When Does a Mechanics’ Lien Effect?

Kent Scott | Babcock Scott & Babcock

The Utah Mechanic’s Liens Act needed some clarification on when exactly a mechanic’s lien goes into effect. That clarification came in February 2015 from the Court of Appeals of Utah. In the case Pentalon Construction, Inc. v. Rymark Properties, LLC the court ruled that “nearly completed excavation constitutes ‘commencement’ under the Act because the excavation was sufficient ‘to put a prudent lender on notice that lienable work was under way.”[1]

What this means for contractors is that to make sure a mechanic’s lien has priority over other liens or mortgages, they need to file their lien with the recorders office and construction needs to be underway on the jobsite to a point where a “reasonable observer” can tell that a mechanic’s lien is sure to be in effect.

The court found that there are easy ways for a jobsite to pass the “work started” test. For example having large piles of dirt from excavation activities helps people know that a construction project is under way.[2] Heavy machinery operating on the jobsite also demonstrates the beginning of a construction project.[3] Adding in construction materials to the excavated portions of the jobsite, and a nearly completed foundation are the final examples from the court that place observers on notice that work has started.[4]

Contractors need to know that two previous rulings regarding preparatory work for a jobsite is still in effect. The ruling in Ketchum, Konkel, Barrett, Nickel & Austin v. Heritage Mountain Development Co. states that architectural work and other site preparation such as surveying, staking, and soil sampling does not always put the “reasonable observer” on notice that work has started on a jobsite.[5]

Similarly, “wetlands delineations, groundwater monitoring, geotechnical testing, and irrigation work” does not place a reasonable observer on notice because the work should demonstrate “impending or ongoing work.”[6]

The important thing to remember is that the more obvious it is to a reasonable observer that construction has started on a jobsite, the more likely that a filed mechanic’s lien has taken effect. A jobsite’s almost completed foundation, large piles of dirt accompanied by heavy machinery, and construction materials onsite provides more than adequate notice of a mechanic’s lien that is in effect.


[1] Pentalon Const., Inc. v. Rymark Properties, LLC, 344 P.3d 180, 186, 2015 UT App 29, ¶ 19 (Utah App., 2015).

[2] Id. at 183.

[3] Id.

[4] Id.

[5] Ketchum, Konkel, Barrett, Nickel & Austin v. Heritage Mountain Development Co., 784 P.2d 1217, 1228 (Utah App., 1989).

[6] EDSA/Cloward, LLC v. Klibanoff, 192 P.3d 296, 300, 2008 UT App 284, ¶ 10 (Utah App., 2008).

PSA: Getting the First Mechanic’s Lien on a Project is a Plus

Christopher G. Hill | Construction Law Musings

As those that read this construction law blog are aware, I am a big fan of mechanic’s liens as a way to get paid.  These powerful and tricky beasts are a great way to get an owner’s attention and to put payment pressure on those that owe you money.

Recently I was reminded that getting a lien prepared and recorded both carefully and quickly can be key to getting paid on a problem project.  Not only should construction professionals keep the 150-day rule and the 90-day rule in mind, but they should also be quick on the trigger when it becomes clear that a mechanic’s lien will be necessary.

Why is moving quickly important? The reason to move with careful speed, particularly on a problem construction project, is that where multiple liens are recorded, the priority among them is determined by their date of recording.  All of these mechanic’s liens have priority over any deed of trust securing financing used to fund construction (though not a deed of trust used to purchase any underlying land).  However, the earlier recorded liens take priority over later recorded liens.

In other words, in a scenario where limited value exists and where any mechanic’s lien action filed timely and with the help of a Virginia construction attorney ends in foreclosure, the liens are paid out of the sale in order of priority.  This means that if you are last in line among multiple lien claimants your lien may not get paid in full or even at all when the project is particularly problematic.  In short, the early bird gets the worm is the saying of the day when it comes to mechanic’s liens.

Virginia’s Mechanic’s Lien Plus Statute: Making Those in Higher Tiers Personally Liable Separate from and Regardless of Mechanic’s Lien Rights

Neil Lowenstein | Vandeventer Black

Within Virginia’s mechanic’s lien article is a little known, and little used, mechanism providing for personal liability of higher tiers separate from that article’s mechanic’s lien rights. The title is “How owner or general contractor made personally liable to subcontractor, laborer or materialman.” It is actually a very simple process; and all it takes is two steps to effectuate.

