03/25/2020

Project Suspended or Payment Delays? Don't Lose Your Mechanic's Lien Rights!

While many construction projects are advancing in a safe manner during the COVID-19 pandemic, some have been suspended by governmental order, like the Cities of Boston and Cambridge, or based upon the direction of the Owner and/or general contractor.

In a recent survey by the AGC (March 17-19), 28% of the respondents reported a project delay ordered by owners and/or governmental bodies. Of the delays and disruptions, respondents reported various causes including:

  • 16% material/equipment shortage
  • 11% labor shortages (including subcontractor laborers)
  • 18% labor shortages from authorities having jurisdiction (AHJ) for inspections, permits, certificates of occupancy

(The AGC is proving to be an invaluable resource with a 8 part webinar series on COVID-19 related issues plus excellent e-blasts and an online resource page. Locally, the AGC of Massachusetts and CIM are also on the forefront of COVID-19 related construction industry issues.

It is likely the delay percentages resulting from COVID-19 will increase industry wide in the short term. As such, it is important for Contractors, Suppliers, and Design-Professionals to PRESERVE THEIR MECHANIC'S LIEN RIGHTS. Each of the 50-states have a Mechanic's Lien Statute. Each one is a bit different so please consult with your local construction lawyer on the process and procedures for your jurisdiction.

The purpose of a mechanic's lien is to prevent unjust enrichment that would occur if a person/company performs services or supplies materials to improve real property, but is not paid for that work. Many jurisdictions permit the person/company performing those services or supplying the materials to place an encumbrance/lien on the property owner's record title for the value of those services. This is an enforceable real property interest vested in the mechanic's lien claimant . Mechanic's liens are a powerful right and remedy for those who are unpaid for work performed to improve another's land.

The ability to "cloud" an owner's title with a lien only exists because of the mechanic's lien statute. If there is no statute, there is no right to a mechanic's lien. Because of this, most courts will interpret mechanic's liens strictly as they create rights and encumbrances that would not exist otherwise. When I say "strictly" here, I mean that the technical requirements of the statutes must be followed or the mechanic's lien remedy may be lost. However, the case law of many states explicitly state that the mechanic's lien remedy should be broadly construed to effectuate the purpose of ensuring those who improved another's property are paid.

If construction projects or payments slow down in the coming days, weeks, months, work closely with your project management teams, accounting departments, and construction lawyers to preserve your mechanic's lien rights. Each jurisdiction will vary in the technical requirements and measurement of the value of the mechanic's liens. For example, compare a few of the key differences between the Massachusetts Mechanic's Lien Statute and the Rhode Island Mechanic's Lien Statute below:

Mechanic’s Liens Few Differences: Massachusetts vs. Rhode Island

Value of the Mechanic's Lien

  • Rhode Island: The value is determined based upon a 200-day "look back" period from the day the notice of intention was recorded plus unpaid retainage.
  • Massachusetts: The value is determined by the amount of unpaid work to improve the property, but limited by the amount due to the general contractor at the time the mechanic's lien is filed. This creates a timing incentive for downstream contractors to file their liens before the general contractor receives final payment.

Timing Requirements

  • Rhode Island: A mechanic's lien claimant may recover for labor, materials, equipment, and rentals supplied 200-days before the date of recording the Notice of Intention in the appropriate registry of deeds. Retainage may be recovered beyond that 200-day window.
  • Massachusetts: There are different time periods depending upon the circumstances, such as if a notice of substantial completion or notice of termination has been recorded, but the most common deadline is 90-days after anyone on the construction project has performed work. See MGL c. 254, s. 4 ("ninety days after the last day a person entitled to enforce a lien under section two [General Contractor lien] or anyone claiming by, through or under him performed or furnished labor or materials or both labor and materials to the project or furnished rental equipment, appliances or tools, or performed professional services.")

Written Contract Requirement

  • Rhode Island: Not required, just consent is required.
  • Massachusetts: Written contract is required.

Pre-Project Contractor Notice Requirements

  • Rhode Island: Section 4.1 requires anyone in direct contract with the Owner to issue a Notice of Possible Mechanic's Lien at the start of a project. See prior post on this topic.
  • Massachusetts: A Notice of Identification must be filed by any sub-subcontractor to preserve certain rights under the Mechanic's Lien statute.

Pre-Lawsuit Recordings and Filings. This is a high level summary. There is much more detail, nuance, and potential traps.

Rhode Island: The steps generally include:

  • Notice of Intention recorded in City/Town Registry where the property is located and served on certain parties as required by the statute. As noted above, this "looks back" 200-days for the value of work performed plus retainage.
  • Notice of Lis Pendens recorded in City/Town Registry where the property is located and served on certain parties as required by the statute.
  • Complaint to Enforce filed in the Superior Court where the property is located. This has to be done 40 days after recording of the Notice of Intention.
  • Advertisement of the lien posted by the Court Clerk in a newspaper. Notice of this advertisement must be served on the property owner and interested parties
  • Citation issued by the Court Clerk which has to be served on the property owner and interested parties.

Massachusetts: The steps generally include:

  • Notice of Contract recorded in the local registry of deeds where the property is located and served on certain parties as required by the statute. Within 90 days of anyone on the project last performing contract work.
  • Statement of Account must be recorded 120 days after anyone on the project last performed contract work and served on certain parties as required by the statute.
  • Complaint to Enforce. Must be filed within 90-days of recording the Statement of Account and recorded within 30 days in the registry.

As noted above, the Mechanic's Lien Statutes in Rhode Island and Massachusetts have drastically different remedies and requirements. The same applies to the other jurisdictions that Pierce Atwood Construction Lawyers practice

Pierce Atwood's Construction Group is ready and willing to answer your questions and assist you in preserving your mechanic's lien rights in New England and we have contacts throughout all 50-states if you are looking for guidance elsewhere.