90 and 150: Two Numbers You Must Know

Christopher G. Hill | Construction Law Musings | May 20, 2019

Mechanic’s liens are a big topic here at Construction Law Musings.  I’ve discussed everything from the picky nature of this powerful payment tool to the changes that are upcoming on July 1, 2019.  Given the strict way that the form and timing of a Virginia mechanic’s lien is so critical, I thought a quick reminder was in order.

Two numbers that are critical to the timing and content of any mechanic’s lien are 90 and 150, both found in Va. Code 43-4.  90 days is the time from the last date of work (not invoicing), or last date of the last month in which work was done given proper circumstances. 

The 90 days prescibes the time during which a contractor can properly record a valid lien.  This is a hard deadline and is 90 days, not three months.  Miss this deadline and no matter what the type of payment that has not been made (something discussed below), the contractor will lose its lien rights.  This is the easier of the two numbers to both understand and apply.  Count 90 days from last non-corrective or warranty work and that is your hard out for filing.

The 150 days discussed in the Virginia Code section above prescribes what particular work’s value can be included in the mechanic’s lien total.  By this I mean essentially the total amount that can be included in the lien.  This 150 days is a “look back” period from either the last date of work or the date of the lien, whichever is earlier.  Any work done within that 150 days can be included in the value of the lien.  Two exceptions to this 150 day inclusion period are retentions up to 10% and sums not yet due because the party that owes the money has not received payment for the work (read “pay if paid” situation).  Include sums in excess of money owed for work done within the 150 days plus any retainages and money subject to pay if paid and the lien will be considered over inclusive and will be invalidated by a Virginia court (with extremely limited exceptions almost not worth mentioning).

For practical purposes, what the combination of these numbers means is that on longer projects spanning more than 5 months, a contractor in Virginia may be forced to file multiple liens in order to “catch” the value of all of its work because for every day that passes after the 150 day mark, a day’s work is no longer lienable.  While this won’t invalidate that contractor’s right to a lien (the start of the 90 days moves with each day of contract work), it does affect what can be included in the lien.

A New Statute of Limitations on Construction Claims by VA State Agencies?

Christopher G. Hill | Construction Law Musings | January 21, 2019

I have discussed the Hensel Phelps case and the potential issues caused by both poorly drafted indemnity clauses and the lack of a statute of limitations applicable to the Commonwealth of Virginia and its agencies in 2017. New legislation (supported by various contractor groups including my friends at the AGC of Virginia) has been proposed for the 2019 General Assembly session that seeks to address at least part of this issue. While the indemnity provisions of your construction contracts can be addressed by careful drafting with the help of an experienced construction attorney, the proposed legislation (found in HB1667) seeks to address the statute of limitations issue.

The proposed legislation is described as follows:

Provides that no action may be brought by a public body on any construction contract, including construction management and design-build contracts, unless such action is brought within five years after substantial completion of the work on the project and that no action may be brought by a public body on a warranty or guarantee in such construction contract more than one year from the breach of that warranty, but in no event more than one year after the expiration of such warranty or guarantee. The bill also limits the time frame during which a public body, other than the Department of Transportation, may bring an action against a surety on a performance bond to within one year after substantial completion of the work on the project.

In short, it gives a contractor performing work for a Virginia agency the peace of mind that it will not have unlimited responsibility for its work by limiting its contractual liability period to five years and its warranty obligations to no longer than a year after the expiration of any warranty. The bill would further limit the liability of a surety under a performance bond, thus allowing sureties and their principals to move on to other projects without the corresponding hit to the principals overall bonding capacity after a period of time.

In my opinion this would be a good addition to the Virginia Public Procurement Act and allow better business for all involved.

I will keep an eye on the progress of this bill,among others that will be of interest to construction professionals in Virginia, once the General Assembly session begins.

With VA Mechanic’s Liens Sometimes “Substantial Compliance” is Enough (But Don’t Count on it)

Christopher G. Hill | Construction Law Musings | September 3, 2018

Virginia mechanic’s liens are a powerful and tricky beast that in most cases require absolute precision in their preparation. However, an interesting opinion recently came out of the Virginia Supreme Court that may provide a bit of a “safe harbor” from the total form over function nature of a mechanic’s lien.

In Desai, Executrix v. A.R. Design Group Inc., the Court considered a lien memorandum that had what could be described as technical flaws in the preparation of the mechanic’s lien by A. R. Design Group. The basic facts are that A. R. Design Group used the form of lien found in Va. Code Sec. 43-5 (also found as Form CC-1512 at the Virginia Judiciary website) when it recorded two lien memoranda for two pieces of property owned by a trust. Relating to one of the two properties, the memorandum failed to identify the “Owner” as the trustee of the trust. On the memoranda relating to both properties the affidavit verifying the amounts claimed did not identify the signatory as agent for A. R. Design Group, instead listing the agent as the claimant and further failed to state a date from which interest is claimed or a date on which the debt was due.

Needless to say, the owner argued that each of these technical defects invalidated the memoranda and therefore they should have been released. Somewhat surprisingly the Fairfax, Virginia Circuit Court disagreed and held the liens to be valid. On appeal, the Virginia Supreme Court affirmed the lower court. The held that the failure to add the word “Trustee” after Ulka Desai’s name did not invalidate the lien because the trustee had all of the rights of ownership and furthermore that naming Desai in the memorandum served the purpose of putting third parties on notice of the lien.

