.
- For projects other than residential construction projects, an original contractor must file the lien affidavit no later than the 15th day of the fourth month after the month in which the original contractor’s work was completed, terminated, or abandoned. Tex. Prop. Code § 53.052(a)(1)
- A subcontractor or supplier must file the lien affidavit no later than the 15th day of the fourth month after the later of the month the claimant last provided labor or materials or the month the claimant would normally have been required to deliver the last of specially fabricated materials that have not been actually delivered. Tex. Prop. Code § 53.052(b) For specially fabricated materials, the deadline is the later of that date or the 15th day of the fourth month after the month the materials would normally have been required to be delivered.
These deadlines are strict. Texas courts strictly enforce statutory deadlines, and missing one by even a single day can forfeit lien rights. Law firm analysis
A 2025 amendment, Senate Bill 929, clarified that when any Chapter 53 deadline, whether for a pre-lien notice, the lien filing, or the notice of the filed lien, falls on a Saturday, Sunday, or legal holiday, the deadline extends to the next business day. Tax alert Before this change, if the 15th fell on a Sunday, the effective deadline was the preceding Friday the 13th. The new rule avoids that trap.
The lien affidavit is filed with the county clerk in the county where the improvements are located. Tex. Prop. Code § 53.052(e) The affidavit must contain specific information, including a sworn statement of the claim amount, the owner’s name and address, a general statement of the kind of work done and materials furnished by the claimant and, for a claimant other than an original contractor, a statement of each month in which the work was done and materials furnished for which payment is requested, the name and address of the person who employed the claimant, the original contractor’s name and address, a legally sufficient description of the property, the claimant’s own contact information, and for non original contractors, the date each notice of the claim was sent to the owner and the method of sending. Tex. Prop. Code § 53.054, Sugarland Bus. Ctr., Ltd. v. Norman, 624 S.W.2d 639 (Tex. App. 1981), Sugarland Bus. Ctr., Ltd. v. Norman, 624 S.W.2d 639 (Tex. App. 1981), Crockett v. Sampson, 439 S.W.2d 355 (Tex. Civ. App. 1969)
The affidavit does not need to itemize every individual work item. Abbreviations and symbols customary in the trade are allowed. The signature line must state that the affidavit was subscribed and sworn to before a notary, not merely acknowledged. Tex. Prop. Code § 53.054
After you file, notice to the owner and the original contractor
Within five days after the lien affidavit is filed, the claimant must send a copy of the filed affidavit to the owner or reputed owner at the owner’s last known business or residence address. Tex. Prop. Code § 53.055(a) If the claimant is not an original contractor, a copy must also be sent to the original contractor within the same five day period. Tex. Prop. Code § 53.055(b)
How long you have to sue to foreclose the lien
Filing the lien affidavit perfects the lien, but it does not collect the money. To enforce the lien, the claimant must file a lawsuit to foreclose within one year from the last day the lien affidavit could have been timely filed under Section 53.052. Law firm analysis Before the 2021 amendments, the deadline was two years. The shorter one year period now applies to all commercial projects, including AI data centers.
The parties may agree in writing to extend the deadline, but the agreement must be entered into before the first anniversary of the lien filing deadline, the deadline may not be extended past the second anniversary of the date the lien affidavit was filed, and the agreement must be recorded with the county clerk. Tax alert, Tex. Prop. Code § 53.158
Removing an invalid lien, the summary motion
In a suit brought to foreclose a lien or to declare a claim or lien invalid or unenforceable, a party objecting to the validity or enforceability of the claim or lien may file a motion to remove the claim or lien. Tex. Prop. Code § 53.160 The court must rule quickly. If the court orders removal, the lien claimant may post a bond to stay the removal. Tex. Prop. Code § 53.160, Tex. Prop. Code § 53.161 A removed lien can be revived under limited circumstances. Tex. Prop. Code § 53.162
Reserved funds and contractual retainage are two different things
Texas law distinguishes between two concepts that are both about holding back money during construction. The terms and the rules changed with the 2021 amendments.
