Service Area: Notice and Mechanic’s Lien Services

Arbitration is Alternative Dispute Resolution

Posted on October 12, 2018 by - Credit Risk Management, In Other Commercial Credit News

Dispute Resolution Alternative: What is Arbitration?

Arbitration, like mediation and adjudication, is a form of alternative dispute resolution and is typically favored in lieu of litigation. Generally, in arbitration an impartial third party listens to each side of the dispute and makes a decision resolving the dispute.

It’s important not to confuse arbitration with mediation, which, admittedly, I initially did. The American Bar Association notes “Arbitration is different from mediation because the neutral arbitrator has the authority to make a decision about the dispute.” In mediation, the third party is present to facilitate the conversation, rather than offer resolution.

The American Arbitration Association explains arbitration as “A private, informal process by which all parties agree, in writing, to submit their disputes to one or more impartial persons authorized to resolve the controversy by rendering a final and binding award.”

In most contracts, construction & otherwise, you will find an arbitration clause. On its website, American Arbitration Association provides visitors with the following standard construction arbitration clause.

“Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled by arbitration administered by the American Arbitration Association under its Construction Industry Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof.”

Clause is Present, Suit Dispute

Despite the presence of an arbitration clause within a contract, one or more parties involved in a dispute may file a lawsuit. Once a lawsuit has been filed, someone may file a motion to dismiss the lawsuit, based on the arbitration clause within the contract. However, according to a recent article by Robert Cox of Williams Mullen, once the court is involved, it’s up to a judge to determine whether the dispute should be arbitrated by the court or by an arbitrator.

“A court resolving an arbitrability dispute must engage in a two-step inquiry… First, the court must determine who decides whether a particular dispute is arbitrable – an arbitrator or the court. Second, if the court determines that it is the proper forum to adjudicate the arbitrability of the dispute, then the court must decide whether the dispute is in fact arbitrable.”

Cox goes on to say a dispute is suited for the courts unless the language within the contract “clearly and unmistakably provides that the arbitrator shall determine what disputes the parties agreed to arbitrate.” Further, according to Cox, courts have frequently determined “… that incorporation of the American Arbitration Association’s (AAA) arbitration rules constitutes clear and unmistakable evidence that the parties agreed to arbitrate arbitrability.”

When Arbitration Won’t Be Arbitrated, Arbitrarily

There may be circumstances when a judge will determine an arbitrator should not preside over a dispute. According to Cox, several U.S. Courts of Appeals have used a test called “wholly groundless” to determine whether arbitration is appropriate. What is “wholly groundless”? Essentially, if the claim is frivolous or deemed unlawful.

Parting Thoughts

There are many benefits to arbitration. Arbitration may be a faster and less expensive process than formal litigation; plus, in binding decisions, an arbitrator’s decision will be upheld by courts.

I admit, the arbitration clauses are a bit foreign to me, but I found The AAA Guide to Drafting Alternative Dispute Resolution Clauses for Construction Contracts, published by American Arbitration Association to be quite insightful. It appears American Arbitration Association maintains an industry standard for arbitration clauses, though as a best practice you should seek legal guidance when drafting and/or signing an agreement.

Mechanic’s Lien and Bond Claim Rights in U.S. Possessions

Posted on October 1, 2018 by - Mechanic's Liens & Bond Claims

Securing Mechanic’s Lien and Bond Claim Rights in the U.S. Possessions – Guam, Puerto Rico & the Virgin Islands

Recent natural disasters have left two U.S. possessions, Puerto Rico and the Virgin Islands, in a vulnerable state. These possessions are now undergoing tremendous rebuilding endeavors.  As a result of this recovery, there is inevitable risk for any party involved with the construction process. Did you know that you may have lien or bond claim rights in Guam, US Virgin Islands and Puerto Rico? We don’t often discuss the U.S. Possessions on our blog, but today let’s review statutory requirements for each.

Guam

Private Projects

You should serve a preliminary notice upon the owner within 20 days from first furnishing. A late notice may be served, but the lien, when later filed, will only be effective for materials and services provided 20 days prior to serving the notice and thereafter. You should file the lien within 90 days from last furnishing materials or services. If a Notice of Completion is properly recorded and published, the filing of the Notice of Completion may shorten the deadline for filing the lien to 45 days from the filing. If you need to proceed with suit, file suit to enforce the lien within 90 days from filing the lien.