Step One: If you have furnished labor or material to a general contractor or a subcontractor (per the Article, “subcontractor” includes all contractors, laborers, mechanics, and persons furnishing materials, who do not contract with the owner but with the general contractor) you, first, need to send a “preliminary notice” in writing to the owner or his agent or the general contractor, that “states the nature and character of [your] contract and the probable amount of [your] claim.” That is it. The statute provides no other details as to when the notice is required or other specifics about the notice. Although the presumed intention is that this “preliminary notice” is required before labor or materials are furnished, the statute does not expressly include such a requirement.

Step Two: Additionally, “after the work is done or material furnished” but “before the expiration of thirty days from the time the subject building or structure is completed or the work thereon otherwise terminated,” you then are required to provide a “second notice” that states:

  1. a correct account, verified by affidavit, of your actual claim against the general contractor or subcontract, for work done or materials furnished;
  2. the actual claim against the general contractor or subcontractor for your work done or materials furnished; and
  3. the amount due.

Both notices must be either: a) served using Virginia’s service of process methods; or b) mailed by registered or certified mail and received by the owner or general contractor upon whom personal liability is sought to be imposed; with a return receipt showing delivery being “prima facie” (legal speak for being accepted as correct until proven otherwise) of receipt. While any “bona fide agreement” for deductions for failure or refusal of the general contractor to comply with his contract shall be binding on the claimant seeking personal liability, that is an affirmative defense to the 43-11 notice and must be proven by the owner.

Like mechanic’s lien defenses, more generally, however, the lower tier claim at the time of the second notice cannot exceed the amount for which the next higher tier is liable to the tier above. In other words, if no further payment is due to the general contractor from the owner, that effectively “cuts off” the owner’s liability to the claimant; and, similarly, if no further payment is due to the first tier subcontractor from the general contractor, that cuts off the liability to the subcontractor’s lower tier supplier or laborer. So, while not quite the equivalent of a “notice of claim of lien against funds” as some jurisdictions provide (like North Carolina) because of such defenses; the Virginia Code § 43-11 notice statute provides both practical, and legal, basis for lower tier laborer and supplier claims against owners and general contractors – – separate from Virginia’s mechanic’s lien processes.

Maybe Close Enough Still Counts with Mechanic’s Liens?

Christopher G. Hill | Construction Law Musings

Remember that case where “substantial compliance” was enough for the proper enforcement of your mechanic’s lien rights?  Remember how I said maybe it was an outlier?  Remember how the Virginia General Assembly modified the statute and the statutory forms to account for the ambiguity discussed in the Desai case? Remember how Virginia mechanic’s liens seem to place form over function in most if not all cases?

Well, at least one court in Virginia seems to have taken the Desai case and read it to only require substantial compliance to the statutory requirements for a plaintiff to have an enforceable memorandum of lien.  In Firekleen LLC v. Robert Florimo, the Hanover County, Virginia Circuit Court looked at a memorandum of lien that prior to Desai would have been thrown out of court as unenforceable for its various flaws.  The flaws in the memorandum pointed out by the defendants in the case ranged from failure to name both tenants by the entirety owners of the real estate to failure to identify the signatory on the lien as the agent for the claimant.  In fact, in a pre-Desai case, this same Court had previously found a memorandum of lien invalid for, among other reasons, failure to properly identify the signatory of the lien as the agent of the claimant.

However, in Firekleen, and while acknowledging its prior opinion seemingly in contradiction to its current one, the Court overruled the demurrer filed by the defendants and that pointed out the various flaws in the pleading and memorandum.  In doing so, the Court stated that the failure to name all owners or properly name the signatory on the lien as agent for Firekleen was not fatal because the defendants could identify the property and because the lien substantially complied wiht the purpose of the statute.  The Court further allowed the Plaintiff to amend its complaint to properly plead that the lien included no amounts in violation of the 150-day rule.

While this is a single opinion from a single Virginia Circuit Court it does show the affect of the Desai case on reasoning by lower Virginia courts.  For at least one court the highly technical and formalistic regime for mechanic’s lien filings has loosened somewhat.  Does this mean you can rest easy?  I don’t think so.  I still believe that it would be playing with fire to make the errors that are discussed in Firekleen.  The help of an experienced Virginia construction attorney still remains the best firewall against taking the time to record a memorandum of lien and then finding that lien unenforceable.

As always I recommend that you read the case for yourself and to draw your own conclusions.

Lien Rights: Remedies for Potential Issues on the Project

Amandeep S. Kahlon | Bradley Arant Boult Cummings

Liens are one of the primary tools for the construction industry to secure payment claims. However, lien rights and remedies vary between states, and these distinctions are often difficult for owners, contractors, and subcontractors to navigate. Because many states apply lien laws strictly—meaning technical non-compliance can result in forfeiture of lien rights or defenses—it is important to be informed regarding lien requirements and comprehend potential issues that may arise if lien rights are asserted on your project. Let’s walk through a few of those potential issues here.

