Here’s an excerpt of my post.

The recent changes to Va. Code §43-3 (effective July 1, 2012) clarify several points regarding the allocation of lien amounts to individual lots.  The main points of clarification are as follows:

• Common areas are explicitly excluded from the “denominator” of the lien allocation equation.  In other words, where there are 10 home sites and one common area, a site or utility contractor no longer needs to worry if it should allocate part of its lien amount to the common area and can safely allocate the amount owed to the ten home sites.
• Traffic signalization, and installation of electric, gas, cable, or other utilities are explicitly included in the definition of “site development improvements
• Any payments to the contractor for which the owner/developer does not designate a particular lot will apply to any previously sold lot and the remaining lots will continue to bear their share of the liability.

Check out the entire post and thanks to Scott Wolfe for giving me the opportunity, yet again, to post at his great mechanic’s lien resource.

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Painted relief map of the state of Virginia. (Photo credit: Wikipedia)

With the economy the way that it is, my mechanic’s lien practice (and bond claim practice for that matter) is thriving.  Interestingly, the recent uptick in the construction economic landscape here in Virginia caused me to get more, rather than fewer, calls requesting help with the filing or defense of mechanic’s liens.

As I go through each of the claims with the proverbial fine toothed comb (and with an eye to the fact that these creatures of statute are tricky beasts) I am struck by the fact that the owner of the construction project listed on the construction contract is often a different person or legal entity than the entity that owns the ground under the building.  This issue is more complicated when your work is only on a portion of a property that houses multiple street addresses.

As is clear from the mechanic’s lien statute (Va. Code 43-1 and following) that failure to properly name the owner of the property can be fatal to the lien, getting this preliminary question answered correctly is key.

Because even the seemingly simplest of commercial construction projects can have these types of wrinkles, every Virginia construction lawyer needs to be sure to get a title search performed on the property by a well qualified title examiner.  If you, as the attorney, are qualified to do so, then even better.  Just make sure that you’re thorough and know the recording systems of the county or city clerk’s office in the jurisdiction where you plan to record your lien.

In sum, be sure to thoroughly check the title of the land under the project prior to recording a lien, you will be glad you did.

PS- Check out the ALPS411 blog for my latest post on May 2, 2012

As always, I welcome and encourage your comments below, please share your thoughts.  Also, please subscribe to keep up with the latest Construction Law Musings.

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Mechanic’s liens are a powerful tool when used correctly. However, as I have discussed on numerous occasions here and elsewhere, these tools must be wielded correctly if they are to be effective.

Another case in point occurred recently in the Hanover, VA Circuit Court. In Dallan Construction Co. v. Super Structures General Contractors Inc. (Harris, J.) No. CL08-473, Jan. 30, 2009, the Court considered the question of what can be included in a mechanics lien.

Super Structures filed a mechanic’s lien for the value of work performed and materials that it ordered in preparation for doing work for Dallan Construction. Dallan canceled the project before Super Structures began work or delivered any materials to the site.

The Court determined that Super Structures’ lien was invalid because Super Structures had not provided labor or materials to the site. In short, unless you have labor or materials incorporated into or delivered to a job site you cannot properly file a mechanic’s lien in Virginia.

While this case is a Circuit Court (trial court) case, I think that it is fundamentally correct. A mechanic’s lien is a remedy that is meant to allow a construction professional to recover for the labor provided to improve a piece of property. Unless your materials and labor actively improve the real estate at the project site (for example, providing silt fencing allowing the project to commence), you should not be able to lien that project.

A lien is not a substitute for a breach of contract suit. A contract generally contains remedies that are unavailable by pursuing a mechanic’s lien and vice versa. Many times the two actions are simultaneous (and, for reasons that I will leave for a later date, many times must be enforced simultaneously if you wish to pursue both). Because a lien remedy and a contract remedy are separate, you can pursue your contract remedy even if you cannot pursue a lien.

My suggestions? Talk to an experienced construction attorney early in the construction process so that you can evaluate your options. Also, if you do in fact have lien rights, file earlier rather than later in today’s economic climate.

Please let me know your thoughts with a comment below.  I encourage you to subscribe to keep up with the latest Construction Law Musings.

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Musings has discussed mechanic’s liens on numerous occasions.

As we discussed in earlier posts, the general rule is that a mechanic’s lien jumps to the head of the line of liens when filed. This is true in most instances. In the typical case, a contractor puts up a building and, when the owner refuses payment, it files a mechanic’s lien that takes priority over all other liens on that property, including the construction loan deed of trust (or mortgage, depending on your state’s property laws).

However, in Virginia, an exception exists. The Virginia Code provides that in a case where there is a loan on the land with a deed of trust, and then a construction loan with its own security in the land, the first lien holder can enforce its lien up to the value of the original and unimproved land on which it placed its lien. The mechanic’s lien holder takes priority on any value added to the property based on any improvements (i. e. the building itself) over any other liens.

When the construction loan is secured by the same deed of trust as the purchase loan, the mechanic’s lien takes precedence. Of course, these are the general rules. Your particular situation must be examined carefully by an attorney or other professional experienced in mechanic’s liens to determine the priority of your lien.

As always, please comment below and/or subscribe to receive updates on this and other topics here at Musings.

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Over the past week or two I’ve been covering HB 1265, a bill that was working its way through the Virginia General Assembly legislative sausage making process.  I gave you my thoughts on the original bill as written and then on the somewhat better (though far from perfect) amended bill.

Well, this past Monday I had the opportunity to take part in the hearing on the bill before the Virginia Senate committee that was considering whether to recommend the amended bill to the entire Senate for a vote.

This was the first time I’d been a part of the process, but I had a good shepherd through the process in my new friend, and fellow attorney here in Richmond, Lee Stephens.  I was also one of two lawyers asked to both get Lee up to speed on Virginia mechanic’s lien law.  I was also teed up to testify about those practical issues that I saw with the changes to this ages old statutory scheme (along with a friend, Jim Fullerton).

While I didn’t get to testify because the chair of the committee made it clear that my testimony would be seen as redundant, the experience was educational.  It quickly became clear that most in the room were against the bill and were members of the Virginia construction community.  Jim and Lee testified eloquently, and several representatives of Virginia home builders and material suppliers performed wonderfully, in the approximately 15 minutes we had to make our case that the bill, as written, was filled with unintended consequences and, the bill was ultimately tabled for further consideration between now and the next legislative session (effectively a win for those that were against the bill).  The “sausage” was ugly on the way in, but (in my opinion) ended up with the right result.

In short, I got to see an example of how this process works from the inside in a way I, as a Virginia construction attorney practicing in this area,  hadn’t seen before.  The passion of Virginia construction folks was a great thing to see and it was clear that the committee members were affected by the show of solidarity.  The process seemed to work as it was supposed to, whether you like the result or not and that was gratifying.  I was happy to have been a part of it and look forward to helping with the process going forward.

Thanks to Lee, Jim and all of you who read and commented about the bill over the past couple of weeks.  I’d love to hear your thoughts on the result.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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Musings thought that it would step away from its discussion of “green” construction to discuss a few interesting construction cases that came down recently in the Commonwealth of Virginia.

The first of these is another warning to contractors that arbitration provisions can be waived by conduct.  In Shoosmith Bros., Inc. v. Hopewell Nursing Home, the Hopewell Circuit Court of Virginia found that Kenbridge Construction Company’s waived its right to arbitration by its use of the Courts for a substantial period of time and its use of the discovery “machinery” of the Court.  In short, if you want to enforce an arbitration clause, do it early to avoid an argument that you have waived arbitration.

The second case is in relation to mechanic’s liens.  I find this one interesting because the Court actually refused to invalidate a lien for a minor inaccuracy in the description of the work performed.  In B.P. Realty LP v. Urban Eng’g Associates, Inc. et. al., the Fairfax, Virginia Circuit Court refused to invalidate a lien because the engineering firm and defendant in the case failed to include the word “surveying” in its description of the work.  The court held that this is an excusable inaccuracy.

This is significant because, as I have discussed on numerous occasions here at Musings, Virginia mechanic’s liens are extremely picky in their enforcement.  While I would not take this case to allow any inaccuracy that is more significant than that described here, it needs to be pointed out that you are not without arguments against claims that your lien is invalid due to a minor inaccuracy.

The third case I felt needed a mention is S. B. Ballard Construction Co. v. LGS Group, LLC, et. al.. In this case, the Court give a quick reminder that, in Virginia, it is very hard to make a contract claim into one for fraud, negligence or conspiracy.  The economic loss rule in Virginia prohibits any claim that could arise from the contract from being prosecuted as a tort claim instead of a contract claim.

In a fourth set of consolidated cases, the Norfolk Circuit Court held that the language found in Va. Code Sections 43-11 and 43-7 invalidated a subcontractor’s mechanic’s lien, despite non-payment to the general contractor, where an owner expressly conditioned payment to the general contractor upon its obtaining financing, diligently sought financing and was unable to obtain that financing.  The Norfolk Circuit Court also discussed estoppel and waiver and I commend reading this case to all who are interested in construction contracts and liens.

If you find this and other Musings helpful or interesting, please let me know by a comment below and please subscribe to keep up with the latest Musings.

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For this week’s Guest Post Friday here at Musings, we welcome a good friend, Brett Marston. Brett is the head of the construction law practice group at Gentry Locke Rakes & Moore in Roanoke, Va. and a member of the firm’s management committee.  He is AV-rated by Martindale-Hubbell and has extensive experience in construction contract negotiations and preparation, payment disputes, mechanic’s liens, bond claims, construction defects, delay claims, insurance, litigation, and OSHA matters. He handles significant construction matters in federal and state courts, arbitration, and mediation for general contractors, subcontractors, owners, design professionals, and suppliers.  Brett is a 1993 graduate, with honors, from the George Mason University School of Law, and a 1990 graduate of the University of Virginia.  Prior to starting with Gentry Locke in 1994, Brett was a law clerk to the Honorable J. Calvit Clarke, Jr., Sr. Judge of the United States District Court, Eastern District of Virginia (Norfolk Division).

In the spirit of the word “musings,” I’d like to offer some thoughts I have about several construction law and construction litigation topics.

First, one of the most prevalent incongruities I see in the contract documents I review during litigation, and one that could be easily corrected, is the lack of coordination of the front-end contract documents for construction projects.  Often owners leave these to the design professionals to prepare as part of the Construction Documents.  While preparing project drawings and specifications is best placed in the hands of design professionals, it is a bit much to ask them to also be responsible for preparing the contract, including the general conditions and supplemental general conditions, between the owner and the general contractor or construction manager.  This should be coordinated by the owner’s counsel to make sure that the contract for construction is correct in form and content, and that it syncs up with other contracts for the project and state law.  Recently, I have seen contracts where the names of the parties are not included correctly, for example, where they are listed as the “name you hear on the radio commercial” rather than the name listed on the State Corporation Commission website.  This can have legal effects later on, depending upon who signs that contract, in what capacity, etc.  I have even seen contracts for public entities that do not include provisions required by the Virginia Public Procurement Act.  Further, the owner may have contractual obligations to a lender or some third-party that requires certain provisions be included in that construction agreement.  An experienced attorney can be beneficial in this process to ensure that the contract complies with the other project documents and the law.

Second, does anyone remember how the new “paperless” and “email communication” world was going to make life so much easier?  In the world of construction litigation, it has certainly provided much more fodder for discovery and in many instances unexpected entertainment when e-mails are produced in litigation that were never meant to see the light of day.  More than anything, though, it has drastically changed how construction cases are litigated, and how much they cost the client to handle.  The massive number of e-mails exchanged between the owner, general contractor, architects, and subcontractors simply make construction litigation more expensive.