The 10 percent reserved funds the owner must hold
The property owner must reserve 10 percent of the contract price, or 10 percent of the value of the work measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, the reasonable value of the completed work, during the progress of work and for 30 days after completion. Tex. Prop. Code § 53.101 This applies to any contract for which a mechanic’s lien may be claimed, both residential and commercial.
These reserved funds secure payment of artisans and mechanics who perform labor or service, and other persons who furnish material, material and labor, or specially fabricated material. Tex. Prop. Code § 53.102 A claimant has a lien on the reserved funds if the claimant sends the notices required by this chapter in the time and manner required and, except as allowed by Section 53.057(f), files an affidavit claiming a lien not later than the 30th day after the earliest of the date the work is completed, the original contract is terminated, or the original contractor abandons performance under the original contract. Tex. Prop. Code § 53.103
If the owner fails to reserve the required 10 percent, claimants who followed the notice rules have a lien on the property itself at least to the extent of the amount that should have been reserved. Tex. Prop. Code § 53.105
The reserved funds requirement applies only to the contract between the owner and the original contractor. The statute does not require the general contractor to withhold a similar amount from subcontractors. Tax alert
Since the 2021 amendments, what was formerly called statutory retainage is now called reserved funds. The term retainage now refers exclusively to contractual retainage, an amount withheld under a contract between a contractor and its subcontractor. Murray Lobb
Contractual retainage and how to claim it
Retainage is an amount representing part of a contract payment that is not required to be paid to the claimant within the month following the month in which labor is performed, material is furnished, or specially fabricated material is delivered. Tex. Prop. Code § 53.001(11) A lien for retainage is valid only for the amount specified to be retained in the contract, including any amendments to the contract, between the claimant and the original contractor or between the claimant and a subcontractor. Tex. Prop. Code § 53.025
To claim a lien for unpaid contractual retainage, a claimant other than an original contractor must send a notice to the owner and the original contractor by the earlier of 30 days after the claimant’s contract is completed, terminated, or abandoned, or 30 days after the original contract is terminated or abandoned. Tex. Prop. Code § 53.057(a), (a-1) The notice must substantially comply with the statutory form.
The lien affidavit for contractual retainage must then be filed by the 15th day of the third month after the month in which the original contract is completed, terminated, or abandoned. Tax alert
What the owner can withhold when a notice of claim arrives (fund trapping)
When an owner receives a notice of claim from a subcontractor, the owner may withhold from payments to the original contractor an amount necessary to pay the claim. Tex. Prop. Code § 53.081(a) This withholding is in addition to the reserved funds. If the owner has received a notice required by Section 53.056 or 53.057, the lien has been secured, and the claim has been reduced to final judgment, the owner is liable and the owner’s property is subject to a claim for any money paid to the original contractor after the owner was authorized to withhold funds under this subchapter. Tex. Prop. Code § 53.084(b) This is often called fund trapping, and it gives the owner a powerful reason to hold back payment until the claim is resolved.
Lien waivers and releases must use the statutory forms
Any waiver or release of a lien or payment bond claim is unenforceable unless it is executed and delivered in accordance with Subchapter L of Chapter 53. Tex. Prop. Code § 53.284 The waiver must substantially comply with one of the four forms prescribed by Section 53.284, be signed by the claimant or an authorized agent, and in the case of a conditional release, evidence of payment must exist.
The four statutory forms are the Conditional Waiver and Release on Progress Payment, the Unconditional Waiver and Release on Progress Payment, the Conditional Waiver and Release on Final Payment, and the Unconditional Waiver and Release on Final Payment. Tex. Prop. Code § 53.281
A statement that tries to waive or impair a lien right is not enforceable unless it is in writing and substantially complies with one of those forms, the claimant has actually received payment in full in good and sufficient funds, or the statement is in a written original contract or subcontract for the construction, remodel, or repair of a single family house, townhouse, or duplex or for related land development and is made before labor or materials are provided. Tex. Prop. Code § 53.282 Lien rights cannot be waived in the contract before work begins or before payment is received. Waivers must be exchanged in connection with payment. Tax alert
Notarization is no longer required for lien waivers under contracts signed on or after January 1, 2022. Law firm analysis For prime contracts signed before January 1, 2021, notarization is still necessary.
