What is a Mechanics’ Lien?
A mechanics’ lien is a legal tool that contractors, subcontractors, and suppliers can use to create a notice that there is a claim against a property related to construction of the improvements to the property. Mechanics’ liens help to secure payment of an outstanding debt. The lien acts as a cloud on the title and can interfere with the owner’s ability to sell, finance, or refinance the property. Typically, the expectation is that the filing of a lien will motivate the owner to settle the debt, if the debtor is the owner, or exert pressure on the contractor to settle the debt if the debtor is a contractor who was hired by the owner. The effectiveness of the lien varies greatly depending on the relationship of the parties and the owner’s objectives.
Who can file a mechanics’ lien?
Generally, but subject to many important nuanced requirements, a mechanics’ lien may be filed by a contractor, (i.e. a “prime” or “general” contractor), a subcontractor, a sub-subcontractor, a materials supplier, an architect, or an engineer.
Contractor. A person who has a direct contract with the property owner pursuant to which it provides labor or materials for the erection, construction, alteration, or repair of improvements to the property may file a lien.
Subcontractor. A subcontractor who provides labor or materials for the erection, construction, alteration or repair of improvements to the property who has a contract directly with the owner, or a contract with a subcontractor who has a contract directly with the owner (a sub-subcontractor) may file a lien provided that it complies with additional notice provisions. This definition of a subcontractor includes materials suppliers provided that they meet the appropriate contract privity requirements.
Architects and engineers are also included within the definition of subcontractors but only if they provide some level of project supervision on site. Merely preparing plans and specifications is not sufficient to qualify as a lien claimant.
Are there time limits or notice requirements?
Yes, there are several time limits related to the filing, perfection and enforcement of a mechanics’ lien, and missing any of them will usually cause the lien to be stricken in its entirety.
A claimant must file his or her lien in the county where the property is located within six months of the date of the last work performed or materials delivered to the property owner. However, a subcontractor (including a sub-subcontractor, materials supplier, architect, or engineer) must serve a preliminary notice of the intent to file a lien at least 30 days before the lien is filed. This effectively reduces the subcontractor’s time limit to take action to 5 months. The lien then has to be served on the owner of the property within 30 days after the filing of the lien. The claimant must also file an affidavit of service within 20 days after the service is made on the owner.
Finally, a lien claimant who files a lien and does not resolve the debt must file a complaint to enforce the lien within one year or the lien will become unenforceable. However, an owner or contractor who intends to oppose the claim and does not want to wait a year can file and serve a rule to file claim that requires the lien claimant to file their complaint within 20 days after service of the rule. In that case, failure to file the complaint in the two weeks will cause the lien to become unenforceable.
In addition to the notices discussed above, there are new notice provisions set to take effect on January 1, 2017. Those changes will require the state to create a web-based searchable “State Construction Notices Directory” where lien notices for projects over $1.5 million will be filed. Four types of lien notices will be filed in this database: (1) an optional Notice of Commencement by which owners may require subcontractors to give notice of the commencement of their work in order to preserve lien rights, (2) a Notice of Furnishing that must be filed within 45 days after commencing work or supplying materials that describes the scope of work to be performed, (3) a Notice of Completion may be filed by the owner at the completion of the project to start the clock running on the time to file a lien, and (4) a Notice of Nonpayment where a subcontractor can indicate that they have not been paid.
Defectively filed liens can be stricken.
Are mechanics’ liens waivable?
Recent amendments to the Mechanics’ Lien Law have complicated the rules relating to lien waivers. The first question one must ask in determining whether liens are waivable is whether the property is considered a “residential building” or a “non-residential building” as defined in the Mechanics’ Lien Law. The answer is not as simple as one might expect. For example, a four story building that consists of nothing but residential condominiums or apartments would not be considered a “residential building.”
If the building is considered residential, liens are generally waivable.
As to non-residential property, lien waivers are not enforceable as to contractors who have a direct contract with the owner. Contractors, in turn, can only require subcontractors to waive their lien rights when the they post a payment bond to secure any payment issues between the contractor and subcontractors. Even then, this type of advance lien waiver is enforceable only if it is demonstrated that the lien claimant had notice of the lien before providing any labor or materials to the site.
Finally, the statute speaks to another kind of “waiver,” perhaps more accurately called a release, whereby contractors and subcontractors can provide partial waivers that release the contractor or subcontractor lien rights in a written document executed simultaneously with the receipt of payment to the extent of the amount of the payment.
How do you collect on a mechanics’ lien?
Once a mechanics’ lien is filed, it is often settled. They are most often settled out of necessity when the property is sold or refinanced such as where the construction is a development project. Collecting on a lien is not always easy, however. For example, a contractor who has a legitimate defense against a subcontractor’s lien and wants his or her day in court can petition the court to bond off the lien. This means filing a bond with the court and, in turn, obtaining a discharge of the bond. Whether or not the lien is bonded off, an owner or contractor can decline to pay the lien amount and require the claimant to prove his or her case in a traditional trial.
We can help.
A construction litigation attorney may help ensure that your lien is properly noticed and prepared. Mechanics’ liens are strictly enforced and any mistake in the notice, filing, or perfection of the lien can easily cause your lien to be stricken.