Public Projects

There is no statutory preliminary notice required, however, we recommend you serve a non-statutory notice. Serve bond claim notice upon the prime contractor within 90 days from last furnishing. File suit to enforce the bond claim after 90 days from last furnishing materials or services, but within 1 year from last furnishing materials or services.

Puerto Rico

Private Projects

There is no statutory provision for filing a mechanic’s lien or materialman’s lien. You should investigate to determine whether there is a payment bond on the project, and attempt to obtain a copy of the bond to determine coverage.

Public Projects

There is no statutory preliminary notice required, however, we recommend you serve a non-statutory notice. Serve the bond claim notice upon the prime contractor at least 30 days prior to filing suit, which is due within 6 months after final acceptance of the project. File suit to enforce the bond claim after 30 days from serving the bond claim notice, but within 6 months after final acceptance of the project. When contracting directly with the prime contractor, suit may be filed at any time within 6 months after final acceptance of the project

Virgin Islands

Private Projects

Serve notice of right to claim lien on the owner and general contractor any time after entering into a contract. The lien will attach to the funds unpaid by the owner to the general contractor any time after entering into a contract. File the mechanic’s lien within 90 days from last furnishing and file suit within  90 days from filing the lien.

Public Projects

There is no statutory preliminary notice required, however, we recommend you serve a non-statutory notice. Serve a bond claim notice in accordance with the terms and conditions of the payment bond. Frequently, a bond claim notice is required within 90 days from last furnishing materials or services. When filing suit to enforce the bond claim in accordance with the terms and conditions of the payment bond. Frequently, suit to enforce the bond claim is required within 1 year from last furnishing materials or services. It is recommended to withdraw a satisfied bond claim.

Federal Projects

Not furnishing to a private or public project?  Don’t worry! If you are dealing with federal construction projects, the Miller Act applies in all three possessions. For more information on the Miller Act check out this blog post!

Although it may not come up often, knowing how to secure your rights in the U.S. Possessions could benefit you down the road. As a best practice, if you are furnishing to a U.S. Possession, ensure you have ample time to confirm whether a bond has been provided as well as time for title work to confirm property ownership. You should also be prepared for hourly fees, simply based on remote location.

If you’re interested in learning more about securing mechanic’s lien or bond claim rights? Contact us!

Alaska Mechanic’s Liens and Bond Claims

Posted on September 24, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Here’s What You Should Know About Alaska Mechanic’s Liens and Bond Claims

I’ll admit, I know very little about Alaska. Juneau is the capital, there’s a folk song titled Anchorage, and on a clear day you may be able to see Russia. But something I know very well? Mechanic’s lien and bond claim rights! In this post I will review the statutory requirements for securing lien and bond claim rights for projects in Alaska.

Alaska | Private Projects and the Notice of Right to Lien

For those furnishing to private projects in Alaska, a Notice of Right to Lien may be served upon the owner or the owner’s agent prior to furnishing. The Notice of Right to Lien obligates the owner to provide notice before filing a notice of completion and places a burden of proof on the owner to show that they did not know of or consent to the furnishing of materials or services.

The Notice of Right to Lien may be recorded any time after entering into a contract or first furnishing, but within 15 days from the recording of a notice of completion. Recording the notice prevents the owner from shortening the period in which the lien must be filed. The owner, lender or prime contractor may request an accounting of the amount due and a description of materials and services provided, in response to the Notice of Right to Lien. If a party makes this request, you must respond within 5 days.

Alaska | Private Projects Lien & Suit

A mechanic’s lien should be filed within 120 days from last furnishing and within 15 days from the filing of a notice of completion. The filing of a notice of completion will not shorten the lien deadline if a Notice of Right to Lien was served, but the owner failed to provide notice of the filing of the notice of completion, or if a Notice of Right to Lien was recorded.

If you need to enforce your lien claim, you should file suit within 6 months from the filing of the lien. An extension to file suit can be filed within 6 months from filing the lien, extending the deadline for suit to enforce the lien to 6 months from filing the extension.

