On my final post on mechanic’s liens, I will get back to the initial subject from my first blog post and that is how one goes about actually enforcing mechanic’s lien. As I mentioned previously, there are multiple steps which are necessary to be taken in order to perfect the mechanic’s lien. The final step in the process is to file a law suit. Once you file a law suit, pursuant to the statute, Chapter 254, a homeowner can ask for an expedited hearing on the validity of the mechanic’s lien if the mechanic’s lien was improperly placed on your property or if the mechanic’s lien is invalid for some other reason.
If you are the contractor subcontractor, you must prove your claim. In other words, you must demonstrate that you performed the work for which you seek payment. As is the case in any suit against a homeowner, the homeowner may raise counterclaims that the work was performed in breach of the contract and/or negligently. The homeowner may also claim that the contractor or subcontractor violated the consumer protection statute, Chapter 93A and the home improvement contractor statute, Chatper 142A.
The mechanic’s lien can be a powerful tool, particularly for subcontractors. However, prior to taking any action against a homeowner, a contractor or subcontractor would be well advised to seek the advice of counsel regarding the various pitfalls of suing a homeowner.
Showing posts with label mechanic's liens. Show all posts
Showing posts with label mechanic's liens. Show all posts
Tuesday, October 18, 2011
Thursday, January 21, 2010
Silence may be Golden
At the end of my last post, I mentioned that an owner should be careful about what s/he says to the subcontractor who is not being paid by the general contractor. My warning is based on two cases which the Massachusetts Appeals Court decided, one in September 2007 and one in January 2008. In both instances, the court found that the owner was liable for payments to the subcontractor based on representations and promises that the owner had made to the subcontractor.
In Central Ceilings, Inc. v. National Amusements, Inc., 70 Mass.App.Ct. 172 (2007), a project to build a movie theater had come to a virtual standstill due to lack of funds. At that point, the owner told the plaintiff subcontractor that the owner would pay the subcontractor if the general contractor did not. It further told the subcontractor that it needed the project done prior to Labor Day Weekend so that it could benefit from the higher movie sales that occurred on a holiday weekend. Based on the owner’s representations, the subcontractor continued with the work and completed it in a timely manner. When the subcontractor wasn’t paid, it sued the owner seeking payment; the owner denied liability. The court found that the subcontractor had been promised payment by the owner directly, and that even though the promise was oral, it was binding on the owner.
In Mike Glynn & Company v. Hy-Brasil Restaurants, Inc., 75 Mass.App.Ct. 322 (2009), the Appeals Court made a similar determination. In that case, the subcontractor and the owner of the property had been long-time friends. When the property manager ran out of funds and Glynn threatened to cease work, the owner of the property promised that he or his company would pay if the property manager did not. Like National Amusements, supra, the owner in this case insisted that the restaurant open prior to Thanksgiving. In reliance on the owner’s promise, Glynn worked over-time, incurred extra expenses by hiring additional men to work on the job. When Glynn sought payment from the property manager and was not paid, he sued the owner and the owner’s company directly. In dicta, the Appeals Court found that the facts of this case fell outside the “not ordinarily liable” rule set forth in Evans v. Multicon.
Both Mike Glynn and National Amusements are close to the hypothetical scenario that the Evans case had envisioned and therefore, it is not surprising that the Court allowed the plaintiff subcontractors to collect from the property owner. However, the timing of the promise is critical. In Rosano-Davis, Inc. v. Sastre, 2004 Mass.App.Div. 55 (2004), aff’d 65 Mass.App.Ct. 1110 (2005) (unpublished), the subcontractor argued that the owner of the property had promised to pay the subcontractor if the general contractor did not. The Appeals Court ruled that because the owner made promises to pay after the work was completed, the subcontractor did not rely on those promises to finish the work.
In the case I litigated that I discussed in my previous blog post, there were similar allegations. The subcontractor argued that the owner of the property had made promises to pay, however those promises if they were made at all (a fact my client disputes) they were not made until after the work was complete. Therefore, any argument that there was some reliance did not carry the day.
So what is an owner to do if they learn that the general contractor has not been paying the subcontractors? Do should the owner speak to the subcontractors or do you remain silent? There are several steps that must be taken. First, assess the situation. Compare the progress of the project to the payments made and determine whether the owner has paid more to the contractor than the value of the work. Or perhaps the opposite is true. Or maybe the owner and the contractor are about even when one compares the work performed and the amount paid. Consider the project and its progress. If the property is not weather-tight or exposed to the elements, then you may need to have the contractor continue. Speak to the general contractor and the subcontractors and find out everybody’s story. Don’t make any promises to anyone. Just listen. Then the owner will have to make some decisions.
If the owner and general are approximately equal in work performed and money paid or if the owner owes the general money, then the owner can make an arrangement to pay subcontractors directly. The owner can write joint checks to the general contractor and the subcontractor so that the subcontractor receives payment.
It is more difficult when the general contractor holds more money than the value of the work performed. If the owner pays the subcontractor, s/he runs the risk of paying twice; once to the general and once to the subcontractor. If the general is going to continue with the work, one might want to try to negotiate an arrangement to pay the subcontractors directly as a credit to future payments. As you can see this gets very complicated, not only in terms of determining who you should pay and when but obviously one has to deal with the personalities of the individuals involved.
Whatever the end result, put it in writing and have all the parties sign and/or acknowledge receipt. It is best if the parties can resolve the issue so that the general can continue work. In reality, it is often hard to find a new contractor willing to come in the middle of a job. Consider involving an attorney to negotiate a resolution. While it might cost the owner some out of pocket expense, the cost will be negligible in comparison to litigation costs.
In my final post, I will discuss the actual mechanics of the mechanic’s lien. As I mentioned in my first post on this subject in order to perfect the mechanic’s lien one has to take a number of steps. The last step that must be taken is the filing of a lawsuit. Whether you can actually collect even if you take all those steps and how you collect at the end of the lawsuit will be the subject of my final post on mechanic’s liens.
In Central Ceilings, Inc. v. National Amusements, Inc., 70 Mass.App.Ct. 172 (2007), a project to build a movie theater had come to a virtual standstill due to lack of funds. At that point, the owner told the plaintiff subcontractor that the owner would pay the subcontractor if the general contractor did not. It further told the subcontractor that it needed the project done prior to Labor Day Weekend so that it could benefit from the higher movie sales that occurred on a holiday weekend. Based on the owner’s representations, the subcontractor continued with the work and completed it in a timely manner. When the subcontractor wasn’t paid, it sued the owner seeking payment; the owner denied liability. The court found that the subcontractor had been promised payment by the owner directly, and that even though the promise was oral, it was binding on the owner.
In Mike Glynn & Company v. Hy-Brasil Restaurants, Inc., 75 Mass.App.Ct. 322 (2009), the Appeals Court made a similar determination. In that case, the subcontractor and the owner of the property had been long-time friends. When the property manager ran out of funds and Glynn threatened to cease work, the owner of the property promised that he or his company would pay if the property manager did not. Like National Amusements, supra, the owner in this case insisted that the restaurant open prior to Thanksgiving. In reliance on the owner’s promise, Glynn worked over-time, incurred extra expenses by hiring additional men to work on the job. When Glynn sought payment from the property manager and was not paid, he sued the owner and the owner’s company directly. In dicta, the Appeals Court found that the facts of this case fell outside the “not ordinarily liable” rule set forth in Evans v. Multicon.
Both Mike Glynn and National Amusements are close to the hypothetical scenario that the Evans case had envisioned and therefore, it is not surprising that the Court allowed the plaintiff subcontractors to collect from the property owner. However, the timing of the promise is critical. In Rosano-Davis, Inc. v. Sastre, 2004 Mass.App.Div. 55 (2004), aff’d 65 Mass.App.Ct. 1110 (2005) (unpublished), the subcontractor argued that the owner of the property had promised to pay the subcontractor if the general contractor did not. The Appeals Court ruled that because the owner made promises to pay after the work was completed, the subcontractor did not rely on those promises to finish the work.
