We’ve written several times about the need to properly identify the type of project on which you are working, and that project identification can be more difficult than one would originally imagine. Whether the project on which you are working is a commercial project or a public project determines lien rights or bond claim rights, and can set differing notice requirements. The problem is that sometimes it can be hard to tell what the project type is. I was recently made aware of just such a project, in Oregon – and it provokes some interesting questions.
The project I mentioned above is to the Oregon Department of Fish and Wildlife (“ODFW”). In 2002, the ODFW moved its headquarters to Salem, from Portland. ODFW’s lease on the current headquarter building is set to expire later this summer, so, the ODFW is set to move to a different, and this time permanent, location in Salem. An acceptable building, currently owned by K2D Development (“K2D”) was found, and the ODFW signed a Purchase and Sale agreement with K2D to acquire the building. As a precondition to finalizing the sale, ODFW is requiring K2D to renovate the building to ODFW’s specifications, and within a certain budget and time frame. It is only upon the completion of this work that ODFW will complete the sale of the building, close on the property and pay K2D. As part of the deal, K2D is required to finance the renovations, and ODFW is to pay a set price for the renovated building after completion.
Project Identification: Public? Or Private?
Based on the above facts, it is difficult to tell whether the project is a public project or a private project. It is at the specific request of a public agency, and is, in fact, mandated by that public agency as a precondition to sale. But, the public agency is not paying for the renovation work directly (they are apparently paying for the competed building) – no public funds are being used for the renovation, just the completed building after the renovation is complete. Because of this, it is easily possible, and potentially likely, that there is no bond on the project. Certainly, it is easily arguable that no bond is required. Private work on a privately owned building funded by private money is not a public project subject to the bonding requirements set out by state law. It’s just that the fact that the work is being performed for a public agency, at a public agency’s specific request, and that an agreement to purchase the property has already been signed that makes the determination difficult.
Since the building is currently owned by K2D, and the work is being undertaken by K2D, this is probably a private project – despite the fact that the only reason it is occurring is because the ODFW requires it. But, what would that mean for a potential unpaid project participant?
Supposing the project is a private project, since the ODFW has not yet taken ownership of the building, and is not paying for the renovation work, what does that mean for a lien claimant? The first, and simple, answer is that the path for payment is through a mechanics lien, not a bond claim, and any preliminary notice requirements related to mechanics liens must be complied with. It’s what happens afterward that gets complicated. If there is a lien on the property, it makes sense that it must be satisfied prior to the final transfer of the property from K2D to ODFW. But, if it isn’t, the situation could get strange. If a valid mechanics lien existed on the property, but wasn’t satisfied prior to ODFW’s closing on the property, the mechanics lien claimant may not have any recourse. Generally, (subject to certain requirements) mechanics liens stay on the property through a subsequent transfer of the property. That’s why property is rarely sold when a mechanics lien exists, the new owner doesn’t want to be on the hook for paying the amount due. But, the reason bond requirements exist is that publicly owned properties cannot be liened. So, in this situation, it may be the case that a valid mechanics lien could be severed at the time the property is sold to the ODFW and the claimant is left with no security – no valid mechanics lien, and no bond against which a claim can be made.