There are Times When Filing a Mechanic’s Lien May Not be the Best Option

As I have written before, a mechanic’s lien provides a contractor with an attachment to real property to secure the amount claimed due for work performed. However, before the mechanic’s lien can be successfully foreclosed and converted to a court judgment, the contractor has to prove the underlying contract debt. The benefits of the mechanic’s lien procedure is that it requires nothing more than the contractor’s sworn statement to be put in place. Essentially, in the case of subcontractor claims, the statutes allow a contractor to attach the property of the owner, who may not be aware of the claim, based upon nothing more than the contractor’s good word.

 

The trade off to the ease with which a mechanic’s lien can be put in place is that there are times where the mechanic’s lien is ineffective through no fault of the contractor. For example, an owner will have a defense to a subcontractor’s mechanic’s lien if it makes full payment to the general contractor before receiving notice of the lien. In addition, should the property not have sufficient equity to cover the amount of the debt, the court will award “strict foreclosure” and,

An Interesting Decision Discharges a Mechanic’s Lien

As discussed numerous times on this blog, the mechanic’s lien laws provide a security interest in privately owned real property in favor of those that improve it. According to Conn. Gen. Stat. §49-33, “[i]f any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any building or any of its appurtenances or in the improvement of any lot or in the site development or subdivision of any plot of land …then the plot of land, is subject to the payment of the claim.” While it is true that the type of work for which a mechanic’s lien may be enforced is sometimes subject to dispute, prior to the recent decision in CLW Real Estate Developments, LLC v. SAB Construction Management, LLC, the issue had been fairly well resolved.

 

Generally speaking, the types of services that support a mechanic’s lien are those that substantively improve the property. The Connecticut Appellate Court has “observed that a ‘mechanic’ has been defined as ‘a skilled worker who brings about a result by the use of tools, machines or equipment.’” Weber v.

A Mechanic’s Lien: Something Simple That’s Been Made Complicated

One of the first things I was ever taught about mechanic’s liens is that the legislation’s original intent was for a contractor to be able to perfect a mechanic’s lien without the aid of an attorney. If that’s true, the system is not working as intended. Of course, that is not surprising given the complicated legislation and its arguably inconsistent interpretation.

 

A mechanic’s lien is unique insofar as it allows a contractor to obtain an interest in real property without requiring any kind of hearing or notice. As long as the lien documents are properly prepared, recorded, and served, the lien is in place. In addition, the fact that mechanic’s liens have priority dates that relate back to the first day that the contractor performs work and/or supplies materials, mechanic’s liens that did not exist when a mortgage was given or the property was sold can appear on the land records after such transactions and take priority over an earlier filed mortgage and/or encumber property owned by someone who was not the property owner at the time the work was performed, materials were supplied and/or services were rendered.

 

The Little Miller Act Time Limits are Only Mandatory for the Claimant and Not the Surety

Every state in the country allows those that supply labor, materials, and/or services for the improvement of private property to claim an interest in the improved property as security for their payment. Although the procedure for perfecting those interests vary from state to state, each state does provide for such security devices, which are generally known as mechanic’s liens. However, the governments, which created these statutory rights that encumber privately held property, have exempted publicly owned land from any such claims.

Notwithstanding the foregoing, the statutory schemes that exempt public lands from the mechanic’s lien laws do not leave claimants without a remedy. The governments that have created a system where mechanic’s liens may be filed against privately owned land require general contractors on public projects to post surety bonds know as “payment bonds” or “labor and materials bonds,” that guarantee the payment for all those that supply labor, material, and/or services to the subject project.

The laws governing the payment bonds that are required on federal projects are known as the Miller Act and the laws governing such bonds for projects owned by the 50 states are known as the “Little Miller Acts.” As with mechanic’s liens,

Only the “Owner” may seek Judicial Discharge of Mechanic’s Liens

The Connecticut Superior Court recently decided a case of first impression regarding the right to file an application for discharge of mechanic’s liens.  The court in Grade A Mkt., Inc. v. Surplus Contrs., LLC held that a lessee did not have “standing” to file an application for discharge of mechanic’s liens and dismissed the tenant’s application.  Grade A Mkt., Inc. v. Surplus Contrs., LLC, 2015 Conn. Super LEXIS 1342 (Conn. Super. May 26, 2015).  In layman’s terms, “standing” is the right to have the court decide your case.  The Grade A Mkt decision is interesting because it limits the ability of a tenant to obtain a discharge of mechanic’s liens even though the tenant’s lease with the owner may require the tenant to obtain a discharge of mechanic’s liens filed by contractors performing work for the tenant.

Mechanic’s liens are a statutory right that the legislature created to provide contractors and/or suppliers that furnish labor, materials, and/or services to a property with security for the alleged debt but mechanic’s liens were not intended to prevent the free transfer of property rights.  For that reason, the statutes provide a few different mechanisms by which an appropriate individual or company may obtain a release of the mechanic’s lien. 

Mechanic’s Liens – Legislative Update

Every year, state legislatures across the country pass new laws and revise old ones.  In fact, these state legislatures often tinker with existing statutes that have been in place for many years and are working as intended.  This year, the Connecticut legislature has raised a bill, Raised Bill No. 887, “An Act Concerning the Requirements for the Filing of a Mechanic’s Lien” (the “Act”), that may have an adverse effect on the construction industry through unintended consequences.