Alaska | Private Projects and the Stop-Lending Notice

In addition to mechanic’s lien rights, a stop-lending notice may be an available remedy on private projects. Just as with mechanic’s lien rights, a Notice of Right to Lien may be served upon the owner or the owner’s agent and the lender prior to furnishing materials or services. Serving the notice is not a prerequisite to serving a stop-lending notice, however, a lender receiving the notice must notify the claimant if the lender is not providing construction financing.

You should serve the stop-lending notice upon the lender, owner, and prime contractor at any time after payment is due. Once served, the lender is required to cease providing construction financing. A lender who disburses construction financing after receiving a stop-lending notice is liable to the claimant. If necessary, file suit to enforce the stop-lending notice and notify the lender of the action within 90 days from the date the lender received the stop-lending notice.

Alaska | Public Projects and the Bond Claim

Generally, there is no required preliminary notice for securing bond claim rights, though a non-statutory notice is recommended. For public projects in Alaska, a payment bond may be required for general contracts exceeding $100,000 and, under certain conditions, a municipality may exempt contractors from the requirement to obtain a bond for projects not exceeding $400,000. If a payment bond has not been issued, the public entity may withhold final payment to the general contractor until the contractor files a certification that all persons who supplied labor or materials have been paid.

If a payment bond has been supplied, serve a bond claim upon the prime contractor within 90 days from your last furnishing date. If you have contracted directly with the prime contractor, the bond claim notice is not required, but is still recommended.  If needed, file suit to enforce the bond claim after 90 days from last furnishing materials or services, but within 1 year from final settlement of the contract.

“Alaska the Questions Here”

(Get it… Alaska = I’ll Aska the Questions Here… No? OK then)

There are a couple other points of interest. There are other types of liens available, including liens on dump or mass of mineral, mines and oil wells, mills and machines.  Please keep in mind, these liens are separate from mechanic’s lien remedies, and may require additional title work and attorney time. Specifically, mines and oil wells often span multiple parcels, counties & even states. Additionally, liens can be bonded off. Under Sec. 34.35.072, if a lien has been filed, the property owner or contractor can record a payment bond in the amount of 1.5 times of the lien claim amount, and the property will be freed from the lien.

Questions about securing rights in Alaska? Contact us!

Protect Lien Rights: Who is Served Iowa Preliminary Notice

Posted on September 21, 2018 by - In Other Commercial Credit News

Mechanic’s lien rights are available on commercial and residential projects in Iowa, however, securing lien rights requires compliance with statute. One sub-subcontractor failed to serve its preliminary notice on the owner and the GC, as prescribed by statute, and its lien was invalidated.

Mechanic’s Lien Rights & Iowa Commercial Projects

If you are furnishing to a commercial project in Iowa, you should serve the preliminary notice upon the contractor within 30 days after first furnishing materials or services. If you have contracted directly with the owner or prime contractor, the preliminary notice is not required.

Should you need to proceed with a lien, you should post the lien to the Mechanics’ Notice and Lien Registry within 90 days from last furnishing materials or services.  (The administrator will serve a copy of the lien upon the owner.) If posting a lien to the Mechanics’ Notice and Lien Registry after 90 days from last furnishing materials or services, serve a notice of the lien upon the owner.  The lien will be enforceable for the amount owed by the owner to the prime contractor at the time the notice of the lien is served.

To proceed with suit, post suit to enforce the lien on the Mechanics’ Notice and Lien Registry within 2 years from the 90-day lien filing period or within 30 days from the receipt of a demand to commence suit.

Iowa is Specific and a Recent Court of Appeals Decision Confirms It

Iowa statute is quite specific; if you fail to serve a required preliminary notice, you will not have lien rights.

572.33 Requirement of notification for commercial construction.

2. A person furnishing labor or materials to a subcontractor shall not be entitled to a lien under this chapter unless the person furnishing labor or materials does all of the following:

a. Notifies the general contractor or owner-builder in writing with a one-time notice containing the name, mailing address, and telephone number of the person furnishing the labor or materials, and the name of the subcontractor to whom the labor or materials were furnished, within thirty days of first furnishing labor or materials for which a lien claim may be made. Additional labor or materials furnished by the same person to the same subcontractor for use in the same construction project shall be covered by this notice.

b. Supports the lien claim with a certified statement that the general contractor or owner-builder was notified in writing with a one-time notice containing the name, mailing address, and telephone number of the person furnishing the labor or materials, and the name of the subcontractor to whom the labor or materials were furnished, within thirty days after the labor or materials were first furnished, pursuant to paragraph “a”.

