Mechanic’s Liens in DC, Maryland, and Virginia – Don’t Wait to Exercise Your Rights

Jackson Nichols and Paul Felipe Williamson | Cohen Seglias Pallas Greenhall & Furman

A mechanics’ lien is an encumbrance on real property or a leasehold that acts as security for unpaid labor, material or construction services. Such liens are typically available to contractors on private jobs if they meet certain statutory requirements, though most states limit or outright preclude the ability to file mechanics’ liens on public jobs.

Mechanic’s Liens Are Leverage

Mechanics’ liens are powerful tools for contractors to help collect payment because they provide an extraordinary remedy—the sale of the property to satisfy the lien. To balance this powerful tool, contractors must strictly adhere to a number of specific requirements that vary widely from one state to the next. Unlike many other areas of the law, mistakes relating to mechanics’ liens often lead to losing one’s lien rights without any possibility of forgiveness. The loss of lien rights does not, however, equate to the loss of all rights and claims if you know how to preserve them.

Don’t Wait to Exercise Your Rights

One of the most important considerations is the timing of filing a lien. Many contractors wait too long when they have a claim and end up losing their mechanics’ liens rights. In the DC Metro area, a complex web of different deadlines and filing requirements makes these timing elements difficult to navigate. Understanding your rights is key. As a general rule, however, it is best to start preparing to file a lien if it is 45 days after completion of the project and you are concerned about getting your contract balance paid to allow sufficient time to prepare the lien. Given the complexity of lien filings and the potential loss of lien rights for even minor mistakes, it is recommended that contractors consult legal counsel for such filings.

Time Limits in DC

DC requires contractors to file a notice of mechanics’ lien in the Recorder of Deeds office within “90 days after the earlier of the completion or termination of the project.” This is generally understood to mean within 90 days after all work on the project is completed (even if your work finished earlier). However, the DC Court of Appeals has yet to weigh in definitively on this issue. To be cautious, it is best to record your lien within 90 days of completion of your scope of work.

You must serve a copy of the notice to the owner via certified mail within five business days after recording it. Failure to do so could jeopardize your lien rights. If the certified mail is returned undelivered, you can post a copy of the recorded notice at a visible entry point to the property at issue. Finally, contractors asserting a lien on a DC project must file their lien enforcement lawsuit within 180 days from the date of recording the notice.

Time Limits in Maryland

Maryland requires subcontractors to serve a notice of intent to lien on the owner within 120 days after the subcontractor has completed the work (i.e., last date labor was performed) or furnished materials (i.e., the date they are delivered). It is recommended that such notice be given via certified mail at a minimum, if not via a private process server. General contractors who have a direct contract with the owner are not required to provide a notice of intent to lien since the owner knows whether a general contractor has been paid. Additionally, certain elements must be included in the notice, and Maryland Real Property Code Section 9-104 sets forth a form a subcontractor can fill out with that information.

The statute requires all contractors to file a lawsuit to enforce the mechanics’ lien (called a petition to establish and enforce lien) within 180 days of the last work performed. The contractor claimant must finish its work before it can file the petition.

After the petition is filed, the court will promptly review it and issue a show cause order to the owner of the property at issue directing them to respond to facts stated in the petition. The show cause order also will set a hearing at which the contractor must establish basic facts demonstrating its right to assert a lien claim. If the court determines that the contractor is likely to prevail at the final trial, it will issue an “interlocutory order,” which essentially is a temporary lien, and allow the parties to go to discovery (the exchange of documents and information via written requests and depositions). A final hearing must take place within six months of the interlocutory order.

Time Limits in Virginia

Virginia law requires contractors to file mechanics’ liens in the land records office of the county where the project is located either:

  1. Within 90 days of the last supply of labor or materials (if the project is completed), or
  2. Within 90 days of the last day of the month in which the contractor last performed labor or supplied materials, if the project is ongoing.

Virginia’s lien law has an additional timing component, known as the 150-Day Rule. As noted above, a contractor must count forward from the last day it performed work or supplied materials to a project. In addition, the contractor must also count 150 days backwards from that day to determine how much labor and/or materials can be included in its lien. Essentially, contractors liening a Virginia project may only lien in 150-day chunks of time. Because of this rule, contractors may need to file multiple liens on a Virginia project to capture all of the labor/material they provided to that project.