In the case I litigated that I discussed in my previous blog post, there were similar allegations. The subcontractor argued that the owner of the property had made promises to pay, however those promises if they were made at all (a fact my client disputes) they were not made until after the work was complete. Therefore, any argument that there was some reliance did not carry the day.
So what is an owner to do if they learn that the general contractor has not been paying the subcontractors? Do should the owner speak to the subcontractors or do you remain silent? There are several steps that must be taken. First, assess the situation. Compare the progress of the project to the payments made and determine whether the owner has paid more to the contractor than the value of the work. Or perhaps the opposite is true. Or maybe the owner and the contractor are about even when one compares the work performed and the amount paid. Consider the project and its progress. If the property is not weather-tight or exposed to the elements, then you may need to have the contractor continue. Speak to the general contractor and the subcontractors and find out everybody’s story. Don’t make any promises to anyone. Just listen. Then the owner will have to make some decisions.
If the owner and general are approximately equal in work performed and money paid or if the owner owes the general money, then the owner can make an arrangement to pay subcontractors directly. The owner can write joint checks to the general contractor and the subcontractor so that the subcontractor receives payment.
It is more difficult when the general contractor holds more money than the value of the work performed. If the owner pays the subcontractor, s/he runs the risk of paying twice; once to the general and once to the subcontractor. If the general is going to continue with the work, one might want to try to negotiate an arrangement to pay the subcontractors directly as a credit to future payments. As you can see this gets very complicated, not only in terms of determining who you should pay and when but obviously one has to deal with the personalities of the individuals involved.
Whatever the end result, put it in writing and have all the parties sign and/or acknowledge receipt. It is best if the parties can resolve the issue so that the general can continue work. In reality, it is often hard to find a new contractor willing to come in the middle of a job. Consider involving an attorney to negotiate a resolution. While it might cost the owner some out of pocket expense, the cost will be negligible in comparison to litigation costs.
In my final post, I will discuss the actual mechanics of the mechanic’s lien. As I mentioned in my first post on this subject in order to perfect the mechanic’s lien one has to take a number of steps. The last step that must be taken is the filing of a lawsuit. Whether you can actually collect even if you take all those steps and how you collect at the end of the lawsuit will be the subject of my final post on mechanic’s liens.
Wednesday, November 11, 2009
Mechanic's Liens Part 2 -- "Not Ordinarily Liable"
In my last post, I tried to define and explain mechanic's liens through frequently asked questions. A mechanic's lien, when properly done, allows a person who has done work on your house to put a lien on your house to secure payment. This mechanism to secure payment is not as important for a general contractor performing work on a property, as it can also sue for breach of contract and make other claims against the property owner. However, for a subcontractor, a mechanic's lien is generally the sole mechanism by which a subcontractor can recover against an owner, when that subcontractor does not get paid by the general contractor.
Prior to the enactment of the mechanic's lien law, a subcontractor who provided labor and materials generally had no right to recover from the property owner. The mechanic’s lien law changed the the common law. However, it is the sole mechanism for a subcontractor to recover from the owner but only if the subcontractor strictly adheres to the mechanic’s lien law.
Let me give you an example from a case I handled last year. I represented the owner of a commercial property where it contracted with a general contracting company to build a shopping center. The project was plagued with problems, and the general contractor essentially abandoned the job after the owner passed away. The owner had paid the general contractor quite a bit of money. Unfortunately, the general contractor had not paid all of its sub-contractors.
Many of the sub-contractors recorded mechanic's liens, but at least one did not. This particular subcontractor brought a lawsuit against the owner seeking to recover on claims of breach of contract, goods sold and delivered and quantum meruit. Unfortunately for the subcontractor, the general contractor had failed to pay it more than $150,000.00 for labor and materials. The last two claims are equity claims whereby a party asks to be compensated the fair value of its work so that the other party does not obtain a benefit for free. The breach of contract claim was dismissed at the outset because there was no contractual relationship between the property owner and the subcontractor. The goods sold and delivered and the quantum meruit claim remained.