Third, as this blog has previously covered in detail, the recent efforts in the General Assembly to amend the notice requirements for the filing of mechanic’s liens is most interesting.  If there was ever a collection of statutes that could be described as a “house of cards,” it is the Virginia mechanic’s lien statutes, because of the many inter-linked requirements built into the statutes and the strict interpretation of these statutes by Virginia courts. Moving and tinkering with just one piece of these statutes will impact other aspects.  The recent legislative efforts (HB 1265) to require earlier notice to owners of real estate by persons intending to file mechanic’s liens is a prime example of dangerous tinkering.  Although a layperson may perceive the changes originally proposed in HB 1265 as a reasonable suggestion, these proposed changes might have completely negated the efforts to grant mechanic’s and materialmen statutory lien rights to provide protection in the event of nonpayment.  Requiring written notice to the owner more than 60 days before a claimant records a memorandum of mechanic’s lien would lead to an unnecessary increase in dispute-oriented paperwork on construction projects where payments often lag by more than 30 days, but are ultimately paid in the normal course of business.  The substitute bill that recently passed the House of Delegates is viewed by most as a sufficient compromise, however, should HB 1265 become law, subcontractors and suppliers to residential construction projects need to be aware of, and comply with, the new notice requirements.  Even more, great care needs to be taken in modifying one aspect of this “house of cards” set of statutes, lest the entire structure be damaged.

For my final musing, I encourage attorneys who practice construction law and government contracting in Virginia ─ whether as a  predominant part of their practice or not ─ to get involved with the Virginia State Bar Construction Law and Public Contracts section.  I currently serve as the Vice Chair and look forward to chairing that section’s Board of Governors starting in mid-June.  Involvement in this group is an excellent way to network with other attorneys practicing in this interesting and challenging area of law, to share ideas, and to be a part of a network of attorneys (including this blog’s author who is a member of the Board).  If you haven’t attended the Section’s annual seminar, you should put November 2-3, 2012 on your calendar to be with us in Charlottesville, Va. at the Boar’s Head Inn.  The conference planning committee, headed by Shannon Briglia, is well on its way to planning another strong program.

As always, Brett and I welcome your comments below.  Please subscribe to keep up with this and other Guest Post Fridays at Construction Law Musings.

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Remember HB 1265 that I discussed here at Musings back on February 6, 2012?  Well, thanks to the efforts of the AGC of Virginia among other groups affected by the bill, it has been amended and a substitute proposed.

My thoughts on the latest changes?  It is a good start, but adds an extra, and unnecessary, notice requirement for Virginia home builders that will only add to the cost of doing business.

First, the good.

• The latest changes limit the additional notice requirements to one and two family residences.
• The latest changes require that either a mechanic’s lien agent or the mailing address for the owner be listed on the building permit so that contractors don’t have to guess where to send their notices.

Now, the issues I have with the change:

• Under the amended bill, not only do residential contractors and suppliers in Virginia need to determine who the mechanic’s lien agent might be regardless of the words on the building permit, a residential contractor now has two notices to file.  The first has been there all along, i. e. the notice to the mechanic’s lien agent (MLA) within 30 days of starting work or posting of building permit.  The second is a notice to either the owner or MLA 30 days prior to filing a lien.
• What if payment is not past due or there is a payment between the time of notice and the time of lien filing?  Does this cause issues?  Does the notice have to be redone to match the lien amount?
• This effectively puts residential builders on a 60 day (instead of a 90 day) lien clock.
• This second notice is just another obstacle for builders to overcome to enforce their lien rights.  It adds no additional notice to the owner or MLA who already knew that work was being performed and that a lien could be filed.  Additionally, while the first of the two notices can be filed only with the MLA and only if an MLA is named in the permit (or at the local building official’s office), this second notice goes to either the owner or MLA depending on what is on the building permit.  Such inconsistencies are the fodder of lawsuits.

As you can see, this bill is still very much in flux.  The latest substitute was proposed only 4 days after my last blog post on the subject so this is likely not the final bill which will be voted on during the 2012 General Assembly session.  I just wanted to keep you updated on its progress.  As always, whenever there is an eventual change in the law, consult with an experienced Virginia construction lawyer to help you react properly to that change.

What do you think?  Do you agree?  Disagree?  Agree, but for other reasons?  If so, please comment below or contact me with your thoughts.

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As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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As any of you that read this construction law blog realize, the Virginia mechanic’s lien statute is near and dear to my heart.  Because of the already picky and statute driven nature of these powerful but detail oriented tools of collection, any change to the statute must be considered for its practical effect on the Virginia construction industry. HB 1265, introduced and out of committee for consideration during the 2012 Virginia General Assembly session, is just such a potential change.The operative language of the bill would amend the basic filing and notice provisions for a mechanic’s lien in Virginia to add the following:

 At least 60 days prior to filing a memorandum of lien pursuant to this section, a lien claimant shall send a copy of the memorandum and written notice of the lien claimant’s intention to file the memorandum by certified mail, return receipt requested, to the owner of the property at the owner’s last known address. After the expiration of this 60-day period, the lien claimant may file a memorandum of lien. The lien claimant shall also file with the clerk a copy of the written notice sent to the property owner and certify that such notice was sent. The clerk shall not accept or record any memorandum of lien filed prior to the expiration of this 60-day period or that is not accompanied by a copy of the notice sent to the property owner.

In short, the proposed amendment would place yet another hurdle in front of a potential mechanic’s lien claimant in the form of the necessity of a notice to the owner of the property 60 days prior to the date of recording a memorandum of lien.  This notice would have to be sent certified, return receipt and contain a certification of mailing.  The notice would also have to be filed with the Clerk of the Virginia Circuit in which the property is located.  Furthermore, unlike the provisions of the statute that require notice to a mechanic’s lien agent in the residential setting only to protect residential homeowners that do not deal with contractors on a regular basis, this amendment does not make any distinction between commercial and residential projects.

While I really do try and keep this blog apolitical, I feel the need to voice my opinion on the practical consequences I see for my friends and clients in the Virginia construction industry.

My thoughts?  This bill puts an undue burden on both the Circuit Court Clerks and the construction professionals that at times need to file liens to protect their ability to collect for work properly performed.  Given that many construction contract payment terms require payment within 30 days, the amendment would force contractors and subcontractors to perform title searches, hire attorneys, and file notices of intent to lien on even the smoothest of projects, potentially prior to their entitlement to payment, in order to avoid running up against the 90-day recording deadline.

This would increase the administrative and cost burden on all in the construction payment chain and turn a tool usually used as a last resort into one that, should the amendment pass, would require routine notices of intent to lien prior to any chance for negotiation before having to create a cloud on the title of the property with the business consequences on contractor and owner alike.  The potential souring of good business relationships because of statutory mandates (no one wants to have a lien recorded against their property) is yet another reason I don’t like this bill.  Of course this analysis does not even begin to take into account the potential burden on the great clerks of court that will have an additional paperwork burden beyond what they already carry.

While I fully understand the clear intent of this bill to protect owners and give them the ability to deal with potential liens prior to their recording (particularly in the present economy), this bill goes much too far in doing so in my opinion (along with the opinions of the AGC of Virginia and the Virginia ABC).  The noble goal is outweighed by the administrative, economic, and governmental burden it imposes.

As always, these are just my opinions.  What to you think?  Do you agree?  Disagree?  Agree, but for other reasons?  If so, please comment below or contact me with your thoughts.

Update:  The bill has been changed by the House and is set to go before the senate.

As always, I welcome your comments below.  Please subscribe to keep up with this and other Construction Law Musings.

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For this week’s Guest Post Friday here at Musings, we welcome back a good friend and fellow construction attorney, Scott Wolfe Jr.  Scott is a construction attorney who practices law through his firm Wolfe Law Group in California, Washington, Oregon and Louisiana.  He is also the founder of Zlien, a nationwide preliminary notice and mechanic’s lien filing service. He is the author of blogs Construction Law Monitor and the Construction Lien Blog.

A few years ago I wrote a blog post that is quite popular on our Construction Lien Blog, titled “Filing A Lien Is A Discipline, and Not A Knee Jerk Reaction.”  I love the title to this post, because it expresses a real truth about successfully making a mechanics lien claim.

Regardless of where you are furnishing labor or materials, the act of filing a mechanics lien is more than just shooting off a lien affidavit after you’re already owed money. For most in the construction industry, and in most jurisdictions, mechanic lien claims are something that develop over time. Unfortunately, this development often starts with the moment you begin furnishing to the project.

Since writing that “knee jerk” article, I’ve thought (and written) about the concept even further. Successfully filing a mechanics lien claim actually requires companies to employ some sort of “lien policy,” focusing on compliance with all notice requirements and lien deadlines.  And the start of preparing such a lien policy is an understanding of what I call the mechanics lien ecosystem, or the “life of a mechanics lien claim.”  