The Act would add a new requirement for a mechanic’s lien to be valid.  Specifically, the Act states that the contractor performing the work must hold “the appropriate registration or license to perform the services.”  On one hand, the Act has the valid purpose of discouraging unlicensed individuals from performing construction services.  On the other hand, this revision to the mechanic’s lien laws would be duplicative of the laws and regulations pertaining to licensure already in place insofar as the existing laws and regulations prohibit certain work from being performed without a license.  In addition, the mechanic’s lien statutes are not the best place to address this issue.

The mechanic’s lien laws were established in all fifty states to provide contractors and suppliers with recourse in the event of nonpayment for their labor,

The Right to Arbitrate may be Waived if Opposing Party Suffers Prejudice

As discussed previously in this blog, arbitration is an alternative dispute resolution procedure, whereby the parties to a construction contract can agree to have their disputes heard by a private individual (or a panel of three individuals), whose decision is final and binding upon the parties.  Arbitration is favored by the Connecticut courts, and, when done correctly, can provide the parties with a fast, efficient, and economical resolution of their dispute.  The question, however, is to what extent may a party to a contract containing an arbitration clause avail himself of the courts before the right to arbitrate has been waived.  A recent Connecticut Supreme Court decision clarifies that situation.

In MSO, LLC v. DeSimone, 313 Conn. 54, the parties leave agreement included an arbitration clause.  The tenant, MSO, LLC, brought an action for damages against the landlord, DeSimone.  Id.  The landlord defended the action and brought a counterclaim against the tenant.  Id.  After two years of litigation, the landlord moved to stay the action pending arbitration.  Id.

If a motion to stay a lawsuit pending arbitration is brought pursuant to a valid agreement to arbitration, the court is without discretion to deny the motion. 

An Examination of a Recent Court Decision Discharging a Mechanic’s Lien

As previously discussed in this blog, after a property owner files an application to discharge a mechanic’s lien, a hearing is held in which the contractor is required to demonstrate that there is “probable cause to sustain the validity of the lien.”  Sheriff v. Harris, 2014 WL 566150, *5 (Jan. 13, 2014).  “The legal idea of probable cause is a bona fide belief in the existence of facts essential under the law for the action and such as would warrant a man of ordinary caution, prudence and judgment, under the circumstances, in entertaining it.” Id.  The requirement of “probable cause” is a lower burden of proof than would be required at a full trial on the merits; however, the Sheriff decision evidences that a low burden of proof is not the same as requiring no proof at all.  Nonetheless, the decision of illustrative of the evidence that must be presented to establish “probable cause” to sustain a lien.

The court in Sheriff noted that, “[t]o establish probable cause to support a mechanic’s lien, a person must first show that he is entitled to claim a lien.”  Id.  According to Conn.

An Explanation of The Home Improvement Act’s Licensed Contractor Exception

Chapter 400 of the Connecticut General Statutes is known as the Home Improvement Act.  “The purpose of the Home Improvement Act is to ensure that home improvements are performed by qualified people.”  Santa Fuel, Inc. v. Varga, 77 Conn.App. 474, 495 (Conn.App.,2003).  A “[h]ome improvement contract” means an agreement between a contractor and an owner for the performance of a home improvement.”  Conn. Gen. Stat. § 20-419.  As a general rule, a home improvement contract is not enforceable against a homeowner unless the contract complies with the writing requirements of the Home Improvement Act.  Laser Contracting, LLC v. Torrance Family Ltd. Partnership, 108 Conn.App. 222, 226, (Conn.App.,2008).

The Home Improvement Act serves a valid purpose but may be heavy handed in its application.  In holding that the failure to comply with the statutory requirements for a home improvement contract bars all recovery, including claims sounding in implied contract and unjust enrichment, the Connecticut Supreme Court said the following:

We recognize that our decision may lead to a harsh result where a contractor in good faith but in ignorance of the law performs valuable home improvements without complying with § 20-429. 

It is Not Always Clear Cut Which Services May Be the Basis of a Mechanic’s Lien

Conn. Gen. Stat. § 49-33 provides that those furnishing labor, materials or services for the improvement of real property are entitled to claim a lien on said premises.  “Prior to the statute’s amendment by the legislature in 1974, our cases construing the language of § 49–33 required, as a condition of lienability, that the work done be incorporated in or utilized in the building (or the appurtenance ) to be constructed, raised, removed or repaired.”  Santa Fuel, Inc. v. Varga, 77 Conn.App. 474, 482, 823 A.2d 1249, 1255 (Conn.App., 2003).  In 1974, the legislature amended Conn. Gen. Stat. § 49-33; however, “the 1974 amendment was not intended to expand the scope of [our mechanic’s lien laws] to include persons whose services do not enhance the property in some physical manner or lay the groundwork for the physical enhancement of the property.”  Nickel Mine Brook Associates v. Joseph E. Sakal, P.C., 217 Conn. 361, 363-364, 585 A.2d 1210, 1212 (Conn.,1991).  For that reason, numerous services pertaining to land cannot be the basis for a mechanic’s lien such as pipe removal, temporary electrical work, trash removal, cleaning services, and lawn mowing.  See Landscape Management Services, Inc.