Prompt payment deadlines on private projects
Prompt payment refers to the statutory deadlines for paying contractors and subcontractors. On private non-residential projects like AI data centers, Chapter 28 of the Texas Property Code controls.
When the owner must pay the contractor
The owner must pay the contractor within 35 days after receiving a written payment request for properly performed work or suitably stored or specially fabricated materials. Tex. Prop. Code § 28.002(a)
When the contractor must pay subcontractors
A contractor who receives payment from the owner must pay each subcontractor within 7 days of receiving the owner’s payment, for the portion attributable to that subcontractor’s work. Tex. Prop. Code § 28.002(b) A subcontractor who receives payment must pay its own lower-tier subcontractors within the same 7 days. Tex. Prop. Code § 28.002(c) Chapter 28 generally cannot be waived by contract, except that a single-family residence contract may extend the owner’s payment deadline to up to 61 days. Any other provision that tries to waive its requirements is void. Tex. Prop. Code § 28.006, Law firm analysis, Law firm analysis
What happens if payment is late
For a good faith dispute, on non-residential projects up to 100 percent of the disputed amount may be withheld. Tax alert On private projects, interest on late payments accrues at 1.5 percent per month, which is 18 percent per year. Levelset, Tex. Prop. Code § 28.004 The prevailing party in a payment dispute may recover its attorney’s fees.
A contractor or subcontractor who is not paid undisputed amounts may suspend work after providing 10 days written notice to the owner or the owner’s lender. The party that suspends work as provided by this section is not liable for damages resulting from the suspension unless it was notified in writing before suspending that payment has been made or a good faith dispute exists. Tex. Prop. Code § 28.009 A contractor or subcontractor may also elect not to proceed with owner-directed additional work if no fully executed written change order has been received and the aggregate value of such additional work exceeds 10 percent of the original contract amount. Tax alert
On public projects, the deadlines differ. The governmental entity must pay a vendor within 30 days of receipt of goods or services or a correct invoice, and the payment down the chain is 10 days. Tex. Gov’t Code ch. 2251 Most AI data center projects are private, but if a public entity is involved, those rules apply.
Contingent payment clauses and their limits under Texas law
A contingent payment clause, often called a pay-if-paid clause, says that a contractor does not have to pay a subcontractor unless and until the contractor itself is paid by the owner. The clause makes the owner’s payment a condition precedent to the contractor’s obligation. A pay when paid clause is different. It addresses only the timing of payment, not the obligation to pay at all. If the owner never pays, a pay-when-paid clause does not excuse the contractor.
Texas Business and Commerce Code Chapter 56 imposes significant limits on enforcing pay-if-paid clauses. Tex. Bus. & Com. Code ch. 56 AI data center construction is not among the types of projects excluded from Chapter 56, so these rules apply. Tex. Bus. & Comm. Code § 56.002
A contingent payor or its surety may not enforce a contingent payment clause to the extent that the obligor’s nonpayment to the contingent payor is the result of the contractual obligations of the contingent payor not being met, unless the nonpayment is the result of the contingent payee’s failure to meet the contingent payee’s contractual requirements. Tex. Bus. & Com. Code § 56.051, Tex. Bus. & Com. Code § 56.051 The clause is unenforceable if the contingent payor is in a sham relationship with the obligor as described by Section 53.026 of the Property Code, which can happen when the owner and the general contractor are effectively the same entity through common ownership. Tex. Bus. & Com. Code § 56.053
Most importantly, the clause is unenforceable if the contractor fails to exercise the diligence required by Section 56.054. To meet the diligence safe harbor, the contractor must, before the contract becomes enforceable, ascertain and communicate in writing to the subcontractor the financial viability of the primary obligor and the existence of adequate financial arrangements to pay for the improvements. Tex. Bus. & Com. Code § 56.054 Under a contract for a private project governed by Chapter 53 of the Property Code, a contingent payor is considered to have exercised diligence for purposes of the unconscionability safe harbor if the contingent payee receives in writing from the contingent payor the name, address, and business telephone number of the primary obligor, a description legally sufficient for identification of the property on which the improvements are being constructed, and the name and address of the surety on any payment bond provided under Subchapter I, Chapter 53, Property Code, to which any notice of claim should be sent. If a loan has been obtained for the construction of improvements, the contingent payee must also receive a statement furnished by the primary obligor and supported by reasonable and credible evidence from all applicable lenders of the amount of the loan, a summary of the loan terms, a statement of whether there is foreseeable default of the primary obligor, and the name, address, and business telephone number of the borrowers and lenders. If there is no loan or the loan is not sufficient to pay for all of the construction of the improvements, the contingent payee must also receive a statement furnished by the primary obligor and supported by reasonable and credible evidence from all applicable banks or other depository institutions of the amount, source, and location of funds available to pay the balance of the contract amount. Tex. Bus. & Com. Code § 56.054(d)