Contractors in Virginia also must file a complaint to enforce mechanics’ lien within “six months from the time when the Memorandum of Lien was recorded or [within] 60 days from the time the building structure or railroad was completed or work thereon otherwise terminated, whichever time shall last occur . . . .” Generally, this means that the complaint must be filed within six months after the lien is recorded in the land records office.

Regardless of jurisdiction, contractors would be prudent to research lien requirements before commencing work on a project and to consult with legal counsel to determine the best strategy for being able to take advantage of the potential benefits a mechanics’ lien can offer.

Be Aware of Two New Statutes that Became Effective May 1, 2021

Christopher G. Hill | Construction Law Musings

On May 1, 2021, two new statutes that passed in 2020 and that directly affect construction became effective.  I’ve used the AGC-VA description of the bills and encourage you to read the statutes in full.

Prevailing Wage

Starting May 1, 2021, Virginia’s new prevailing wage statute takes effect. This statute requires any contractor bidding on state procurement jobs to pay prevailing wages for work completed on the project. Further, localities and some institutes of higher education have the option to require prevailing wages on jobs. This may have the effect of significantly raising the cost of these jobs and creating market incentives which make it very difficult for many contractors to bid on this type of work, and is consistent with work performed on VDOT and federal projects. The law further requires certified payroll for any prevailing wage job and the consequence for not following the statute includes debarment.

Click here to read the full text of the new law.

Project Labor Agreements

Starting May 1, 2021, any public body in Virginia, which includes state agencies, localities, and institutes of higher education may elect to require project labor agreements (PLA) of contractors bidding on work. A PLA is a pre-hire collective bargaining agreement on a specific construction site. Government-mandated PLAs can restrain competition, drive up costs, cause delays, lead to jobsite disputes, and disrupt local collective bargaining. AGCVA has been working with localities and others to communicate the negative consequences of government-mandated PLAs. Currently, there are no standards or guidance of when a public body can require a PLA.

Click here to read the full text of the new law.

General contractors and subcontractors alike should be aware of these changes to Virginia law and consult with a Virginia-based construction attorney to discuss how they may affect their contracts and business practices.

Uniwest And Virginia’s Anti-Indemnification Statute: The Trap For The Unwary Should Be Closed

James P. Bobotek | Virginia State Bar

When preparing commercial contracts, parties strive for certainty to prevent post-execution risk allocation surprises. This is particularly true when drafting indemnification clauses in construction-related contracts. To prevent downstream parties with little contracting leverage from being asked to indemnify upstream parties for those upstream parties’ own negligence, the vast majority of states have enacted “anti-indemnity” legislation limiting the breadth of indemnification clauses in contracts touching on construction projects.1 These statutes generally fall into two camps: (i) 16 states permit a party (the “indemnitee”) to be indemnified for its own negligence as long as it is not solely negligent;2 and (ii) 28 states do not permit the indemnitee to be indemnified for its own negligence under any circumstances, whether in whole or in part.3 Six states and the District of Columbia allow broad indemnity whereby an indemnitee can be required to indemnify the indemnitor even if the indemnitor is solely at fault.4

Virginia’s anti-indemnity statute states, in relevant part: Any provision contained in any contract relating to the construction, alteration, repair or maintenance of a building … by which the contractor performing such work purports to indemnify or hold harmless another party to the contract against liability for damage … caused by or resulting solely from the negligence of such other party … is against public policy and is void and unenforceable.5

Inclusion of the word “solely” in Section 11-4.1 leads most readers to conclude that it was drafted to fall into the first camp (bringing Virginia within those states barring indemnification for an indemnitee’s negligence only when the indemnitee is solely negligent). But therein lies the trap. Presumably unintentionally, the drafters of Section 11-4.1’s 1991 amendment structured the operative language in a manner similar to, but slightly different from, the anti-indemnity statutes that fall within the first camp. Almost all statutes included in the first camp use identical causation language, as follows: “caused by or resulting from the sole negligence of the … indemnitee.”6 But Section 11-4.1’s operative language reads: “caused by or resulting solely from the negligence of [the indemnitee].”7

To provide context, while Section 11-4.1’s language is slightly different from the other first camp’s statutes, it is very different from the language of those falling in the second camp (that do not permit indemnification for an indemnitee’s own negligence under any circumstances). The major difference is that none of the statutes falling within the second camp include the limiting words “sole” or “solely.”8 There is no need to include the word “sole” or any variation thereof because these second camp statutes are broader, precluding indemnification for an indemnitee’s negligence whether the indemnitee is solely or only partially negligent.9

Without this context, Section 11-4.1’s placement of “solely” after “resulting” permits a reader to more easily interpret the clause in at least two manners: (i) that “solely” modifies the entire phrase “caused by or resulting”; or (ii) that “caused by or resulting solely from” is disjunctive, meaning that there are really two disconnected phrases, “caused by” and “resulting solely from.” These alternate interpretations make a significant difference. Analysis under the first example results in the clause falling within the first camp; a limitation on indemnity for the indemnitee’s negligence only when the indemnitee is solely negligent. To the contrary, scrutiny under the second example leads to a broader bar; the indemnitee cannot be indemnified for its own negligence, whether sole or partial.