The issue that remained was based on language from a 1991 Massachusetts Appeals Court decision. In Evans v. Multicon Constr. Corp., the Appeals Court ruled that without a lien perfected under G.L. 254, an owner who enters into a general contract for improvements on real property is “not ordinarily liable” to subcontractors whose sole contractual arrangements are with the general contractor. If a subcontractor does not follow the mechanic's lien law, it is barred from recovery, regardless of the theory. In other words, unless there was some circumstance that was out of the ordinary, without a perfected mechanic's lien, the subcontractor could not collect from the property owner.
The subcontractor vigorously claimed that the facts in our case were so unusual that this was not an ordinary case and the “not ordinarily liable” rule should not apply. I, on behalf of the owner, argued that this case was simply the all too familiar scenario of a general contractor who went out of business and did not pay subcontractors. The court agreed with the owner and the subcontractor lost. The subcontractor did obtain a judgment against the general contractor, but the chances of collection are very slim given the facts.
There are several lessons to take away from this case. First, if you are a subcontractor, consider making it a regular practice to record a Notice of Contract one every job. I am told that many general contractors do not like when this is done. However, the mechanic's lien law voids any provision in a contract that prohibits a contractor from taking steps to enforce a lien. Mass.Gen.L. ch. 254 § 32. However, what the statute says and reality may not match. In the event, it is not realistic to record a notice of contract for every job, then be mindful of payments or lack of payments. If you have finished a job and have not gotten paid, then you must take steps to protect your interests. Under the mechanic's lien law, you have 90 days once work stops at the site to record your notice of contract. If you are at the beginning of a project, you have a lot of time; if you are at the end of the project, the timing could be trickier.
Second, if you are an owner, keep track of the amount of work being down and the amount of payment being requested. As stated in my last post – you must control the money. That rule is critical regardless of whether the work is residential or commercial. If you hear subcontractors on your job are not being paid, consult legal counsel immediately. The issues are complicated and something you say or do can come back and haunt you later, including promises to pay subcontractors directly.
How, you ask? That will be subject of my next post.
Wednesday, November 4, 2009
Mechanic's Liens -- Part 1
It is easiest to discuss the basics of mechanic's liens via Frequently Asked Questions. I hope this answers some of basic questions about mechanic's liens. Over the next few posts, I will discuss a series of issues relating to mechanic's liens in Massachusetts. Mechanic's liens are state specific, so if the property where the work was performed is not in Massachusetts, you will need to consult a different state's laws.
What is a mechanic's lien? In Massachusetts, a person who provides labor or performs work as a general contractor or subcontractor (or subcontractor for the subcontractor) can take steps to perfect a lien on the property where the work was performed. With respect to subcontactors, the mechanic's lien law provides a critical exception to the general rule that a subcontractor cannot usually collect from the owner of the property when the contract for the work runs between the property owner and the general contractor. The steps that must be taken to perfect a mechanic's lien are different depending on whether that person was the general contractor, the subcontractor or a laborer. The laws regarding mechanic's liens can be found at Massachusetts General Laws, Chapter 254 sec. 1 and following.
Why would I file a mechanic's lien? A person or entity that performs work on someone's property may want to file a mechanic's lien to help ensure payment. If the contractor is not paid by the person who hired them, the owner of the property where the work was performed could be obligated to pay the contractor, even if there is no direct contract between them. As mentioned above, it is generally the only way that a subcontractor can collect an unpaid bill from the property owner.
What do you need to file a mechanic's lien? A perfected mechanic's lien is not just one piece of paper recorded at the registry of deeds. A contractor must take numerous steps before the lien is perfected and the steps vary depending on whether the contractor is a general contractor, a subcontractor or a laborer. In general, there must be a written contract for work to be performed at the property. Then, the contractor must record a Notice of Contract and a Statement of Accounting, with the appropriate registry of deeds. In order to perfect the lien, it will be necessary to file a lawsuit and then record the lawsuit at the registry of deeds. Depending on the applicable section of the statute, there are certain notice provisions which also must be followed. There are also time limitations which must be strictly followed. I strongly recommend that you consult an attorney. It is very easy to make an error in this process and one incorrect step will invalidate the mechanic's lien. If you are a subcontractor, this likely will eliminate your ability to collect from the property owner. If the general contractor with whom you contracted is out of business, a perfected mechanic's lien is likely the only way you can collect payment.