PRE-CONSTRUCTION LIEN NOTICES

Several states have enacted laws that require parties to file notices prior to the start of construction. For example, some states require or permit an owner to file a notice of commencement in the county records where the construction project is located. The notice of commencement typically highlights the name and contact information for parties like the owner, contractor, surety (if applicable), and lender, as well as providing information regarding the property and project address. In most states, an owner or contractor is required to disseminate the notice of commencement to subcontractors either via mailing to subcontractors or posting at the jobsite.

Once a notice of commencement is filed, it generally triggers an obligation for subcontractors and other entities on the project to file or send out a separate notice identifying information like the subcontractor’s contact information, the services to be performed by the subcontractor, the price of such services, etc. These notices typically must be sent out shortly after the notice of commencement is recorded or shortly after construction commences. A subcontractor who fails to send such a notice may forfeit its lien rights on the project. Conversely, an owner who fails to properly record a notice of commencement may forfeit the defenses afforded under the notice of commencement statute against any potential lienors. Other states require a preliminary notice of the right to lien to be sent out by contractors, subcontractors, and suppliers irrespective of any corresponding notice of commencement filed by the owner. In these states, the preliminary notice must typically be sent prior to receiving any payment on a project or within a set time after the start of providing labor or materials on a project. Failure to satisfy an applicable preliminary notice can bar a subcontractor or supplier from later perfecting an otherwise valid lien on a project.

STATUTORY REQUIREMENTS

Many states require precise compliance with lien filing requirements. Statutory provisions may outline specific forms to be used in lien notices and filings. Other statutes may require certain language to appear in lien notices or waiver forms in order for them to be effective. Because substantial compliance may not be sufficient to perfect your lien rights or enforce lien defenses, it is critical that you and your project team understand a particular state’s lien notice and filing requirements prior to beginning work on a project.

TIMING REQUIREMENTS

Preliminary notices, notices of right to lien, and lien filings themselves often must be filed within a specific time period as defined by statute. It is important to keep track of those deadlines; otherwise, you may lose out on your right to file a lien. In the same vein, an upstream contractor or owner may benefit from being informed about the timing requirements for a lien filing and be able to defeat otherwise valid liens and enforcement actions by noting deficiencies in the timing of required filings.

In order to monitor these timing requirements, contractors and subcontractors need to be aware of when their lien rights accrue in a particular state. Typically, lien rights accrue upon the date work was last performed on a project. But, that date is not always certain. For example, does warranty work a subcontractor returned to site to perform extend the time that subcontractor has for filing a lien?

If you have a valid lien, you need to be conservative in calculating your time for filing, so you do not run afoul of a deadline that may extinguish your lien rights. This can be a difficult task when negotiating final payment requirements or a payment dispute with an owner or contractor, especially a party with which you have an existing relationship. These negotiations may drag on, and, because lien filings of any kind can be a pain for an upstream party to deal with, it may make you hesitant to assert lien rights to avoid upsetting your commercial relationship. But, by hesitating, you may inadvertently waive your lien rights, so proceed cautiously.

LIEN WAIVERS

Lien waiver forms and requirements are usually fiercely negotiated in construction contracts and subcontracts. As a party signing a waiver, you need to be aware of the rights you are waiving upon execution of a partial or final waiver. Consider whether the form asks for waiver of all claims, including lien claims, or just lien claims. That distinction may materially affect your ability to sue for relief irrespective of whether you have valid lien rights. Consider also whether you have appropriately reserved your rights on a disputed payment or extra work claim prior to signing any lien waiver or release. You may inadvertently waive your right to seek relief if you sign a comprehensive waiver, even where the owner is aware of the extra work claim prior to execution of the waiver.

As an owner or contractor enforcing a waiver provision, consider whether you have included all required statutory language in the lien waiver form. Some states require specific language to be included in all lien waiver forms to help make downstream parties aware of the rights they are potentially waiving. An upstream party also needs to consider whether the lien form is enforceable as written. Some states will not enforce an unconditional waiver sent prior to receipt of payment.

CLOSING THOUGHT

The topics above outline some of the standard lien issues that arise in construction law. But, there are a host of other issues that may arise. It is important to spend time understanding the lien law in the state where you are performing work. You may consider consulting with a local construction attorney to highlight for you any particular requirements of a state before you enter into a contract, and, similarly, if you anticipate encountering a lien issue once construction begins or as you approach substantial completion, reaching out to an attorney to discuss filing requirements may prove invaluable.