John Lande recently wrote a recap of the LM Construction, Inc. v HGIK Hospitality LLC case, in his article Sub-Subcontractor Loses Mechanic’s Lien Rights. In this case, the general contractor was hired to build a hotel. The general contractor hired a subcontractor, who in turn hired a sub-subcontractor to install drywall.

During construction, the subcontractor was removed from the project and the general contractor began working directly with the sub-subcontractor. Once the work was completed, the general contractor refused to pay the sub-subcontractor, and the sub-subcontractor filed a lien.

According to Lande, the sub-subcontractor served its preliminary notice upon the owner but not upon the general contractor.

Iowa statute states “notifies the general contractor or owner-builder in writing” so, the sub-subcontractor tried to argue the notice it served was upon the owner-builder, which would satisfy statutory requirements. Unfortunately for the sub-subcontractor, the court determined the property owner was not an owner-builder, and since the sub-subcontractor did not serve the general contractor with a copy of the notice, no lien rights existed.

There was some confusion between the parties on the ladder of supply, based upon contractual language. Allegedly the subcontract identified the subcontractor as a general contractor, which as Lande observes, is a bit misleading. Because contracts and contractual language can be muddled or misinterpreted, Lande provides the following advice:

“Contractors should take time at the beginning of a project to identify the hierarchy between contractors, and identify the contractor with a contract directly with the property owner. This due diligence will reveal the identities of the parties who need to receive notice to protect a contractor’s mechanics’ lien rights.”

This is good advice for any party on any project in any state. Knowing the parties within the ladder of supply is critical for lien rights, however, it should be equally as important to credit granting decisions. Knowing in advance that the general contractor was tangled up in liens on other projects would alert you to take precautions when contracting for the project – even if your direct contract was with a sub.

Articles, Blogs & Commentary Are No Substitute

Parting advice from Lande “… [K]eep in mind that the mechanics’ lien law is full of traps for the unwary. Articles and blogs about the law are no substitute for consulting with a knowledgeable attorney, because the circumstances of your situation may have a slight difference that has important consequences for your mechanics’ lien rights. You should always consult with an attorney about mechanics’ lien questions.”

I say it often: when in doubt, seek a legal opinion!

Progress Payments Have Stopped, Now What?

Posted on August 31, 2018 by - In Other Commercial Credit News

Progress Payments Have Stopped, Now What Should You Do?

Progress payments are payments made as work progresses under a contract, upon the basis of costs incurred, percentage of completion accomplished, or a specific stage of completion. Progress payments may be made from the owner to the general contractor, the general contractor to its subcontractors/suppliers, the subcontractor to its suppliers, etc.

Progress payments have positive potential, as they can eliminate the need for various parties to finance a project. Unfortunately, if the progress payments stop, progress on the project may stop.

No Payment, Now What?

Julie Weller of Faegre Baker Daniels advises a contractor has two choices when an owner stops making payments: “It can either continue to perform the work or cease the work…” As you’d imagine, neither of these options is appealing for a multitude of reasons.

Weller’s article, Progress Payments: What to Do When the Money Stops Trickling In, focuses on the owner/general contractor dynamic. Ordinarily, NCS would recommend moving forward with a mechanic’s lien or bond claim, but Weller recommends carefully reviewing the contract and determining whether payment is “clearly due and owing.”

What’s in the Contract?

Contract terms can be tricky. Hidden among long legal sentences and paragraphs of tiny font you may find provisions regarding payment, suspension and termination.

Weller recommends carefully reviewing these provisions, as they may include notice requirements, and if ignored, the general contractor could be in breach of its contract.

