New York mechanics lien rights are available to a broad array of potential claimants. Given how effective the mechanics lien process is to recover payment in the construction industry, New York also provides owners with an avenue to challenge the validity of claims before engaging in a foreclosure action. A recent case dealt with the ability to challenge the validity of a lien claim that is based on pre-construction management services.
New York mechanics lien availability
The first step in the mechanics lien process, for any claimant, is determining whether or not you even have the right to file a mechanics lien in the first place. As far as New York mechanics lien rights are concerned, the protected parties are listed under NY Lien Law §3. This provision states that:
… a contractor, subcontractor, laborer, materialman…who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof…shall have a lien for the principal and interest, of the value, or the agreed price, of such labor…or materials upon the real property improved or to be improved.
In addition to this, under NY Lien Law §2(4), the term improvement includes “the drawing[s] by any architect or engineer…which are prepared for in connection with such improvement.”
So where do New York mechanics lien laws draw the line? What types of pre-construction services can form the basis of a mechanics lien?
Pre-construction services, sometimes simply called “preconstruction,” include a range of activities that take place before a shovel ever hits the dirt on a construction project. This may include feasibility studies, construction cost estimation, site analysis, architectural design work, and the like. However, even though these services aren’t contributing to the physical construction, those performing preconstruction services still often have lien rights.
In nearly all states, including New York, preconstruction parties like architects, engineers, and designers have the right to file a mechanics lien.
NY project owner challenges preconstruction lien rights
The case in question is Old Post Road, Assoc. v. LRC. Constr., LLC
- Owner: Old Post Road, Associates (Old Post)
- Construction manager: LRC Construction, LLC (LRC)
Old Post was considering developing property in Rye, New York. So they hired LRC to perform a wide array of pre-construction management services. After a little over a year, Old Post terminated LRC’s services. Therefore, they wouldn’t be involved in the actual project. One month later, LRC filed a notice of lien for $250,000 of unpaid amounts associated with the pre-construction services.
Old Post moved to dismiss the lien claim as invalid because the pre-construction services provided couldn’t be the basis of a NY mechanics lien. In order to succeed in summarily dismissing a lien claim, the lien must be “facially invalid.” The court denied the motion to dismiss, stating that “in the absence of clear case law precluding that type of work from a mechanics lien” the claim couldn’t be facially invalid. Old Post appealed.
Is design & consultation lienable work?
Old Post based their claim on previous NY cases, which specifically declared that services such as preparing budgets and consulting on construction phasing aren’t covered by mechanics lien rights. They argued that LRC didn’t perform any physical work or supply any materials to the construction project. As a result, they argued, the claim was facially defective and should be discharged.
However, LRC countered by submitting an affidavit stating that their management firm employed architects and engineers. Furthermore, the services they provided also included recommending changes to the design team, consulting land use attorneys, preparing site logistics and access plans, and performing a “constructability review” for the prospective project. Thus, they responded, the work they performed was covered by NY lien law and the lien was “facially valid.”
Court refused to dismiss the mechanics lien claim as invalid
The Supreme Court reiterated that the NY lien laws should be construed liberally to protect potential lien claimants. The fact that the site logistics, access plans, or the constructability review included any drawings by an architect or engineer (even if prepared in the pre-construction phase) could be the basis of a mechanics lien. Therefore, the appeal court’s determination denying the motions to dismiss based on the fact that the claim was facially invalid, was upheld. The actual validity of the lien claim will be determined in the foreclosure action.
NY mechanics liens for pre-construction services can be valid
Who exactly has the right to file a lien is always a sticky issue. Potential claimants will always look to expand the lien protection rights. And owners will want to limit the scope as much as possible.
New York law, in particular, provides property owners with the ability to challenge the validity of a lien before defending themselves in a foreclosure action. However, design professionals, such as architects and engineers, should be aware that mechanics liens based on these types of services are, in fact, valid and cannot be dismissed at first glance. These lien rights exist even if the project never breaks ground.
To avoid this confusion, such claimants should educate themselves on NY state’s lien requirements and describe their work with as much detail as possible on their lien claims.