- What is a mechanics lien?
- Why mechanics liens are so effective
- Who can file a lien?
- Determining the claim amount
- What to do if you miss a deadline
The ability to file a mechanics lien (also known as a construction lien) is one of the most powerful tools in the construction industry to combat non-payment. A valid, enforceable mechanics lien can virtually guarantee that a construction company can get paid the money they’ve earned on a project.
While mechanics liens are generally available in all 50 states, the rules, and requirements that determine how liens work vary on a state-to-state basis with no two states operating the exact same way. These varying requirements include determining eligibility for lien rights.
So, how do you know if you can file a mechanics lien?
Who can file a mechanics lien?
This question is one that we receive often at our Ask an Expert Center and in the comments of our blog posts. On the surface, determining whether lien rights are available may seem like an easy task. Other times, making this determination can create headaches.
One of the best sources of information out there to help construction industry participants answer the, “who can file a mechanics lien?” question is available on the mechanics lien state pages on this website. Simply visit the Mechanics Lien Overview & FAQs page and choose your state. The first question addressed for each state is “Who can file a mechanics lien?” – and that’s a great place for you to start.
How to determine if you can file a mechanics lien
The general rule is that anyone who provides labor, materials, or professional services for the permanent improvement of a structure is entitled to lien rights. This typically includes GCs, subs, material suppliers, equipment lessors, and design professionals (architects, engineers, etc.). However, this definition isn’t as clear-cut as it seems.
Whether you are a plumber, electrician, demolition company, architect, surveyor, or laborer; here are some questions that you should be asking yourself to determine if you can file a mechanics lien.
What type of project is it?
First and foremost; mechanics liens are only available on private projects. Lien rights don’t exist on public projects. That’s why the Federal Miller Act and Little Miller Acts exist. They require contractors to post payment bonds to protect claimants on public projects.
But determining type goes beyond whether a project is public or private (or even a P3 project). Lien rights may also vary depending on whether a project is residential or commercial. Yet, even that determination may not be obvious. Some state mechanics lien laws cut off “residential” projects based on the number of units. When it comes to condominium projects, even more variables can come into play.
Did you give proper notice?
We here at Levelset love preliminary notices! We recommend sending one on every project, regardless if they are required or not. Open communication makes everything run more smoothly. However, sending a notice is often more than just a suggestion. The existence of lien rights is often dependent on whether notice requirements have been followed.
In many states, some form of preliminary notice is required. And if that state’s lien notice requirements aren’t met, within the specified time frame, those rights are reduced or completely lost. A Notice of Intent to Lien may also be required. Similar to preliminary notices except they’re sent or filed before filing a lien as opposed to the beginning of the project. We also recommend sending these too, regardless of the requirements.
What is your project tier?
When we talk about project tier, what we’re asking is,
“How far are you removed from the owner of the property?”
“Where do you fall on the payment chain?”
Those who have a construction contract directly with the property owner – general or prime contractors – are considered first-tier. Generally, first-tier project participants will have lien rights, but what about their subcontractors and material suppliers?
The subs and suppliers who contract directly with the general contractor are considered second-tier participants on the project, and these companies also generally have mechanics lien rights. But for third-tier participants on down, lien rights vary greatly depending on the state laws. For example, suppliers to suppliers usually get the short end of the stick when it comes to lien rights.
Did your work on the project improve the property?
In virtually every state, lien statutes will look to see if the labor and/or materials went toward the improvement of the real property. But just how much must the property be improved? What about utility work? Or things like landscaping or maintenance work. These will often not suffice for a qualifying mechanics lien.
A popular way to judge whether the property has been improved is to look at the permanence of the work performed. This is not to say that every lien claimant must have their thumbprint on the project. A lot of work that goes into a job goes unseen. However, if work can’t be tied to a lasting improvement on the property, it becomes less clear whether or not lien rights will be available.
Were the materials you provided incorporated into the project?
Material suppliers’ lien rights often depend on whether the material supplied was actually used in the project. A supplier may be under contract for some greater amount. But often, only the materials that actually made their way into the improvement will serve as a basis for lien rights. Keep in mind- this is not necessarily true for every state.
It makes sense why suppliers are typically not able to lien the full amount of their contract if all of the materials contracted for don’t make their way into the project. In construction, many materials are easily reused or repurposed from project to project. However, when specially fabricated materials are in play, all bets are off.
These questions are just the beginning. Yet, there are still a number of other things to consider.
- Did you have a written contract? Many states require that the claimant have a written contract in order to file a mechanics lien.
- Speaking of contracts. Did your contract contain a “no-lien clause?” These clauses waive your right to file a mechanics lien before work on the project even begun. Although prohibited in many states, there are a few that still allow them.
- Did the work being performed require a license? Contractor licensing is heavily regulated in a majority of states. A vast majority of state lien laws only grant protection if the claimant is licensed. That is, of course, if the work being performed requires one.
As you can see, determining whether you are entitled to lien rights is no simple task. There are a number of factors to consider. If you’re still having trouble, don’t worry. We’re here to help. Try using our Payment Rights Advisor Tool below to get you started.