Mechanics lien rights are hands down the best way for contractors to protect themselves when faced with nonpayment. Given how powerful lien rights are, contractors should be sure that they are protected by these rights to ensure they get paid what they’ve earned. One factor that’s often overlooked is whether a contractor’s license is required to file a claim.
A recent case out of the LA First Circuit of Appeals highlights the fact that unlicensed contractors are not protected under Louisiana’s mechanics lien laws.
LA contractor loses lien claim for failing to be licensed
The case in question is Ilgen Construction LLC v. Raw Materials, LLC
- Owner: Ilgen Construction, LLC (Ilgen)
- Contractor: Raw Materials, LLC (RML)
- Represented by: Danial C. Vidrine
Ilgen had entered into an oral contract with RML to perform clearing and dirt work to prepare for real estate development on two separate tracts of land. Despite the fact that RML was unlicensed at the time, they began to perform work on both tracts.
Payment dispute leads to a lien claim against the property
As the project progressed, Ilgen voiced their dissatisfaction with RML’s work and terminated their services. According to RML, the project was near completion, and the demanded payment for the remaining balance due. After Ilgen refused, a mechanic’s lien was filed claiming $50,500 on the two tracts of property.
After refusing to release the claim, RML filed an action to enforce the claim. However, the trial court sided with Ilgen and canceled the claims based on (a) the fact that RML failed to file a Notice of Contract, and (b) the suit to enforce the claim wasn’t filed within the one-year deadline. RML appealed.
The appeals court affirmed the decision to cancel the lien claims but didn’t agree with the reasoning. In fact, there were many other issues with the RML’s lien. But most importantly, the lien was “fatally defective” due to the fact that RML wasn’t licensed.
Must have a valid contract to have lien rights in LA
Here’s the reasoning: The contractor licensing provisions were enacted in Louisiana in the interest of public order, and under the Louisiana Civil Code, any contract in violation of a rule of public order is an absolute nullity. Furthermore, it is well established that contracts entered into with unlicensed contractors are also “an absolute nullity.”
The court then continued its analysis by looking at the LA Private Works Act (PWA). The definitions of both contractors and subcontractors either expressly or impliedly require some sort of contractual relationship. Even the statute listing who has lien rights (referred to as privileges in LA) indicates that a valid contract is required for lien rights. In the court’s own words:
“La. R.S. 9:4802(A)(1) & (B) grants a lien to subcontractors to secure “obligations arising out of the performance of work under a contract,” These provisions demonstrate that the liens granted to contractors and subcontractors under the PWA are to secure debts or principal obligations arising from contracts… Therefore, in the absence of a valid and enforceable contract, a contractor or subcontractor cannot assert a valid lien under the PWA.”
Thus, the court affirmed the lower court’s decision to cancel the claims from the mortgage records. Simply due to the fact that (a) RML was unlicensed, which (b) renders the contract void, and (c) a valid contract is required to assert lien rights in Louisiana.
Unlicensed contractors in Louisiana have little recourse for nonpayment
Performing construction work in Louisana without a proper license can already lead to a bunch of trouble. First and foremost, the LA State Licensing Board for Contractors could fine the contractor up to 10% of the total contract value.
Second, the contract itself will be declared void, and thus unenforceable in court. Lastly, the contractor won’t be able to rely on lien rights either — leaving the only recourse for nonpayment to unjust enrichment claims to recover the actual costs of labor, services, or materials provided, without any recovery of profits or overhead costs.
Doesn’t seem worth the risk, does it? Consider this case a stark reminder for Louisiana contractors: Get licensed!
This article is a good place to get started – Louisiana Contractor Licensing: A Complete Guide