Ask anyone outside of the construction industry what a “mechanics lien” is and you might be met with some blank stares. (To be fair, you might get the same reaction from people within the construction industry!)
But ask what a “breach of contract” is and you’ll probably get a much different reaction – it’s a phrase that nearly everyone can identify and (roughly) define.
Interestingly, breach of contract and mechanics liens are pretty interrelated, though not necessarily in the way you might think. Please read on to find out what we mean.
Mechanics Liens and breach of contract
Maybe I’m being presumptive, but the first thought that comes to mind with liens and breach is “Does the filing of a mechanics lien mean I’ve breached my contract?”
The answer to this will typically be “no,” but there are other considerations as well, such as mechanics liens and breach up the chain, or whether you can file a lien if you’re in breach. Let’s take these topics one by one.
1. Does filing a mechanics lien cause a breach of contract?
For a mechanics lien to put a party into a breach of contract, that means the contract must have prohibited filing a lien. However, “no lien” clauses in contracts are very disfavored – 31 states clearly forbid the use of these clauses. (Another 3 have conflicting laws, 15 states are silent on the issue but are assumed to disfavor them, and only 2 expressly allow them…looking at you, Colorado and Nebraska!)
Of course, every situation is different, every project is unique, and some up-the-chain parties bend over backwards to try and block lien claims. But the point stands: unless you’re in Colorado or Nebraska, the filing of a valid lien claim will not likely put you in breach of your contract.
2. Mechanics liens and breaches up the chain
While a lien claim will probably not put the claimant in breach of their contract, it could very well put a developer, GC, or other up-the-chain parties in breach. It’s commonplace in construction contracts, and especially in development agreements, that mechanics liens (or other encumbrances) must be handled by the developer, the GC, or even a subcontractor when a party that they hired on the project in question has filed the lien.
Sometimes, the up-the-chain contract will be breached immediately once a lien is filed. Other times, the party will be given time to clear up the dispute. In both cases, the contractor or developer will often be obligated to defend the lien claim or bond off the lien.
What does this mean for a down-the-chain lien claimant? It’s great news! Because the owner’s problem becomes the developer/GC/higher-tiered subcontractor’s problem, the lien won’t go unnoticed. When a lien disrupts parties up the chain, a claimant knows that there’s a much better chance that a resolution is coming.
3. Can a party in breach file a lien claim?
This one seems trickier, but taking a step back helps. Mechanics liens are available to those who perform construction work to improve the property, and they are granted by statute, not contract. Each lien claim will relate directly to the work performed on the property, but as we know, including extra amounts in your lien claim could spell trouble. So, what if you perform some work and then a breach occurs? Can you file a lien for the work you did prior to the breach?
If the type of work performed gives rise to lien rights, the answer will likely be “yes.”
Getting kicked off a job before completion won’t prevent a mechanics lien, but it won’t entitle you to the full value of the contract, either. When work is done to improve the property, and the party who performed the work has lien rights, the work completed prior to the breach should be lienable. In such a situation, some improvement to the property occurred, even if it wasn’t the full scope contemplated in the contract. However, if there is a question as to the quality of that work which was provided, the amount of the lien claim could be affected.
Construction contracts resources
Here are a few helpful articles to read on the subject of the use of contracts in the construction business: