When there’s a payment issue on a construction project, filing a mechanics lien should be a last resort. Nobody likes having to file a lien, and nobody likes having to fend off a lien claim either. While exercising lien rights should be a last resort, leveraging them – or at least preserving them – should be a high priority for GCs, subcontractors, and suppliers.
After all, when stuff hits the fan and a serious payment dispute erupts, having the ability to threaten, file, and (if necessary) enforce a lien, is one of the best ways to ensure payment. But lien law rules can be strict, and claimants often question whether a lien is a viable option. One question we’ve seen a lot lately is this: Do lien rights exist for utility work? What if it’s for work that’s performed underground? Read on for a brief explanation.
Lien Rights Basics
Let’s take a step back. The right to file a mechanics lien is a powerful weapon. The strength of a mechanics lien comes from the potential outcome — if a valid mechanics lien is filed and the dispute is not resolved, then eventually, the sale of the project property (to satisfy the debt) is a very real possibility. Since no property owner wants to be forced to sell off their property in order to satisfy the debt, they’ll usually do everything they can to resolve the dispute before it gets to this point. This is the power of the mechanics lien.
Generally speaking, mechanics lien rights are available to those who perform work or supply materials/equipment that improves real property. Of course, there are limitations. Each state has its own complex lien laws (typically called “statutes”), and depending on the state, a claimant may or may not be entitled to leverage the right to lien based upon a number of factors including the type of work they perform, the party who hired them, or the use of preliminary notice.
Lien Rights and Utility Work
But what does “improvement” mean? Does utility work permanently improve the property? Ok, ok….nothing is permanent. But was a lasting improvement made? If so, chances are that the work performed could give rise to mechanics lien rights. If there was any doubt as to whether utility work was lienable, many states have made it very clear. Remember, though – lien statutes are written to be inclusive. So work does not need to be specifically set out in the lien statute in order to be protected.
Here are a few specific state examples:
The California Civil Code § 8042 defines a “site improvement” for which lien rights are available. Included is “(d) Construction or installation of sewers or other public utilities. (e) Construction of areas, vaults, cellars, or rooms under sidewalks. (f) Any other work or improvements in preparation of the site for a work of improvement.” Further, a California “Work of improvement” includes work performed on ditches, wells, and tunnels.
In Texas, the definition of an improvement includes “abutting sidewalks and streets and utilities in or on those sidewalks and streets.” Further, the definition also includes “wells, cisterns, tanks, reservoirs, or artificial lakes or pools made for supplying or storing water.”
Florida provides protection too. Under the Florida lien statute, “Improve” means build, erect, place, make, alter, remove, repair, or demolish any improvement over, upon, connected with, or beneath the surface of real property.
Florida goes further. Those who provide work considered a “subdivision improvement” are explicitly granted lien rights. This includes “the grading and paving of streets, curbs, and sidewalks; the construction of ditches and other area drainage facilities; the laying of pipes and conduits for water, gas, electric, sewage, and drainage purposes; and the construction of canals and shall also include the altering, repairing, and redoing of all these things. When the services or materials are placed on land dedicated to public use and are furnished under contract with the owner of the abutting land, the cost of the services and materials, if unpaid, may be the basis for a lien upon the abutting land.”
Georgia isn’t as explicit. But remember: lien statutes are “remedial,” which means they err on the side of providing protection to potential claimants. Anyway, in Georgia, a lien may include “the value of work done and materials furnished in any easement or public right of way adjoining said real estate if the work done or materials furnished in the easement or public right of way is for the benefit of said real estate…”
In Arizona, lien rights are expansive. Relevantly, they include the “construction, alteration or repair of any canal, water ditch, flume, aqueduct or reservoir, bridge, fence, road, highway, cellar, excavation or other structure or improvement, or in the clearing, ditching, bordering or leveling of land…” Further, the lien statute clearly indicates that lien rights will exist for “Constructing or installing sewers or other public utilities;” and “Constructing or installing streets, highways or sidewalks.”
What if the Utility Work is Underground?
Mechanics liens attach to the property, so it’s natural to wonder what happens when the work is performed under the ground. First, unless work is being performed far underground, it’s very likely that any excavation is considered the same “property.” Further, as noted in the above excerpts, many lien statutes specifically provide for work performed underground. Finally, recall that lien statutes tend to provide claimants with as much protection as possible (provided that all deadlines and requirements are followed) as opposed to limited protection. When work performed improves the property, even work performed underground, that work will likely result in mechanics lien rights.
While lien laws are generally “written to be inclusive,” that doesn’t mean that the process isn’t confusing. The fact of the matter is, managing your lien rights can be quite a challenge. There are rules, requirements, and deadlines that must be met, and on top of that, each state’s lien laws treat the matter differently.
While some states have specifically addressed whether utility work qualifies for lien rights protection (including the 5 states we listed above), other states may not specifically address the issue. If you’re ever unsure of whether your work qualifies for lien rights protection, the best — and safest — thing you can do is to ask a lawyer or consult another resource such as Levelset’s Construction Legal Center.