As to the naming of a vice president of A. R. Design Group as claimant, the Court held that this was not a “substantial” defect that would cause prejudice to a party or thwart the purpose of the statute. Because the claimant was properly identified in the lien memorandum itself and it was clear that the person executing the affidavit was an agent of the company, the Court held that this defect was not substantial and held that it fell within the safe harbor of Va. Code Sec. 43-15.

Finally, and more interestingly, the Court found that failure to state a date from which interest could be claimed or a date when the amounts due are or would become payable in this case were not fatal. As to the interest, the Court stated that in the case before them no interest was being claimed so no date was necessary. As to the failure to state a date when the amounts claimed are due, the Court looked at the requirements of Va. Code Sec. 43-4 and Va. Code Sec. 43-5 and concluded that because A. R. Design Group used the form found in Section 43-5:

[t]he memoranda were substantially compliant because they closely tracked the form required by Code § 43-5, they provided sufficient notice that the owner was claiming amounts due and any defect in the memoranda would not thwart an underlying purpose of the statute, such as providing notice to third parties. Therefore, A.R. Design is entitled to the safe harbor provided by Code § 43-5.

In short, the Virginia Supreme Court looked at a lien memorandum that had a technical flaw or two and concluded that its substantial compliance with the mechanic’s lien statute and its purpose did not require its invalidation.

Does this case mean that you shouldn’t worry about title searches, proper certification of mailing, and other technical requirements of the lien statutes? Of course not. Does this mean that the assistance of a Virginia construction lawyer that is experienced with mechanic’s lien matters is now unnecessary? Nope. The Court in this case was looking at a particular set of facts and circumstances. Frankly, the lien claimant was a bit lucky in my opinion because of the particular confluence of circumstances. I would still be very careful with mechanic’s liens and would not read this one case as a thawing of the strict requirements of these powerful collection tools.

As always, I recommend that you read the case yourself and draw your own conclusions. If they are different from mine, I’d love to hear them.

In Contracts, One Word Makes All the Difference

Christopher G. Hill | Construction Law Musings | July 4, 2018

Here at Musings, I sometimes feel as if I am beating the “contract is king” drum to death. However, each time I start to get this feeling, a new case out of either the Virginia state courts or the Fourth Circuit Court of Appeals here in Richmond reminds me that we all, lawyers and contractors alike, need to be reminded of this fact on a regular basis. The terms written into a construction contract (or any other contract for that matter) will control the outcome of any dispute in just about every case.

A recent 4th Circuit case takes this to the extreme in pointing out the the choice which of two tiny words can change the entire set of procedural rules and even the courthouse in which your dispute will be decided. In FindWhere Holdings Inc. v. Systems Env. Optimization LLC, the Fourth Circuit looked at a forum selection clause found in a contract between the parties. In this case, the clause stated that any dispute would be litigated in the courts “of the State of Virginia.” When the defendants tried to remove the case from Virginia state court to the Eastern District of Virginia federal courts, the federal court remanded the case, sending it back to the Circuit Court of Loudoun County, Virginia.

On appeal of this ruling, the 4th Circuit agreed with the remand and contrasted the language found in the contract (i. e. “of the State of Virginia) with other standard language stating “in the State of Virginia.” In upholding the district court, the 4th Circuit stated that the language containing the word of expressed sovereignty as opposed to the mere location expressed in the language using the word in. In the first case, the 4th Circuit stated, the federal courts have no jurisdiction while in the second they do. As such, the case could not continue in federal court.

While this case does not involve construction, it is informative for all of us in the construction world who deal with written contracts on a daily basis. The Findwhere case is a great reminder to read your construction documents carefully, and draft them with even more care. The lesson of this case is that a change in just one two-letter word can completely change the whole direction of a construction contract dispute. For this reason, the advice, early in the contracting process, of a qualified construction attorney knowledgeable in the way these little words make a difference is key.

The General Assembly Seems Ready to Provide Some Consistency in Mechanic’s Lien Waiver

Christopher G. Hill | Construction Law Musings | March 5, 2018

Back in 2015, the Virginia General Assembly amended the mechanic’s lien statute (Va. Code 43-3) here in Virginia to preclude any contractual provision that diminishes a subcontractor or supplier’s “lien rights in a contract in advance of furnishing any labor, services, or materials.” However, this amendment was only applicable to subcontractors and suppliers. For political and other reasons, general contractors in Virginia were left out of this change. This omission by the legislature put Virginia general contractors in the position of potentially being forced by project owners to waive their mechanic’s lien rights without the ability to run that risk down stream to their subcontractors and suppliers.

A recent bill enrolled during this legislative session, HB823, provides some remedy to this inconsistency. This bill (a .pdf of which can be obtained here) amends Virginia Code 43-3 and Virginia Code 43-21 to effectively preclude full contractual waiver of lien rights by general contractors with one caveat. That caveat is that with the amendment to 43-21 relating to priority of liens the general assembly has specifically authorized pre or post provision of labor or materials subordination of general contractor mechanic’s liens to any deed of trust on the property in question. In short, general contractors got at least partial relief from the contractual bind that the previous legislation put them in.

Of course this begs the question of whether subcontractors and suppliers can be forced to subordinate their lien rights given the above-quoted language. Would doing so constitute diminishing those rights through the loss of priority? In the past few years, I haven’t seen a case that answers this question. As always, I recommend that you review the statutes yourself, preferably with the advice of an experienced Virginia construction attorney.