Service Area: Notice and Mechanic’s Lien Services

The Critical Role of Furnishing Dates and Your Lien Rights

A key to properly calculating mechanic’s lien and bond claim deadlines is knowing your first & last furnishing dates. Simple; date is a date, right? Oddly, determining your last furnishing date may sometimes be more difficult than it should be.

What is “Last Furnishing”

Generally, your last furnishing date is the date on which you last substantially furnish materials or perform services on a project. When clients ask how to determine their first & last furnishing dates, it frequently seems easier to explain what doesn’t count as a last furnishing. Typically, punch list work, warranty, or remediation will not extend your last furnishing date.

Can Last Furnishing Include Off-Site Work?

In some cases, yes, according to a recent legal decision reviewed by lawyer Chad Kopach.

In Timeliness of the Lien – Rethinking the “Date of Last Supply,” Kopach reviews a recent Ontario court decision, where the court determined the subcontractor’s lien was timely, even though the lien deadline was calculated based on an off-site  last furnishing, and not the last date the subcontractor was physically on the job.

According to Kopach, parties on the ladder of supply often look to time sheets to determine the date of last furnishing.

“When determining if they still have time to lien, most subcontractors look to their time sheets to find out when their workers were last on site, thinking that they are out of time to lien if the last timesheet is dated more than 45 days ago.

Similarly, the owner and general contractor will often rely on site records (including log books and time sheets) to determine what subcontractors still have lien rights based on who was on site within the last 45 days.”

How will the court determine a claimant’s last furnishing? Kopach states a court may review the subcontract to determine whether off-site work would qualify as furnishing. At least, that’s where the court looked in this case.

Within the subcontract, the subcontractor was to provide additional “design and other preparatory work” during a scheduled shutdown. Thus, the court determined the last furnishing date used by the claimant was sufficient.

“Supply” Doesn’t Always Mean “Physically Supply”

Kopach reminds readers, the definition of “supply” may vary.

“…services and materials supplied to an improvement are supplied physically. Accordingly, in many cases a subcontractor’s date of last supply is the same day that the subcontractor was last physically on site.

However, the Act does not limit “supply” to mean only physical supply, and defines the supply of services as including “any work done or service performed upon or in respect of an improvement” (emphasis added).”

Be Conservative

Although this case appears to be more “exception” & less “rule” it’s important to remember that a last furnishing date may not be the last date you were physically at the job site. Just be careful when determining your last furnishing date – always make sure it is substantial. And, of course, use the most conservative last furnishing date possible when calculating your deadlines.  When in doubt, seek a legal opinion.

Who Owns the Improved Upon Property?

In Owner Roulette: Avoid Construction Lien Headaches, authors Roy E. Wagner & Christopher T. Koehnke (“authors”) reviewed a recent Wisconsin court decision where the lien claimant “incorrectly” identified the owner within its lien. At least, that was the owner’s attempted defense.

The Case in a Nutshell

Here’s a quick look at the case:

“Bayland Buildings (“Bayland”) filed a construction lien against Siren Saukville, LLC (“Siren”), the party that Bayland believed to be the owner of the project under the terms of its construction contract. However, Siren had in fact been bought out by Spirit Master Funding VIII, LLC (“Spirit”), and Spirit was then the actual owner of the project at the time Bayland filed its construction lien.”

Ultimately, Spirit argued Bayland’s lien was invalid, because the lien identified the incorrect owner. Fortunately, the Court of Appeals determined Bayland’s lien was valid and enforceable, because Bayland did not receive constructive notice that the property ownership had changed.

How to Identify Property Owner

The case is interesting, but what I found to be of greater interest are the authors’ suggestions on how to ensure the property owner is properly identified.

The authors suggest claimants could confirm property ownership via the Register of Deeds or obtain a title report letter from the title company. I will add, ownership information may also be obtained from the County Assessor, and many counties make searchable data available online.

What other suggestions do the authors provide? Check the municipal tax records. “While this may be a less reliable way to get information regarding real estate ownership, checking the most recent municipal tax bill records will at least provide a contractor with ownership information as of the end of the most recent tax year.”

Plus, monitor all communication including change orders.

“Obviously change orders can vastly change the scope or price of any construction project. However, they may also provide a contractor with constructive notice of a change in ownership or even impact lien rights. To the extent that change orders are issued and a contractor is asked to sign a “Partial Waiver of Construction Lien,” a contractor needs to be aware that signing such a waiver may impact the ability to foreclose on a lien and obtain a monetary judgment for the full amount that is owed, or even provide constructive notice regarding a change in ownership.”

Best Practice

Don’t guess! Take the time to confirm property ownership, and if applicable, serve the registered agent for the owner.

Always Serve Your Mechanic’s Lien in Accordance with Statute

Just as with notice requirements, lien statute varies by state, which means the required method(s) for service of the lien can vary. In The Critical Importance of Properly Serving a Construction Lien Claim, author Adam Sklar reviewed a recent New Jersey Court of Appeals decision, where the claimant’s lien was invalidated based on “defective service” of the lien.