The Supreme Court of Virginia interpreted Section 11-4.1 in Uniwest Construction, Inc. v. Amtech Elevator Services, Inc.10 Uniwest, the prime contractor, engaged Amtech as a subcontractor to perform elevator work.11 One Amtech employee was injured, and another died as a result of a scaffolding collapse.12

Various lawsuits arose involving indemnification and insurance, all of which made their way to the Court in a consolidated appeal.13 Without discussion, or reference to any legislative intent, and without comparing Section 11-4.1’s language with other states’ anti-indemnity clauses to gain context, the Court concluded that the phrases “caused by” and “resulting solely from” in the statute are disjunctive, meaning that they must be treated as separate clauses.14 From this, the Court found that the statute precludes indemnification for two types of damages: (i) those that are “caused by”; or (ii) those that “result[ing] solely from” an indemnitee’s negligence.15 In other words, under Section 11-4.1 an indemnitee can never be indemnified for its own negligence whether it is solely negligent or only partially negligent. The Court held that the indemnification provision at issue “clearly reaches beyond the negligence of other parties and indemnifies [the indemnitee]. Therefore, it violates Code 11-4.1 and is void.”16

Many practitioners, fifty-state compendia, and even some treatises, review Section 11-4.1 and, finding the language so similar to those other jurisdictions that permit an indemnitee to be indemnified for its own negligence as long as it is not solely negligent, conclude that Virginia falls within that camp. Indeed, an internet search for anti-indemnity statutes results in myriad compendia and articles interpreting Section 11-4.1 and Virginia’s law on construction-related contractual indemnification clauses as permitting an indemnitee’s indemnification for its partial negligence, and precluding such indemnification only when the indemnitee is solely negligent. Thus, the trap is sprung.

The result in some cases has been a finding that flies in the face of the contract certainty for which parties yearn — that the indemnification clause the parties agreed to, permitting a party to be indemnified for its own partial negligence, is in fact void ab initio and cannot be reformed.17 Other jurisdictions with statutory language similar to Section 11-4.1 do not preclude indemnification for an indemnitee’s concurrent or partial negligence, instead limiting the statutory prohibition to damages arising out of an indemnitee’s sole negligence.18 Yet after Uniwest, despite the similarity in language to these other statutes where indemnification is prohibited only for an indemnitee’s sole negligence, Section 11-4.1 is interpreted in a more expansive fashion, also precluding indemnification for the indemnitee’s partial negligence.

It is high time for the General Assembly to correct the uncertainty created by the statute’s ambiguous language. If Section 11-4.1’s intent is to preclude an indemnitee’s indemnification only when it is solely negligent, as many states do, then it should modify Section 11-4.1 to read “caused by or resulting from the sole negligence of such other party.” Alternatively, if the intent is really as the Court found in Uniwest, then the General Assembly should remove Section 11-4.1’s current ambiguity by modifying it to read “caused partially or solely by, or resulting partially or solely from, or arising partially or solely out of the negligence of such party.” Further, given some of Uniwest’s progeny, the revised legislation should clarify that savings clauses inserted in indemnification clauses, such as the commonplace “to the fullest extent permitted by law,” will permit reformation of a non-conforming clause rather than a finding that it is void ab initio. At the end of the day, contractual certainty is best for all.

James P. Bobotek, a partner in Pillsbury’s McLean office, guides clients through all phases of development and construction of office, multifamily housing, hotel, and other commercial properties, including preparation, review and negotiation of development, design, construction, design-build, and related agreements. Bobotek also counsels clients in analyzing insurance coverage claims, formulating risk management strategies, and developing contractual insurance requirements. He has secured many favorable outcomes for commercial policyholders on CGL, builder’s risk, commercial property, business interruption, cyber, professional liability, D&O, pollution, fidelity, and other claims.