The owner must furnish the required financial information not later than the 30th day after receiving a written request. If the owner fails to do so, the contractor, the subcontractor, and their sureties are relieved of the obligation to initiate or continue performance of the construction contracts. Tex. Bus. & Com. Code § 56.054(g)
Courts have enforced this requirement strictly. In Solorzano v. Sage Commercial Group LLC, the court held a contingent payment clause unenforceable where the general contractor did none of the diligence the statute requires. It did not research or communicate the owner’s financial viability, made no collection efforts, and did not assign a claim. The court stated plainly that a general contractor must exercise diligence with respect to each contract on which it seeks to enforce a contingent payment clause. Tax alert
A contingent payment clause also cannot be used to defeat the enforceability or perfection of a mechanic’s lien under Chapter 53. Tex. Bus. & Com. Code § 56.055 So even if a subcontractor agrees to be paid only if the owner pays the general contractor, the subcontractor can still file a lien against the owner’s property.
After the 45th day following the subcontractor’s submission of a written payment request, the subcontractor may send written notice objecting to further enforcement of the contingent payment clause, and once the notice becomes effective under subsection (b) the contractor may not enforce the clause as to subsequent work, subject to exceptions in subsections (c) and (d). Tex. Bus. & Com. Code § 56.052
Construction trust fund law, criminal and civil liability
Construction payments received by a contractor or subcontractor under a construction contract for the improvement of specific real property in Texas are trust funds. Tex. Prop. Code § 162.001(a) Any contractor, subcontractor, or owner, or an officer, director, or agent of any of them, who receives or controls those funds is a trustee. Tex. Prop. Code § 162.002 The beneficiaries are artisans, laborers, mechanics, contractors, subcontractors, and materialmen who labor or furnish labor or material for the construction or repair of an improvement on specific real property in this state, their qualified assignees under Section 162.0031, and for residential construction contracts, property owners. Tex. Prop. Code § 162.003
A trustee who, intentionally or knowingly or with intent to defraud, directly or indirectly retains, uses, disburses, or otherwise diverts trust funds without first fully paying all current or past due obligations incurred by the trustee to the beneficiaries of the trust funds, has misapplied the trust funds. Tex. Prop. Code § 162.031(a) Misapplication of $500 or more without intent to defraud is a Class A misdemeanor. Misapplication of $500 or more with intent to defraud is a third-degree felony, punishable by up to 10 years in prison and a $10,000 fine. Tex. Prop. Code § 162.032, Tex. Penal Code § 12.34
There are affirmative defenses. The trustee can show that the funds were used to pay actual expenses directly related to the construction or repair, that the funds were retained after notice based on a reasonable belief that the beneficiary was not entitled, or that the funds were retained as authorized or required by Chapter 53. Tex. Prop. Code § 162.031(b) Another defense applies if the trustee paid the beneficiaries all trust funds they are entitled to receive no later than 30 days following written notice to the trustee of the filing of a criminal complaint or other notice of a pending criminal investigation. Tex. Prop. Code § 162.031(c)
A 2025 amendment, SB 1612, clarified several points effective September 1, 2025. Funds reserved under § 53.101 are trust funds only if a lien has been perfected by the beneficiary and the property is encumbered by a senior lien from a third party lender. Funds from a construction loan do not become trust funds until they are disbursed to the owner. An owner who releases reserved funds in good faith before the statutory deadline is not deemed to have misapplied them. The bill also requires courts to award attorney’s fees and costs to the prevailing party in trust fund litigation. Texas Policy Research
How the rules hit AI data center projects in practice
Scale, speed, and many tiers
AI data center campuses routinely involve over a thousand workers on site daily. At the Crusoe/Lancium Clean Campus in Abilene, Phase 1 had approximately 2,000 workers each day, and expansion is expected to reach nearly 5,000. Crusoe With that many workers across multiple employers and tiers, tracking who worked when, for whom, and what they are owed is a constant challenge. The pre-lien notice deadline, the 15th of the third month after work was done, requires a disciplined back office. A subcontractor who waits until a payment is 90 days late may already be past the deadline for the earliest unpaid months.