As the owner of the property, can I be responsible to pay a subcontractor, if my general contractor does not? Yes, you can under certain circumstances.
As the owner of the property, how do I prevent being responsible to pay subcontractors that my general contractor is supposed to pay? There are a number of things you can do. First, and probably most importantly, the homeowner MUST keep control of the money. I cannot say this enough. Do not let the contractor get too far ahead of you on the money. What do I mean by this? If your project costs $50,000.00, then you should make sure your contractor has received approximately $12,500 when the project is 25% complete and so on. If your project is only one-half done and you have paid your contractor 75% of the money, you are asking for trouble. Second, you can require that all contractors who worked on your project sign mechanic's lien releases be signed before releasing each payment to the contractor. Third, you can write joint checks to the subcontractor and general for payment. Finally, homeowners should strongly consider consulting an attorney prior to starting any construction project.
I hope this covers some general questions on mechanic's liens in Massachusetts. In my next post, I will focus on the importance of mechanic's liens for subcontractors. In the meantime, if you have specific questions, please feel free to comment or email me directly.
What is a mechanic's lien? In Massachusetts, a person who provides labor or performs work as a general contractor or subcontractor (or subcontractor for the subcontractor) can take steps to perfect a lien on the property where the work was performed. With respect to subcontactors, the mechanic's lien law provides a critical exception to the general rule that a subcontractor cannot usually collect from the owner of the property when the contract for the work runs between the property owner and the general contractor. The steps that must be taken to perfect a mechanic's lien are different depending on whether that person was the general contractor, the subcontractor or a laborer. The laws regarding mechanic's liens can be found at Massachusetts General Laws, Chapter 254 sec. 1 and following.
Why would I file a mechanic's lien? A person or entity that performs work on someone's property may want to file a mechanic's lien to help ensure payment. If the contractor is not paid by the person who hired them, the owner of the property where the work was performed could be obligated to pay the contractor, even if there is no direct contract between them. As mentioned above, it is generally the only way that a subcontractor can collect an unpaid bill from the property owner.
What do you need to file a mechanic's lien? A perfected mechanic's lien is not just one piece of paper recorded at the registry of deeds. A contractor must take numerous steps before the lien is perfected and the steps vary depending on whether the contractor is a general contractor, a subcontractor or a laborer. In general, there must be a written contract for work to be performed at the property. Then, the contractor must record a Notice of Contract and a Statement of Accounting, with the appropriate registry of deeds. In order to perfect the lien, it will be necessary to file a lawsuit and then record the lawsuit at the registry of deeds. Depending on the applicable section of the statute, there are certain notice provisions which also must be followed. There are also time limitations which must be strictly followed. I strongly recommend that you consult an attorney. It is very easy to make an error in this process and one incorrect step will invalidate the mechanic's lien. If you are a subcontractor, this likely will eliminate your ability to collect from the property owner. If the general contractor with whom you contracted is out of business, a perfected mechanic's lien is likely the only way you can collect payment.
As the owner of the property, can I be responsible to pay a subcontractor, if my general contractor does not? Yes, you can under certain circumstances.
As the owner of the property, how do I prevent being responsible to pay subcontractors that my general contractor is supposed to pay? There are a number of things you can do. First, and probably most importantly, the homeowner MUST keep control of the money. I cannot say this enough. Do not let the contractor get too far ahead of you on the money. What do I mean by this? If your project costs $50,000.00, then you should make sure your contractor has received approximately $12,500 when the project is 25% complete and so on. If your project is only one-half done and you have paid your contractor 75% of the money, you are asking for trouble. Second, you can require that all contractors who worked on your project sign mechanic's lien releases be signed before releasing each payment to the contractor. Third, you can write joint checks to the subcontractor and general for payment. Finally, homeowners should strongly consider consulting an attorney prior to starting any construction project.
I hope this covers some general questions on mechanic's liens in Massachusetts. In my next post, I will focus on the importance of mechanic's liens for subcontractors. In the meantime, if you have specific questions, please feel free to comment or email me directly.
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