Mechanic’s Liens and Leases Don’t Often Mix Well

Christopher G. Hill | Construction Law Musings

As those who read my “musings” here at this construction law blog are well aware, the topic of Virginia mechanic’s liens is one that is much discussed.  From the basic statutory requirements to the more technical aspects of these tricky beasts.  One aspect of mechanic’s liens that I have yet to discuss in detail it how these liens attach in the situation where the contractor does work for a lessee and not for the owner of the underlying fee interest in the property.

A recent case out of the Western District of Virginia federal court, McCarthy Building Companies Inc. v. TPE Virginia Land Holdings LLC,  discusses the interaction of Va. Code 43-20, work on a leasehold, and parties necessary to any litigation relating to a lien for the work on that leasehold. The basic facts, outlined more thoroughly in the linked opinion, are these.  MBC provided certain work to TPE Kentuck Solar, LLC on property leased from TPE Virginia Land Holdings, LLC.  The lease was for a fixed term and for a fixed amount regardless of the work performed at the property.  MBC was unpaid by the Kentuck entity and then recorded a lien on the property and then sued to enforce that lien and for unjust enrichment against TPE Land Holdings.  TPE Land Holding filed a motion to dismiss the mechanic’s lien and unjust enrichment counts.

The Court heard oral argument and then went into an analysis of the above-referenced statute and whether TPE Land Holdings was a necessary party that had any interest in the “property” subject to the lien.  The Court put the question as follows:

The question, therefore, is not who has an interest in the land generally; rather, the court must ask who has an interest in the “part” of the land that Kentuck possesses. Specifically: Who has an interest in Kentuck’s leasehold interest?

Upon review of the lease and the relationships among the parties, the Court determined that the only party with an interest in the leasehold was Kentuck and that no action on the lien could diminish the property interest in the underlying property owned by TPE Land Holdings.  In short, TPE Land Holdings gave up its interest in the leasehold when it leased the land to Kentuck.  Even in the event that the lien suit lead to foreclosure, the worst that could happen is a new tenant would take over the lease and TPE Land Holdings would have potentially worse luck enforcing the lease.  Even in this scenario title to the underlying land would not be affected by the lien or its enforcement.  Therefore, the Court stated, TPE Land Holdings is not a necessary party or even a proper party to the lien counts and must be dismissed.

The Court dismissed the unjust enrichment count as well.  The Court stated that due to the fixed nature of the lease payments along with the fact that MBC failed to plead the requisite elements of an unjust enrichment claim, key among them that TPE Land Holdings was aware it may have to pay for the work performed under the contract with Kentuck.  Aside from MBC’s failure to plead all of the elements of such a claim, the Court stated that nothing MBC did affected the value of the leasehold from the perspective of TPE Land Holdings given the way the lease was drafted such that the work at the property would not affect the lease payments or other lease aspects that were set long before the work was performed.

My take?  Aside from the usual advice to read the opinion in full and to consult an experienced Virginia construction attorney, this case is a good primer on the interaction of leases and Virginia mechanic’s liens.  I recommend it to your reading.

Environmental Justice: A Changing Landscape for Virginia Developers

William Shewmake | Woods Rogers PLC

A company in the formative stages of locating, permitting, and constructing any substantial industrial or commercial project needs to be keenly aware that the legal and regulatory landscape related to environmental justice is changing in Virginia. We anticipate that change will accelerate in the coming year.

The Virginia Department of Environmental Quality (DEQ) commissioned an environmental justice study by SKEO Solutions, Inc. which issued a report in October 2020 (PDF). The report contains numerous recommendations the DEQ is likely to adopt. One of the first is to begin the process of hiring a Director for Environmental Justice, which is underway.In the General Assembly session just ended, the House and Senate approved competing bills to create a permanent environmental justice advisory group that would include representatives from state agencies across the spectrum. This group would establish policies and recommend statutory and regulatory changes to promote the goals of environmental justice. While the Senate and House could not reconcile their respective bills during this past legislative session, new environmental justice legislation is likely to emerge and pass in the General Assembly session next year.

Moreover, the Governor’s current environmental justice advisory group has recently issued a report with recommendations, and Governor Northam ordered that the advisory group remain in place.

What is environmental justice?

