Mechanic’s Liens on Arkansas Residential Projects
In some states, the preliminary notice requirements and deadlines for securing mechanic’s lien rights are different depending on whether the project is residential or commercial. Arkansas is one of those states. As one home improvement contractor recently discovered, following the statutory requirements are important to secure your right to file mechanic’s liens on Arkansas residential projects.
Arkansas Statute Changed Effective 2021
The case at the center of today’s post is from a contract entered into in February 2019. In 2019, Arkansas statute required a residential contractor to serve a preliminary notice, or the contractor would lose its mechanic’s lien rights and not be allowed to enforce any claim against the contract.
“Include notice in contract or serve residential notice upon the owner before first furnishing materials or services. (The notice may be served after furnishing, but the lien, when later filed, will only be effective from the date the notice was served.) A residential contractor who fails to give the notice may be fined up to $1,000.00 and is barred from bringing an action to enforce any provision of the residential contract.”
This is important, because in July 2021, Arkansas legislature amended the statute: If a residential contractor fails to serve the notice to owner, the contractor will not have lien rights. Although the contractor will not have lien rights if it fails to serve the notice, statute no longer bars a residential contractor from bringing an action to enforce any provision of the residential contract.
So, if this case were based on a contract executed after July 2021, we probably wouldn’t be writing this post.
Mechanic’s Liens on Arkansas Residential Projects Circa 2019 & Today
As I mentioned, in 2019 Arkansas statute required a residential contractor to either serve a preliminary notice or include the notice within the contract.
Then, and this part remains in effect today, In the event the party was unpaid, a notice of intent should be served at least 10 days prior to filing the lien and the lien filed after last furnishing but within 120 days from last furnishing.
Contractor Fails to Serve Preliminary Notice, Loses Lien Rights & All Claims
In Sluyter v. Wood Guys, LLC, 2021 Ark. App. 442 – Ark: Court of Appeals, 4th Div. 2021, the Sluyters hired Wood Guys, LLC (Wood Guys) to refinish hardwood flooring in their home. Wood Guys provided labor and materials totaling $5289.95.
Unfortunately, a dispute arose between the Sluyters and Wood Guys and the Sluyters refused to pay Wood Guys. Wood Guys did not serve the required preliminary notice, but it did file a mechanic’s lien and proceeded with suit to enforce the lien.
The circuit court ruled in favor of Wood Guys, stating Wood Guys was a “home improvement contractor,” not a “residential contractor.” An important difference under Arkansas’ then statute, because as a home improvement contractor, a preliminary notice was not required.
The Sluyters appealed the circuit court’s decision, and argued Wood Guys failed to serve the required preliminary notice and should be “barred from bringing any action to enforce the provisions of the contract, and the mechanic’s lien…”
The Court of Appeals sided with the Sluyters. The decision came down to the definition of residential contractors, residential building contractor, and home improvement contractor. More specifically, Wood Guys is classified as a “contractor” and the improvement was to a “residence.” Here’s what the Court of Appeals had to say:
“There is no dispute that (1) the Sluyters, as owners of the single-family residence, held an interest in the real estate; and (2) Wood Guys directly contracted with the Sluyters for the repair and replacement of wood flooring in the real estate. Therefore, pursuant to the mechanics’— and materialmen’s—lien statutes, Wood Guys is unquestionably a ‘contractor.’ While the term residence or residential is not specifically defined in the statute, the common usage of the word ‘residence’ refers to a place or dwelling in which a person or people live. Here, Wood Guys contracted with the Sluyters to repair the floors in a house in which the Sluyters lived. Consequently, we hold that Wood Guys is a residential contractor subject to provide preconstruction lien notice prior to commencement of work. Because Wood Guys failed to provide the required notice, it is barred pursuant to Arkansas Code Annotated section 18-44-114(a)(4) from bringing an action to recover on its contractual and equitable claims. However, our analysis does not end here.”
Wait, this doesn’t review the definition of “home improvement contractor.” Nope, it doesn’t, but don’t worry – the court covered that too. As a matter of fact, if Wood Guys is a home improvement contractor, they are still barred from the mechanic’s lien, because “Arkansas Code Annotated sections 18-44-115(a)(8)(A) & (B) expressly state that a home improvement contractor may not be a lien claimant under the direct-sales-notice exception.”
Guess what? Sluyters win and there are no recovery remedies available to Wood Guys. Of course, the court was sympathetic to Wood Guys, recognizing they did provide labor and materials to the improvement of Sluyters’ property, for which they remain unpaid.
“However, when the issues in this case arose, the relevant statute barred all claims, both contractual and equitable, without preconstruction lien notice. In 2021, the legislature amended the mechanics lien statutes removing the bar against equitable claims, instead providing only that residential contractors may not avail themselves of the benefit of a lien without giving notice before commencement of work. While this legislative amendment comes too late to aid Wood Guys, it now provides a way for residential contractors to seek redress, even when they fail to execute and deliver preconstruction lien notice.”
Pro-Tip: Serve the Notice, Always
Not all states require preliminary notices, and sometimes there is a preliminary notice that is only required based on the project type and who you sold to. In cases like this, if Wood Guys had simply served the preliminary notice – even if they believed it wasn’t required – they could have saved themselves thousands of dollars.
Preliminary notices are a low-cost step in securing your lien rights; as a best practice you should serve the preliminary notice, even if it isn’t required.