When dealing with mechanics liens, or construction payment in general, we regularly find ourselves talking deadlines. While deadlines must be strictly adhered to in lien law, it’s at least nice to have a clear vision as to what’s required. Statutes explicitly lay out how many days a claimant has to do basically anything. However, there is still area around the edges that can cause some confusion. Specifically, every day we receive questions about when the clock starts and stops for different deadlines. “Requirements will vary state by state” may seem like our favorite term at Levelset (and that may be frustrating), but it’s true. A recent case from Canada highlights the issue, showing that there may be some flexibility to rigid deadlines.
Calculating the Last Date of Labor or Supply
Determining when the first date of labor or supply or the last date can be tricky business. There are a lot of questions to be answered: What about preparations made off site? What if repairs are necessary? Are punch-list items enough to delay a last date of labor? One more question that recently arose was: What happens with these dates when there’s a pre-planned work stoppage?
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Here’s the full text, if you’re interested: Toronto Zenith Contracting Ltd. v. Fermar Paving Ltd.
Zenith was hired as a subcontractor to perform work on a highway project. Due to harsh conditions during winter months, the project had planned and accounted for an impending work stoppage (a winter shutdown). Prior to the stoppage, Zenith encountered payment disputes with its GC. While work was paused for the winter shutdown, the dispute reached its tipping point. Zenith was terminated by its GC. In return, Zenith filed a mechanics lien relating to the payment dispute.
Sounds typical enough, right? Not quite…
Under the Construction Lien Act, Zenith had 45 days from the last date where labor or materials were supplied to file a lien claim. Zenith filed its lien claim less than 45 days after they were terminated. However, Zenith had not physically been on the project for months at the time of termination.
Zenith argued that it was not required to submit the lien within 45 days of the Winter shutdown and, alternatively, that the off-site work and predatory work done during the shutdown period pursuant to the contract extended the time to file the lien. As you could imagine, the GC disagreed. The GC argued that the filing, which occurred months after the last day Zenith was physically present at the job sight, was far beyond the 45-day deadline.
The court sided with Zenith. The primary reasoning for this decision was that the winter shutdown was contemplated and planned by both parties and work was to resume following the break under the contract. In fact, this wasn’t even the first winter shutdown on the project. The multi-year project had shut down the winter prior and another winter shutdown was anticipated for the following year.
As Zenith argued, and the court agreed, it would make no practical or commercial sense for a party to be required to register a claim of lien prior to any work stoppage merely to protect their right to lien if some issue were to arise in the future. The court stated that the “last legitimate supply of services or materials under the contract,” should be the basis for starting the clock. Because continuation under the contract was not only anticipated but expected, Zenith remained a subcontractor on the project until the termination of the subcontract.
At the end of the day, this is a Canadian case and won’t control any American court, but there is value in the reasoning behind this decision. Plus it’s easy to foresee this situation occurring in many states with brutal winters. When a work stoppage takes place for reasons other than a payment dispute (and doesn’t resume), determining deadlines could easily turn into a mess. This court took the most logical approach for the last date of labor or supply. Because there was an anticipated break in the work, the fact that Zenith’s work at the physical project location stopped did not automatically start the clock for the lien deadline.
Check out our virtual library of construction payment resources. We don’t have any Canadian lien law resources, but we’ve got all 50 states covered.