I’ve broken it down into three steps: Preserve, Perfect, Enforce.  

Preserve

Every state and the territories (and Canada!) all have mechanics lien statutes, providing to contractors, subcontractors, suppliers and professionals the right to file a lien against the property where materials and/or labor are furnished.

However, to quality for this lien protection, construction participants must take certain actions to preserve these rights.  These preservation requirements will change depending on where you’re furnishing, but they always require some action at the start of providing services or materials. Here are the most common preservation requirements:

Preliminary Notices / Notices to Owner by Those Who Did Not Contract With The Owner

When states are referred to as “notice states,” that is typically because they’ve adopted this very traditional notice requirement, which mandates that all parties who have no contractual privity with the property owner send a “preliminary notice” or “notice to owner” to the property owner within a specific number of days after first furnishing labor or materials.

These prelim notices are usually required within 10-45 days from first furnishing of materials or labor (check your state’s rules), and must contain certain information within the notice and be sent by a certain method (usually certified mail with return receipt requested).  Those who fail to send their notice on time will forfeit their lien rights, with limited exceptions.

Notices Required by General Contractors

While most states’ notice requirements focus on those who did not contract with the owner, there are some laws out there that require notices from only those who contracted with the owner.

Some examples include:

1. Louisiana requires general contractors to file a Notice of Contract before commencing work to qualify for lien rights.
2. On certain residential and commercial projects, Washington requires the delivery of a Model Disclosure Statement.
3. On Residential projects in Idaho, Iowa, Louisiana & Oregon, a Notice of Lien Rights must be provided to the owner.
4. In Utah, general contractors must file a “Notice of Commencement” at the start of work.

Failure to send these notices will also result in a forfeiture of lien rights.

Perfect

Preserving your mechanic lien rights requires compliance with certain notice prerequisites that apply when starting to furnish labor and/or materials. These notices must be delivered before any accounts are ever overdue, and indeed, before anyone is even owed money.  

The perfection requirements, however, come on the other side, when the contractor, supplier or professional has performed its work and is now due payment.

If lien rights were preserved, a contractor, supplier or professional can “perfect” it’s lien claim by filing the same with the county recorder or clerks office. Depending on your state, the filing can go by a number of names: Notice of Claim, Claim of Lien, Construction Lien Claim, Mechanics Lien Claim, Statement of Claim and Privilege, etc.  It’s all the same.  These are all documents that outline what work you performed, where, for who and the amount owed to you.

When filing your mechanics lien claim, it’s important to be very careful. Since these claims encumber real property, courts typically require strict compliance with the lien statutes, which means you better have all the required information in your claim.  There are lots of traps for the inexperienced, with the most common mistakes being a failure to identify the property with the legal property description and not including all of the statutorily required data.

Properly preparing and recording your mechanic lien claim, and then serving a copy of the same on the property owner and all other required parties within the statutory required time frame, will act to perfect your mechanic lien rights, and a mechanics lien claim will then encumber the property…until your deadline to enforce it.

Enforce

The third and final step in the life of a mechanics lien is the enforcement of the same.  One common misconception about liens is that they will encumber the property until paid.  That’s not true. After a mechanics lien claim is perfected by recording, it only remains enforceable for a specific period of time.

Therefore, if the mechanics lien doesn’t produce payment after filing, then you will be required to file a lawsuit to foreclose upon or enforce the claim.

Again, each state is different as to when this foreclosure action is necessary.  California, for example, is on the short end requiring a foreclosure lawsuit within 90 days from when the mechanics lien is filed. Ohio is on the long end, giving lien claimants 6 years from filing to have the lien enforced.  If there’s an average out there, it’s probably between 8 and 12 months.

While the timing is different, the general requirement is the same: After a certain period of time, you’re required to file a lawsuit to foreclose on the lien. Therein, you’ll need to prove your case and demonstrate you are owed the money you claim.  If you win, the court will order the property sold to pay your debt.

Scott and I welcome your comments below.  Also, please subscribe to keep up with this and other Guest Post Friday Musings.

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