Filing a mechanics lien is great protection — but only if it’s available
Wednesday, December 06, 2017
The ability to file a mechanics lien is a powerful tool for construction industry participants to guard against nonpayment. Possessing a valid, enforceable mechanics lien can virtually guarantee that a construction company will get paid for the work performed or materials furnished.
While mechanics liens are available in all 50 states, the rules and requirements for the liens (and the prerequisites for the ability to file a lien) change from state to state and from project to project. So, since the lien provides strong protection against nonpayment in an industry fraught with payment issues, it is important to know whether a valid lien can be claimed.
But how can a company best understand whether the construction work they perform qualifies for mechanics lien protection? Ask the following questions to determine lien availability.
What is the project type?
First, mechanics liens are not available on public improvements — governments don't allow their land to be sold to satisfy debts. For those cases, payment protection comes from payment bonds.
Determining project type for the purposes of potential lien rights goes beyond whether a project is public or private (or even a P3 project). Lien rights on a private project may also vary depending on whether the project is residential or commercial. In some states, like Arizona, only parties with a contract directly with the property owner are allowed to file liens on owner-occupied residences.
Was preliminary notice given?
Preliminary notices are beneficial for many reasons, but in many states sending some sort of preliminary notice is mandatory for retaining the ability to file a valid and enforceable lien. The deadline by which the preliminary notice must be provided depends on many factors, but can range from as soon as eight days after the project begins, to 10 days before the lien itself is filed.
For some GCs, there are notice requirements commensurate with or even prior to entering into the contract itself. While it is not always completely fatal to a subsequent lien claim if a preliminary notice is not provided, it can be — and oftentimes not providing notice cuts down on the amount of work provided that can be protected by the lien claim.
What is your project role and tier?
A construction industry participant's role and tier in any particular project is determined by the party with whom the participant contracted — and the participants function on the project itself.
Knowing your role and tier is crucial in determining notice requirements and lien deadlines, as well as making sure that a lien may be claimed at all. In some states, suppliers to suppliers, or sub-sub-subcontractors are ineligible for mechanics lien protection.
What work was done?
Mechanics liens were created to protect construction industry participants for permanent improvements to property.
How broad the definition of what work qualifies for protection varies from state to state, but some work is almost always not lienable (cleaning, staging, lending money for the work, etc.) Other things, like landscape work or the installation of semi-permanent features, are more difficult to pin down.
While there are many intricate and confusing rules, requirements, deadlines and other issues that can make mechanics liens seem difficult to properly use or wield effectively, liens remain the most powerful tool to make sure construction participants get paid. By understanding how the different aspects of each individual project play into the mechanics lien requirement matrix, construction companies can best position themselves to never worry about getting paid.
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