COVID-19: How to Preserve Lien Rights on Private Project During the COVID-19 Outbreak

From coast to coast, construction projects have been disrupted by COVID-19. As a result, projects may face significant cash crises and/or delays. A shortage of cash will likely lead to delayed payment, partial payment or nonpayment altogether. Thus, it is critical that contractors and subcontractors know how to preserve their lien rights on private projects when many county courts and offices are temporarily closed. With governmental orders across the country halting construction, it is critical to preserve your lien rights, but filing a mechanic's lien is not business as usual. Some courts will only hear "emergency" matters during the COVID-19 outbreak and some counties do not have e-filing capabilities. Governmental orders and county office closures affect not only ongoing projects but also recently completed work because of the ticking clock to file liens. The following is a guide on how to best preserve your lien rights on private projects during the challenges of the COVID-19 outbreak:

In order to preserve lien rights, every contractor must comply with the minimum statutory and contractual notice requirements for the project. However, it may be wise in the wake of COVID-19 shutdowns and the economic difficulties to provide additional notice, even when none is required.

At the beginning of the project, some states require a preliminary notice to be sent to the owner, general contractor and/or lender. The information contained in a preliminary notice can vary state to state due to statutory requirements; however, the preliminary notice typically includes general information about the contractor or subcontractor, scope of work, material or equipment furnished, and expected cost. Some states like Arizona, California, Florida, Minnesota, and South Carolina require preliminary notices from contractors, subcontractors and material suppliers.

However, in other states, like Pennsylvania, New York, and Hawaii, it is an entirely voluntary step. In states where it is a voluntary step, it can be a useful way to open communication even before payment is behind. For example, on large-scale projects, preliminary notices allow a sub-subcontractor to provide its basic information to the general contractor, who may not know that some of that work has been subbed out.

The more information that the general contractor and the owner have about your work from the beginning, the more likely they will resolve payment claims without the filing of a mechanic's lien if they are able to do so.

If a preliminary notice is required, it is necessary to comply with all statutory and contractual provisions. Some states require monthly notice updates in addition to the preliminary notice. It is important to follow all statutory requirements.

The Notice of Intent to Lien is formal notice to the owner, contractor and/or lender that a lien will be filed unless the overdue payment is made within a certain time period.

Some states such as, Arkansas, Colorado, Connecticut, Louisiana, Missouri, North Dakota, Pennsylvania, Wisconsin and Wyoming require a Notice of Intent to Lien to be sent before filing a lien.

It is critical to follow any contractual deadlines for notice. Courts are strict in the enforcement of not only statutory deadlines, but also contractual deadlines. Do not count on time extensions for providing adequate notice.

The Notice of Intent to Lien typically has a waiting period before the lien may be filed. For example, in Pennsylvania a party must send the Notice of Intent to Lien to the owner at least 30 days before filing the lien.

Regardless of whether your state requires just a preliminary notice or a Notice of Intent to Lien, you may find it useful in this economic climate to provide a preliminary notice and a follow up notice in writing when payment is overdue. Open communication with the owner, general contractor, and/or lender may help your overdue payment rise to the top of unpaid work.

However, you must carefully watch the lien filing deadlines. Do not get close to the deadline, especially when county offices have been closed temporarily. County offices include the recorder of deeds office. The closure of the recorder of deeds office affects the ability to do a proper title search, which provides critical information for the lien, such as the identification of the owner and legal description of the property.

You must file the lien within the deadline and not waive your lien rights.

The lien filing deadline is usually tied to the completion of the project or the last day that labor or materials were provided. In Pennsylvania, for example, a party has six months from either the last day of work on the project or the last day that labor or materials were provided to file the lien.

You must determine whether the county's office is physically open so that you can file the lien or whether e-filing is available. If neither the county office nor e-filing is available, you should mail copies and e-mail copies to the county office and all opposing parties. You must maintain a record of filing the lien.

Do not count on time extensions for filing.

The state supreme courts have been issuing orders regarding filing deadlines and "emergency" hearings. However, there is no clear indication that the deadline for filing a mechanic's lien has been tolled. Given that uncertainty, liens should be filed unless a tolling agreement has been reached providing a clear extension.

COVID-19's disruption in the construction industry will cause cash flow problems. It is critical to pay attention to statutory and contractual requirements for mechanic's liens, but also to position yourself in the best place to receive payment.

DFL has experience across the country in some of the industry's largest and most complex mega-projects. As a team of construction litigation lawyers, we can provide unique and resourceful solutions to the biggest challenges, including navigating the uncertainties of the COVID-19 crisis.