Mechanics liens are a powerful tool to get folks in the construction industry paid for work performed on, or materials furnished to, a construction project. In order to gain the benefit of a mechanics lien, however, the work performed or material furnished must meet the statutory requirements of the state in which the project is located. Sometimes, deciding whether or not the work done entitles a potential lien claimant to mechanics lien protection is difficult. We have discussed multiple scenarios in the past, and in this post, we will take a look at excavation.
What if the building is never constructed, or even started, after the excavation occurs? On first glance, it seems fairly obvious that excavation work is part of a construction project and entitled to mechanics lien protection. In fact, this is almost always the case, and in many states, excavation is specifically listed as covered work in the mechanics lien statutes. But, what if the building is never constructed, or even started, after the excavation occurs? Since mechanics liens provide security for the improvement of property, and generally require some sort of ‘attachment’ to the property, can a mechanics lien be claimed for what can be viewed as digging a hole? Or making a lot level? A Pennsylvania Superior Court recently addressed this deceptively complicated question.
Excavation and Mechanics Lien Law in Pennsylvania
In Pennsylvania, mechanics liens arise as a statutory right upon the furnishing of labor and/or material “in the erection or construction, or the alteration or repair” of a work of improvement, provided that the amount of the claim is greater than $500. An “improvement”, as defined by Pennsylvania law:
includes any building, structure or other improvement of whatsoever kind or character erected or constructed on land, together with the fixtures and other personal property used in fitting up and equipping the same for the purpose for which it is intended.
To determine whether excavation work constitutes erection, construction, alteration, or repair, a potential lien claimant can turn to the definitions provided by 49 P.S. Sec. 1201, which states that
“Erection, construction, alteration or repair” includes:
(a) Demolition, removal of improvements, excavation, grading, filling, paving and landscaping, when such work is incidental to the erection, construction, alteration or repair;…
So, generally speaking, excavation work in Pennsylvania is work entitled to mechanics lien protection. But, since the statute specifically mentions that the excavation work be “incidental to the erection, construction, alteration, or repair” of some improvement, what happens when the project stops after only excavation work has been completed?
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B.N. Excavating v. PBA Hollow-A
In B.N. Excavating v. PBA Hollow-A, L.P., the Pennsylvania Superior Court provided guidance as to when excavation work is entitled to mechanics lien protection.
B.N. Excavating, contracted with a general contractor, Warihy Enterprises, Inc. to perform excavation and other site work to a business park project. After completing work on December 18, 2008, and remaining unpaid for some time, B.N. Excavating filed a timely mechanics lien on June 8, 2009. B.N. Excavating later sued to foreclose on the lien.
The defendant, property owner PBC Hollow-A (PBC), objected to the lien on the basis that mechanics liens cannot arise from excavation work not followed by the actual construction of a structure. The trial court agreed and dismissed the lawsuit to foreclose on the mechanics lien.
when “excavation is performed as an integral part of a construction plan, the activity falls within [the law’s definition of lienable work] regardless of whether a structure is ever erected. The trial court reasoned that there was a difference between “groundwork is performed incidental to construction as opposed to when groundwork is performed independent from construction” and that the difference is a bright-line test of whether or not a structure is subsequently constructed.
In the first situation, the excavation is lienable since excavation is completed “incidental to … the erection, construction, alteration, or repair” of a building. However, in the second situation, since the excavation is completely unrelated to the construction of a building, as required by law, the excavation is not lienable.
B.N. appealed and argued that, contrary to PBC’s allegation, the excavation was performed incidentally to the erection or construction of an improvement, it’s just that the erection or construction of the improvement never occurred. That is, the excavation and site preparation was not done independent of construction in a vacuum. The site prep was performed to prepare the site for a planned construction, as an integral part of that planned construction.
The court noted that nothing in Pennsylvania’s mechanics lien law requires that a structure actually exist. The court determined that when “excavation is performed as an integral part of a construction plan, the activity falls within [the law’s definition of lienable work] regardless of whether a structure is ever erected.” The court noted that nothing in Pennsylvania’s mechanics lien law requires that a structure actually exist.
It’s important to note that the court did not hold determine that B.N.’s lien, specifically, was valid. They determined that excavation work in preparation for construction may give rise to a mechanics lien even if the planned structure is never built, and that the trial court needed to re-hear the case in light of that particular finding.
Take-Aways from B.N. Excavating
On first glance, it appears that this ruling could greatly expand the mechanics lien rights for excavation work in Pennsylvania. Whether or not a structure is ever built subsequently to the excavation is irrelevant as long as the site work was in preparation for a planned structure. Practically, however, it is unclear how large an effect this will have on Pennsylvania mechanics lien claims.