Financially Protect Yourself as Design Professional

Design professionals are a unique part of the construction industry. Why? Because these individuals and firms conduct work many times prior to the actual commencement of construction. Other times, they are hired as supervising agents. Because of these unique roles, design professionals can be treated differently in a legal sense. Certain states limit or do not afford design professionals lien rights that protect other construction parties from being taken advantage of financially. Whether a design professional is entitled to a mechanics lien or not, there are still certain steps that can be taken to protect oneself financially.

Know the Law

Knowledge is power. Arm yourself with knowledge and you can prevent a lot future problems from arising. More specifically, design professionals who understand the laws of their state can prevent themselves from falling into financial traps and hardship. Many states hold design professionals to different standards and requirements. Here are a few things a design professional should ask:

Are You Entitled to Mechanics Lien Protection?

A mechanics lien is the most powerful legal tool found in the construction industry. Each state’s statute that regulates and sets out the rules for mechanics liens can either be explicit or vague in allowing or disallowing design professionals the right to file for a mechanics lien. Sometimes, this right can come down to what type of design professional you are. Typically, a design professional is an architect, engineer, interior designer, landscape architect, and others whose services have traditionally been considered “professional” activities, require licensing or registration by the state. Certain states have catch-all provisions that allow anyone that provides “professional services” to a project to file for a mechanics lien. Other states have been vague in their descriptions and left it up to the courts to decide whether a party constitutes as a design professional or even has a right to a mechanics lien. The best practice would be to consult with an experienced attorney within your state before entering into a contract on a construction project.

Who Are You Contracted With?

Another pitfall for design professionals is who are they directly contracted with. Many states require a design professional to be directly contracted with the property owner or government entity in order to be entitled to a mechanics lien. Other states will have vague provisions leaving it up to the courts to decide whether the party must be contracted with the owner or not. Who you are contracted with may always directly affect your notice requirements and deadlines. Some states will just include design professionals into the definitions of “contractors” and “subcontractors.” Other times, states will completely separate design professionals, laying out different standards, requirements, notices, and deadlines. Be sure to know your state’s laws or you could be leaving a lot of money on the table.

What Type of Work Does the Lien Cover?

Many courts have been faced with the issue of whether or not a design professional is entitled to a mechanics lien for services provided toward a project that has not yet commenced. This can sometimes be determined by the definition of the term “improvement.”

An improvement is typically defined as the commencement of visible or physical construction on a project, whether it be for repair, alteration, or development.

Considering many design professional conduct work that is done in preparation of these “improvements,” the definition and when the statute allows a lien to arise are very vital points that a design professional should be aware of. For example, an architect draws up plans for a massive development project, but due to some extenuating circumstances, the project goes belly-up and is never started. The owner refuses to pay the architect for the work done. In certain states, this is a scenario where a design professional may file for a mechanics lien. Other states give no statutory recourse. Many states also do not allow design professionals contracted specifically for supervising purposes to file for a mechanics lien. These architects and other design professionals are left with a breach of contract claim at best.

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Are There Any Other Liens Available?

Some states have combated the above issue by allowing design professionals other liens to cover supervising services or services rendered prior to the commencement of construction. The most notable state that allows this is California. California’s design professional lien specifically covers design professional work done before work has commenced on a project. Design professionals in California can still file for a mechanics lien as well as a design professional lien given they meet the requirements of both. Utah has addressed this issue by allowing design professional to file for preconstruction service liens and construction service liens. Most other states have either repealed design professional type liens or have never had them to begin with.

Life Without Mechanics Liens

Without a statute backing you financially with a powerful legal tool like a mechanics lien, a legal battle can be rather daunting. The first legal battle you may face is an unjust enrichment claim. Understand that most of these claims fail in court. This goes for all construction parties, not just design professionals. It is very difficult to prove unjust enrichment. The best way to protect yourself is to make sure the contract is drafted properly and is airtight. Make sure payment methods, deadlines, and obligations are clearly stated. Any provision or term that could be taken as vague or obscure should be defined. Your intentions should be made clear in writing. This way you have much better odds at winning a breach of contract suit.

Most of all, an attorney should look over the contract before you sign it. I understand that hearing “attorney” can put a bad taste in anyone’s mouth, but involving another professional can further protect you from financial catastrophe. Attorney’s are professionals. Therefore, they should be able to catch any issues that an untrained individual would not, and if they mess something up in drafting or reviewing your contract, you have recourse through a malpractice suit against the attorney. This will help you have all your bases covered.

Checklist

  • Knowledge is Power. Know your state’s law.
  • Ask questions
    • Are you entitled to mechanics lien protection as a design professional?
    • How does who you are contracted with affect your lien rights?
    • Is the type of work you are doing qualify under the mechanics lien statute?
    • Are there other liens or remedies available to you in your state?
  • Without a Mechanics lien
    • Unjust enrichment claims rarely are successful
    • Make sure your contract is ironclad
    • Seek an attorney’s advice and services before drafting or signing a contract
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How To Financially Protect Yourself as a Design Professional
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