“If the contract expressly states that the contractor must give notice of intention to stop work, the contractor must do so or it will be in breach of contract. Many contracts require the contractor to continue performance despite any ongoing dispute, even those that relate to payment. The contractor should consider the consequences if it does not make payment to its subcontractors – its failure to pay its subcontractors, despite not being paid by the owner, could be a breach of its contract with the owner and its contract with the subcontractors.”

Many of our clients, typically subcontractors and suppliers, come to us with the same story, “The GC says the owner isn’t paying him, so he can’t pay us.” This inevitably leads to the review of contracts for contingent payment clauses, and to  mechanic’s lien filings or enforcement of arbitration clauses. If I could plead a case to general contractors, I would beg you to continue paying parties you have hired!

Next Up: “Clearly Due & Owing”

Yikes, very few things are “clear” in construction, unless we consider mud to be clear. In her article, Weller states that an owner will not be held in breach of contract if the payment is not “clearly due and owing.” Further, in the long run on sentences & tiny font of the contract, there may be provisions allowing the owner to withhold money.

Weller provides the following situations which may permit the owner to withhold payment:

  • Defective work not remedied
  • Claims filed by a third-party
  • Failure of the contractor to pay its subcontractors
  • Reasonable evidence that the work cannot be completed for the remainder of the contract sum
  • Damage to the owner or another contractor
  • Reasonable evidence that the work will not be completed within the contract time, and the unpaid balance is not enough to cover damages for the anticipated delay
  • Persistent failure to carry out the work in accordance with the contract

It’s worth noting, the owner should only withhold the amount that corresponds to the circumstance. This means, if the owner is withholding payment because the contractor hasn’t paid its subcontractor, the owner can only withhold the amount of the subcontractor’s claim. Another example is if the contractor has successfully completed the foundation, but has failed to complete the piping, the owner can only withhold money for the incomplete piping.

A Demand to Commence Suit May Shorten Your Deadline

Posted on August 27, 2018 by - Credit Risk Management, Mechanic's Liens & Bond Claims

Did You Receive a Notice to Commence Suit? Your Suit Deadline May Be Shorter Than You Think

The mechanic’s lien and bond claim processes follow the same basic three steps: serve preliminary notice > file/serve mechanic’s lien/bond claim > file suit to enforce the mechanic’s lien/bond claim. You, the creditor, initiate the preliminary notice and lien/bond claim actions & you may initiate suit. However, you aren’t the only party that may initiate suit.

Notice to Commence Suit

In many states, the statute provides a remedy for an owner to shorten the deadline for a lien claimant to file suit: the owner can file a Notice to Commence Suit. When properly notified by an owner or the court, any lien claimant who receives a Notice to Commence Suit must proceed with suit by the deadline stated, or they will lose their lien rights. This process allows the owner to “thin out” those who may not have a valid claim.

Ohio Example

Although each statute may vary, here is an example of the Notice to Commence Suit in Ohio. Ohio has one of the longest periods in which a claimant can commence suit: 6 years from filing the lien, unless, the claimant has been served with a Notice to Commence Suit. A claimant has 60 days from being served with a Notice to Commence Suit to proceed with suit. If the claimant fails to proceed with suit, the lien is void.

If the lienholder fails to commence suit upon the lien within sixty days after completion of service upon him of the notice to commence suit, or if the action is commenced but dismissed with prejudice before adjudication, the lien is void and the property wholly discharged from the lien. When a lien is void by reason of failure to commence suit within sixty days after service of the notice to commence suit, the claim upon which the lien was founded is not prejudiced by the failure, except for the loss of the lien as security for the claim. – 1311.11 Notifying Lienholder to Commence Suit

Ohio ties with South Dakota, which also provides claimants 6 years from last furnishing materials or services to file suit. But, in South Dakota, if the claimant receives a demand to commence suit, the claimant must file suit within 30 days from receipt of the notice.

44-9-26.   Forfeiture of lien for failure to commence suit upon demand–Cancellation by register of deeds. Upon written demand by the owner, the owner’s agent, or contractor, served on any person holding a lien, requiring the person to commence suit to enforce the lien, the person shall commence suit within thirty days after such service or the lien is forfeited. The register of deeds shall cancel the lien of record, if the owner, the owner’s agent, or contractor files no sooner than the fortieth day following service of the written demand:

             (1)      An affidavit stating that the person holding the lien has not commenced suit to enforce the lien within thirty days after the service of the written demand;

             (2)      A copy of the written demand that was served on the person holding the lien; and

             (3)      Proof of service on the person holding the lien.