Because the lien affidavit deadline is tied to the last day the claimant performed work, a subcontractor that has been off the job site for four months but has not been paid may have already lost its lien rights without realizing it. The notice of claim must be sent to both the owner and original contractor, and on a project with a capital stack that includes multiple entities as owner, identifying the correct legal owner and that owner’s correct address is essential.
Who is the owner and who is the primary obligor
Many AI data center projects are owned by special-purpose entities formed for that single project. The OpenAI/Oracle Stargate flagship in Abilene, for example, operates through a dedicated entity. OpenAI, Crusoe Crusoe will own and develop its AI data center at the Lancium Clean Campus, and Energy Abundance Development Corporation is developing Data City, Texas near Laredo. Lancium, PR Newswire When the owner is a newly formed LLC with no operating history and capital that is committed but not yet fully funded, the Chapter 56 safe harbor financial disclosures may be difficult to obtain in a meaningful form. Practitioners debate whether a lender’s commitment letter or evidence of an institutional equity raise satisfies the statutory requirement for adequate financial arrangements. [UNVERIFIED, what a checker should confirm] This uncertainty affects both the enforceability of contingent payment clauses and the subcontractor’s decision about whether to rely on the owner’s credit.
Equipment and specialized materials
AI data centers contain specialized equipment not found on ordinary commercial projects, liquid cooling systems, backup generators, power distribution units, and high-capacity electrical switchgear. Whether each of these items falls cleanly within the statutory definition of an improvement or specially fabricated material has not been tested in a reported Texas appellate decision. The broad language of Section 53.021 likely covers such equipment because it is furnished for the construction of an improvement on real property. Tex. Prop. Code § 53.021 But a supplier of a custom-built transformer or a modular cooling plant should document that the item was specially fabricated for the project and that it was delivered or would normally have been delivered within the statutory windows to stay within the lien deadlines.
County moratoria and legal uncertainty
As of May 2026, Hill County enacted a one-year moratorium on AI data center and power plant construction in unincorporated areas. E&E News Other Texas counties are considering similar pauses, and the Texas Agriculture Commissioner has called for a statewide moratorium. Tax alert The legal authority of Texas counties to impose such moratoria is unsettled, and court challenges are expected. A project that is halted partway through construction triggers a series of lien and payment deadlines under Texas law. A stoppage counts as an abandonment or termination, which starts the clock on lien filings and retainage notices. Counsel for contractors and subcontractors on a project affected by a moratorium should immediately assess where they stand in the notice and lien timeline.
Key takeaways
- Subcontractors and suppliers on non-residential AI data center projects must send a pre-lien notice to both the owner and the original contractor by the 15th day of the third month after each month of unpaid work. Original contractors are not required to send that notice.
- The lien affidavit must be filed with the county clerk by the 15th day of the fourth month after the claimant’s work was completed, terminated, or abandoned. One day late forfeits the lien.
- A copy of the filed affidavit must be sent to the owner and, if the claimant is not an original contractor, to the original contractor, within five days of filing.
