Slow payment and nonpayment are more than just a headache in the construction industry. These issues push businesses to the brink. That’s why construction businesses have mechanics liens in their corner – to turn the tables on a nonpaying party, and make nonpayment their problem, too. When a mechanics lien is filed on a development project, liens are a big problem. For the developer, a mechanics lien could result in a breach of their contract and getting fired from a job.
Mechanics Liens and Breach of Contract
It’s true! A mechanics lien can result in a breach of contract – that is, the nonpaying party may be in breach of their contract. Prime contracts and development agreements regularly contain sections that try and ward off liens. That section might declare that any liens must be removed within 30 days. Alternatively, it could state that all liens must be bonded off by the GC or developer. Either way – if a lien is filed on the project and not handled, they just might be in breach of their contract and get booted from the job.
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Let’s take a look at a current example…
Check out this post: 17 Ways a Mechanics Lien Gets You Paid.
Developer Faces Mechanics Liens, Could Lose City Project
The Riverlife Villages project in Wausau, Wisconsin (which was put forward by the City of Wausau) has hit a rough patch. The mixed-use development is seeing a change in leadership, but it’s not going smoothly. Barker, the city’s developer for the job, has allegedly failed to pay their general contractor nearly $3M. As a result, the developer faces mechanics liens to the tune of $2.8M.
Barker’s development agreement provided that they have 30 days to clear up any lien claims. Otherwise, Barker will find themselves in breach. One single day after the lien filings, the city actually put the developer on notice via this press release.
As an aside, the contents of the letter are more than just threats to terminate the project. It discusses the development’s impact on the community and on the unfortunate circumstances for unpaid contractors. To quote the letter,
As to the lien claims that have been filed, they total $2,797,153.10, and represent amounts owed by the developer to hard working Wausau area construction companies. The City Mayor and Council will take whatever action necessary to protect the City’s interests.
For more on this project and its woes, the Wausau Daily Herald has got you covered.
We’ve discussed at length that the power of mechanics liens lies in their ability to affect the project property. But, obviously, it’s worth noting that they’re effective in other ways too – like putting pressure on a developer. When a mechanics lien can put a developer and a GC in hot water, a claimant has that much more firepower.
Of course, an ounce of prevention is worth a pound of the cure. Preserving the right to file a lien, and leveraging that right to speed up payments is much better than waiting to utilize lien rights only after the project has gotten out of control. At that point, relationships have likely deteriorated beyond repair, and avoiding legal action might not be possible.