Florida & Georgia Examples

Generally, for private projects in Florida, a lien claimant should file suit to enforce its lien within 1 year from the filing of the lien. However, the property owner can shorten that 1-year period to 60 days, if it files a Notice of Contest of Lien.  (You can find the following in FL’s statute, section 713.22 Duration of Lien)

NOTICE OF CONTEST OF LIEN

To: (Name and address of lienor)  

 You are notified that the undersigned contests the claim of lien filed by you on  ,   (year)  , and recorded in   Book  , Page  , of the public records of   County, Florida, and that the time within which you may file suit to enforce your lien is limited to 60 days from the date of service of this notice. This   day of  ,   (year)  .

 Signed: (Owner or Attorney)  

 The lien of any lienor upon whom such notice is served and who fails to institute a suit to enforce his or her lien within 60 days after service of such notice shall be extinguished automatically. The clerk shall serve, in accordance with s. 713.18, a copy of the notice of contest to the lien claimant at the address shown in the claim of lien or most recent amendment thereto and shall certify to such service and the date of service on the face of the notice and record the notice.

Georgia is quite like Florida. In fact, the suit period in Georgia is also shortened to 60 days, with the filing of a Notice of Contest of Lien. What’s the difference? Well, the verbiage for the Georgia Notice of Content of Lien is slightly different than Florida’s. Florida statute says to file suit within 1 year from filing the lien and Georgia statute says to file suit within 365 days from filing the lien – note the difference – it is more than semantics!

You can access Georgia’s statute on the Notice of Contest of Lien here: O.C.G.A. § 44-14-368

Summons & Complaint, Answer & Cross Claim

Another action that can change your suit deadline is when another claimant files suit to foreclose on the property. When filing suit, the plaintiff must notify all other parties with an interest in the property that an action to foreclose is being filed. This filed document is often referred to as a Summons and Complaint.

At first glance, the Summons and Complaint may cause the unwary to believe they are being sued. The Summons and Complaint is a legal action which requires all lien claimants to join in the foreclosure action within a specific time frame, by submitting an Answer and Cross Claim.

Frequently an Answer and Cross Claim is required in as little as 20 days from receipt of the Summons and Complaint. If a lien claimant does not respond by the deadline, lien rights may be lost.

Litigation: Mapped Out

Litigation can get quite confusing, here’s a mapped view of an average litigation.

*This chart is for demonstration purposes only and is in no way a guarantee of any particular outcome. NCS does not engage in rendering legal advice. All options should be reviewed by your corporate counsel.

Seek Legal Guidance!

When a Notice to Commence Suit or a Summons and Complaint is received by your office, in response to a lien that was filed on your behalf, we recommend taking immediate steps to retain the services of an attorney to protect your rights.

Serve a Mechanic’s Lien on an Out-of-State Party

Posted on August 13, 2018 by - Mechanic's Liens & Bond Claims, Preliminary Notices & Construction Credit

Need to Serve a Mechanic’s Lien on an Out-of-State Party? According to One Case, You Should Serve the Lien via Certified Mail with Return Receipt Requested

If a mechanic’s lien needs to be served upon an out-of-state party, how should the lien be served? Is it enough to simply drop it in the mail? Should it be sent certified mail? How about by courier? A recent appeal before the Pennsylvania court determined the Pennsylvania mechanic’s lien should have been served upon the owner in California via certified mail with return receipt requested.

General Contractor Hired for Renovations

The general contractor was hired by the owner to renovate property in Pennsylvania. The GC provided services between December 2014 and July 2015. However, the owner filed disputes and claims against the GC, which prevented payment to the GC. In turn, the GC filed a mechanic’s lien in the amount of $61,000.

General Contractor Mails a Copy of the Lien

The GC filed his lien after having sent the notice of filing the lien on the same day, December 16, 2015. On January 26, 2016, the GC filed an affidavit stating the owner was served with a copy of the lien at a California address, via regular first-class mail on December 18 and via certified mail with return receipt requested on December 21.