- Suit to foreclose must be filed within one year from the last date the lien affidavit could have been timely filed. Extension agreements must be recorded.
- The owner must reserve 10 percent of the contract price for 30 days after completion. If the owner fails to reserve it, claimants with proper notice can lien the property itself.
- Lien waivers are valid only if they substantially comply with one of the four statutory forms. No waiver before work begins or before actual payment is enforceable.
- On private projects, the owner must pay the prime contractor within 35 days of a written payment request, and the contractor must pay subcontractors within 7 days of receiving the owner’s payment. Interest on late payments runs at 1.5 percent per month.
- A pay-if-paid clause is enforceable only if the contractor exercises the diligence required by Chapter 56, which includes providing specific written financial disclosures about the owner’s financing to the subcontractor before the contract is enforceable.
- Construction payments are trust funds. Misapplying $500 or more can be a felony. The 2025 amendments clarified when reserved funds and undisbursed loan funds become trust funds.
- The specialized equipment in AI data centers likely falls within the lien statute, but no Texas appellate case has directly decided the issue. Suppliers should document delivery and fabrication details carefully.
- County moratoria on AI data center construction introduce new risks. A halted project triggers deadlines for notices and liens. Subcontractors should act promptly on any stoppage.
Frequently asked questions
Q:What is the most important deadline a subcontractor must know on a Texas AI data center project?
A:The deadline to send a pre-lien notice to the owner and the original contractor. It is the 15th day of the third month after the month the unpaid labor or materials were furnished. Missing this notice forfeits the right to file a lien for that month’s work.
Q:Does the general contractor have to send a pre-lien notice?
A:No. An original contractor who contracts directly with the property owner does not have to send a pre-lien notice before filing a lien affidavit. Subcontractors at any tier must send the notice.
Q:What is the difference between reserved funds and contractual retainage?
A:Reserved funds are the 10 percent the property owner must hold back from the original contract price. This is required by statute and secures payment of all downstream laborers and material suppliers. Contractual retainage is an amount withheld under a private contract between a contractor and its subcontractor. The procedure and deadlines for claiming a lien for unpaid contractual retainage are separate from the reserved funds rules.
Q:When does the clock start for the lien affidavit deadline?
A:For an original contractor, the deadline runs from the month the original contract was completed, terminated, or abandoned. For a subcontractor or supplier, it runs from the month that claimant last provided labor or materials. The affidavit is due on the 15th day of the fourth month after that month.
Q:Can a subcontractor file a lien if the contract says payment is due only when the owner pays the general contractor?
A:Yes. A contingent payment clause cannot prevent a subcontractor from perfecting a mechanic’s lien. And if the general contractor did not comply with the Chapter 56 diligence requirements, the pay-if-paid clause may be unenforceable anyway.
Q:What happens if the owner does not reserve the 10 percent?
A:The owner’s property remains subject to a lien for the full amount that should have been reserved, as long as the claimants followed the notice and filing procedures.
Q:Are there different payment deadlines on public and private data center projects?
A:Yes. On private projects, the owner must pay within 35 days and the downstream payment deadline is 7 days. On public projects, the governmental entity must pay a vendor within 30 days and the downstream deadline is 10 days.
Q:Is a separate bank account required for construction funds?
A:For residential contracts over $5,000, a separate construction account is required. For commercial projects, including AI data centers, the statute requires trustees to maintain records showing deposits and disbursements, but it does not expressly require a separate bank account.
Q:What should a supplier of specialized data center equipment do to protect its lien rights?
A:Send the pre-lien notice on time for each month the equipment was furnished or was available for delivery. Document thoroughly that the equipment was specially fabricated for the project and note the date delivery was required. File the lien affidavit by the 15th day of the fourth month after the last delivery.
Q:Does a county moratorium on data center construction affect lien deadlines?
A:Yes. A construction stoppage imposed by a moratorium likely counts as a termination or abandonment, which starts the clock for both pre-lien notices and lien affidavit filings. Any claimant on a project affected by a moratorium should immediately evaluate its deadlines.
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.