While it is unclear what precise definition of environmental justice Virginia will ultimately adopt, the concept of environmental justice generally involves concentrating intensive, disruptive projects in majority-minority and less affluent communities. According to the U.S. Environmental Protection Agency (EPA):

Environmental justice is the fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income, with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies. EPA has this goal for all communities and persons across this Nation. It will be achieved when everyone enjoys the same degree of protection from environmental and health hazards and equal access to the decision-making process to have a healthy environment in which to live, learn, and work.

Historically, major projects, such as heavy industry and substantial infrastructure projects like roadways, have disproportionately burdened poor communities and communities of color with pollution and physical dislocation. The people who live in these communities had little say in the process because of the lack of resources needed to affect the outcome.

Why is there a need for environmental justice?

For years, several factors contributed to the pattern of concentrating intensive uses in historically underrepresented communities.

  • Discrimination and implicit bias
  • Cheaper land and lower development costs
  • Poorer and minority communities represented a path of least resistance. As an experienced zoning attorney can attest, no matter how meritorious the project and appropriate the site selection, obtaining zoning for a large intensive use near an affluent community can be an arduous and uncertain venture.

How can developers respond to environmental justice concerns?

In the wake of Friends of Buckingham v. Virginia State Air Pollution Control Board (January 2020) and the administration and General Assembly’s recent focus on environmental justice issues, developers should assume that simply complying with environmental laws and regulations may be insufficient when addressing environmental justice issues. Failure to proactively address these issues could delay a project.

While we cannot predict the details of environmental justice policies and regulations that will be adopted in the future, companies should consider the following when approaching a potential project:

  • Identifying potential nearby environmental justice communities early is a key step.
  • Mitigation of a project’s impact on these communities will become more demanding.
  • Greater engagement with any potential environmental justice community will be ultimately beneficial.
  • The universe of projects that implicates an environmental justice analysis will substantially expand. The analysis will no longer be confined to substantial infrastructure projects and heavy industry, but will likely include larger commercial projects such as distribution and data centers.

Thus, for any larger commercial or industrial project, we strongly recommend you consider performing a demographic study near the outset of the project. The study should determine if communities, including micro-communities, exist in the area of the project that might qualify for environmental justice consideration. The results of that study may influence your site selection when deciding among competing sites as well as how you approach the project as you go forward. Your being in a position to persuasively argue that your project does not impact a community that invokes environmental justice consideration could expedite your permitting process, reduce your development and operational costs, and lessen potential mitigation measures.

If the site you select might involve environmental justice considerations, you should be prepared to explain why alternative sites are not preferable and the steps you are taking to mitigate any negative effects of your project. We predict that DEQ will be requiring a more detailed alternative site analysis and an explanation of what steps the applicant is taking to mitigate impacts on minority and less affluent communities.

You also should adopt a process that demonstrates your forethought and commitment to engaging possibly affected majority-minority and poorer communities. We recognize that this can involve a delicate consideration of how and when to open a dialogue because you want to establish a good faith line of communication while not simply providing fodder to those who will oppose your project no matter the merits and no matter the steps you are willing to take to address very legitimate concerns. A first step is to identify and establish a dialogue with community leaders while recognizing that large projects often require confidentiality in the formative stages. One-on-one conversations with community leaders and community partners often set a better tone than surprising community members in a public hearing at the beginning of the formal permitting process. When you have those meetings, you also need to be able to explain the benefits your project will provide to those most affected.

This type of environmental justice approach also may provide you with some protection from unfair and unfounded accusations of economic injustice. As anyone experienced in the zoning and permitting processes can tell you, many times opponents of a project will not let facts get in the way of an argument. They typically adopt a “kitchen-sink” approach when opposing a project. Because the accusation of racial or economic insensitivity can taint a project, no matter how unfounded the claim may be, you must be prepared for opponents who will try to manufacture any conceivable environmental justice argument.

Preparing for unfounded claims does not downplay the very legitimate environmental justice concerns that exist or the historic pattern of imposing intensive projects disproportionately on poorer and majority-minority communities. However, baseless claims involving environmental justice will become more prevalent, so you need to prepare and not find yourself in a reactionary and defensive posture if they occur.

In conclusion, if any possibility exists that a nearby community may qualify as an environmental justice community, identify that community early in the process. Then develop a strategy of how and when to engage the community and establish an open line of communication while keeping in mind the need for confidentiality during the project’s formative stages because discussing your project publically too early when you do not have answers to important questions can be just as damaging as waiting too long to establish a dialogue. Remember, winning friends near the beginning of the process is easier than converting adversaries later. Taking these steps may pay dividends as the project unfolds.