On February 8, 2016, the GC filed another affidavit stating the certified mail was returned as “unclaimed.” The GC also stated the lien was sent again on February 8, and claimed the lien was served via email on December 16. This gets a bit confusing, because the GC’s various affidavits reference dates out of order, so here it is in chronological order:

  • December 16, 2015: GC files its lien, claims it notifies the owner of the lien via email
  • December 18, 2015: GC serves the lien via first-class mail
  • December 21, 2015: GC serves the lien via certified mail, with return receipt requested — subsequently the mail is returned as “unclaimed”.

I Knew, But I Didn’t Know

The owner claimed it did not receive notification of the lien, making the GC’s lien invalid. HOWEVER, January 28, 2016, the owner filed an emergency motion to release the lien. In other words, “I did know about the lien, that’s why I filed a motion to have it released. But, my argument to the court is the GC failed to comply with statute, which makes the lien invalid.” While that is not a quote from the case, imagine with me, that’s what the owner said.

The court granted the discharge request, so long as $61,000 (to cover the amount of the lien) was deposited in escrow. And ultimately, the court dismissed the GC’s lien for failure to comply with statute.

But what kind of story would this be, if it just ended there? The GC filed an appeal.

On Appeal, Failure to Comply = No Lien

The appeal ended with the same verdict as the initial trial: the GC failed to comply with the statutory requirements. According to the court opinion, here’s the statutory requirement –

The Mechanics’ Lien Law of 1963 states that (1) written notice of the lien must be served within one month after filing, (2) an affidavit of service must be filed within 20 days after service, and (3) failure to serve the notice or to file the affidavit is grounds for striking the claim. 49 P.S. § 1502(a)(2). The statute further requires that service of the notice of filing be made in the same matter as a writ of summons in assumpsit or by posting. 49 P.S. § 1502(c).

But the owner lives in California, not Pennsylvania, does that matter? The court stated, because the owner is out of state “service upon (owner) is complete upon delivery of mail ‘where a copy of the process [is] mailed to the defendant by any form of mail requiring a receipt signed by the defendant or his authorized agent.’”

OK, but the certified mail was returned as “unclaimed” does that count as substantial compliance? Nope. Per the court, if the certified mail had been returned as “refused” then the GC could have met the statutory requirements by serving the document via first-class mail. So, two things: 1. The certified mail was not refused, it was unclaimed. and 2. The GC served the document via first-class mail BEFORE it was sent certified.

Not to mention, the GC filed its affidavit more than 20 days after the filing of the lien – but that point seemed moot based on the court’s determination that improper service of the document was enough to invalidate the lien.

What Should the GC Have Done?

First, the GC should have better managed the lien deadlines. The GC’s affidavit was late, because it was served more than 20 days after the lien filing. Second, the GC should have initially served the lien in accordance with statute – certified with return receipt requested or personal service. If certified mail had been refused, the GC would have maintained statutory compliance if it had then served the document via first class mail.

You can access the text for this case here.

Are Pre-Construction Management Services Lienable?

Posted on August 6, 2018 by - Mechanic's Liens & Bond Claims

What Are Pre-Construction Management Services and Are They Lienable in New York?

The Westchester County Supreme Court has determined “pre-construction management services” are lienable, but the claimant had better be prepared to provide a clear, itemized statement of account. In coming to its decision, the Court aimed to answer, “what services are lienable.”.

In the matter of Old Post Rd. Assoc. LLC v. LRC Construction, LLC, 2018 NY Slip Op 28148 – NY: Supreme Court 2018, Old Post Road Associates, LLC petitioned to have LRC Construction, LLC’s lien invalidated. Fortunately, the lien for $250,000 remains intact.

What Constitutes “Improvement of Real Property”

Old Post Road Associates, LCC claimed LRC Construction, LLC’s (LRC) lien was invalid because the claim is based on “pre-construction management services” as opposed to “management services provided during construction.” Is it simply semantics? Not necessarily.

The court turned to New York’s mechanic’s lien statute for clarification on what is considered an improvement.

Yes, this is a long section, but I’ve intentionally included all of it to demonstrate that New York’s lien law is quite thorough with what is considered an improvement. However, to save you the time, I have highlighted the text the court relied on in bold font.