Case Snapshot

The claimant was a subcontractor, hired by the general contractor, for the improvement to a condominium property. When the GC failed to pay the subcontractor, the subcontractor filed and served a construction lien.

What Was Defective?

As I read the case, I was confused; after all, it appeared the lien claimant followed statutory requirements, including serving the document via certified & first class mail. Where did the claimant go wrong?

According to Sklar’s review, the claimant mailed its lien to the street address of the project. Unfortunately, the project street address was not the “…last known business or residence of the owner or community association” as dictated by statute.

Here’s a quick look at statute:

N.J.S. 2A:44A-7 a. Serving of lien claim by claimant.

(1)   simultaneous registered or certified mail or commercial courier whose regular business is delivery service; and
(2)   ordinary mail addressed to the last known business or residence address of the owner or community association, contractor or subcontractor.  A lien claim served upon a community association need not be served upon individual “unit owners” as defined in section 3 of P.L.1993, c.318 (C.2A:44A-3).

Therefore, service of the lien was defective. Sklar also noted the court opinion didn’t rely solely on service to an incorrect address “…even if service had been made to the Association’s proper business address, the certified mailing of the lien had been returned unclaimed and the subcontractor had failed to present any evidence relating to the status of the ordinary mail.”

Can’t the Claimant Serve the Lien Again, if the Lien Was Recorded Timely?

New Jersey statute states the lien must be served upon all parties within 10 days from the filing of the lien. Sklar mentions the lienmay be served late, but that wouldn’t have changed the outcome. Why?  Because New Jersey is an unpaid balance lien state and the owner, not having been properly served with the lien, paid the GC in full, leaving no funds to lien.

Best Practice: Serve the Address on the Corporate Certificate

A best practice from Sklar? Serve the document upon the address listed on the entity’s corporate certificate.

“When filing a lien … a claimant must do a corporate search with the State to ensure it has the proper business address for that entity.  Of course, there may be other ways to determine the proper last known business address … but the corporation’s registered agent address, as filed with the State, should always be deemed a valid address for service of a lien.”

Did You Know?

NCS also follows this best practice & encourages our clients to serve the registered agent whenever possible.

Are You Securing Lien Rights? Be Careful, a Contractor’s License May Be Required

As if understanding mechanic’s lien laws wasn’t complicated enough, it’s also vital that you understand and adhere to the licensing requirements for each state.

Did you know, an unlicensed contractor in California cannot recover unpaid monies via a mechanic’s lien? It’s true:

CA Bus. & Prof. Code 7031

(a) …no person engaged in the business or acting in the capacity of a contractor, may bring or maintain any action, or recover in law or equity in any action, in any court of this state for the collection of compensation for the performance of any act or contract where a license is required by this chapter without alleging that he or she was a duly licensed contractor at all times during the performance of that act or contract regardless of the merits of the cause of action brought by the person…

California is not alone. Arizona, Florida & South Carolina, to name a few, have similar statutory guidelines.

Arizona: 33-981 C. A person who is required to be licensed as a contractor but who does not hold a valid license as such contractor issued pursuant to title 32, chapter 10 shall not have the lien rights provided for in this section.

Florida: 713.02 Types of lienors and exemptions. — (7) Notwithstanding any other provision of this part, no lien shall exist in favor of any contractor, subcontractor, or sub-subcontractor who is unlicensed…

South Carolina: Section 29-5-15 (A) To file a mechanics’ lien, a contractor must provide the county clerk of court or register of deeds proof that he is licensed or registered if he is required by law to be licensed or registered. As proof of licensure or registration, the contractor must record his contractor license number or registration number on the lien document when the lien document is filed.

This week, we shared two articles which both address the consequences of failing to be a licensed contractor.

In “The Importance of Proper Licensing for Contractors”, author Jennifer Therrien, advises readers that licensing requirements not only vary by state, but also vary based on the type of work provided. Therrien’s article references several recent cases where contractors, of varying trades, learned the costly lesson of failing to comply with licensing requirements.

In one case, an unlicensed contractor who provided road work services had to pay back over $750,000 to the prevailing party.

Another case involved a homeowner & its landscaper. At the time of contract, the homeowner was aware the landscaper was not licensed. Prior to contract completion, the landscaper did obtain its license and some of its work was performed while licensed. Then, the homeowner filed suit against the landscaper to recover ALL monies paid. Unfortunately, California statute is unforgiving, and the landscaper had to refund the entire amount it received – even funds paid while their license was intact. Further, the court said it was irrelevant that the homeowner knew the landscaper wasn’t licensed! Talk about dirt-y.

The second article shared, Unlicensed Contractor Shoots for the Stars . . . Sputters on Takeoff, recaps a recent Appeals case involving Elon Musk’s Space X. In this case, the contractor argued, among other things, that it furnished non-construction services, relieving it of the requirement for a contractor’s license. Author, Garret Murai, reminds readers “…[I]f you are performing construction work in California (with a value of $500 or more) you are required to hold valid contractor’s license. If you don’t, there could be dire consequences.”