The term “improvement,” when used in this chapter, includes the demolition, erection, alteration or repair of any structure upon, connected with, or beneath the surface of, any real property and any work done upon such property or materials furnished for its permanent improvement, and shall also include any work done or materials furnished in equipping any such structure with any chandeliers, brackets or other fixtures or apparatus for supplying gas or electric light and shall also include the drawing by any architect or engineer or surveyor, of any plans or specifications or survey, which are prepared for or used in connection with such improvement and shall also include the value of materials manufactured for but not delivered to the real property, and shall also include the reasonable rental value for the period of actual use of machinery, tools and equipment and the value of compressed gases furnished for welding or cutting in connection with the demolition, erection, alteration or repair of any real property, and the value of fuel and lubricants consumed by machinery operating on the improvement, or by motor vehicles owned, operated or controlled by the owner, or a contractor or subcontractor while engaged exclusively in the transportation of materials to or from the improvement for the purposes thereof and shall also include the performance of real estate brokerage services in obtaining a lessee for a term of more than three years of all or any part of real property to be used for other than residential purposes pursuant to a written contract of brokerage employment or compensation.

Why focus on “…and shall also include the drawing by any architect or engineer or surveyor, of any plans or specifications or survey, which are prepared for or used in connection with such improvement”? In theory, architects/engineers/surveyors are providing services PRIOR to the commencement of physical construction, which may correlate to “pre-construction management services.”

Need to Support Statute? Find Some Case Law

Statute isn’t enough to assist the court with its decision; enter case law. As I read cases, I often see courts reference cases dating back 5-20 years, even 50 years. This is the first time I’ve read a case referencing a decision that is nearly 100 years old. But, with good reason – the court reviewed two cases & the conflicting decisions were:

  1. The 1929 Case: The lien claimant was hired as a “superintending engineer.” The claimant aided with contract procurement, which was deemed un-lienable, and supervised the demolition of the building prior to construction of new building, which was deemed lienable.
  2. The 1995 Case: The lien claimant applied for permits and approvals – “professional engineering and professional surveying services rendered in connection with obtaining municipal approvals for the development of an equestrian facility.” The services were deemed lienable, because the services would ultimately “enhance” the property.

There are some similarities in the services provided, aside from the obvious similarity of occurring prior to commencement of physical construction. Primarily, both cases demonstrate a party providing supervision of, or preparing for, the improvement. Ultimately, the property owners in both cases would benefit from the services provided by the claimants.

The court in LRC’s case found the 1995 case to be most applicable to LRC’s lien. In what must have been riveting petitions, answers & motions, the court asked LRC to elaborate on the services rendered. After all, “pre-construction management services” is quite broad.

What Services Were Rendered?

In this flurry of responses, LRC provided the following:

“(i) recommending the change to the structural system for the project at the Property to a system more suitable for a low rise luxury condominium; (ii) recommending changes to the design team to architects and engineers with more experience designing the type of luxury condominium product Petitioner was constructing; (iii) providing finish selections, facade recommendations and mechanical, electrical and plumbing system recommendations for the type of design required for the high end condominium marketplace; (iv) consulted with land use attorneys to prepare for and attend Petitioner’s Planning Board meetings; (v) prepare site logistics and access plans for the Property; (vi) perform a constructability review for the project at the Property (vii) attend meetings with consultants and officials to assist the approval process and, (viii) prepare construction budgets to assist in the design development process for the project at the Property.”

As you can see, there are some items on this list that may not be lienable, such as “prepare for and attend Petitioner’s Planning Board meetings.” However, as the court pointed out, much of what was provided falls under the category of engineering planning, which is, as we now know, lienable.

Could LRC Have Avoided This Debate?

It’s not often that a lien filing ends up contested in court; our research shows liens go to suit less than 1% of the time. However, one way LRC may have avoided some confusion, would have been to provide a more thorough description of materials/services provided. A thorough description may have not alleviated all confusion, but it would have provided some clarity.

As a best practice, claimants should sufficiently describe materials and services provided in all notice and lien documentation. Plus, claimants should be able to produce an itemized statement of furnishings.