Getting paid on construction projects is inherently more difficult than it should be. This is why mechanics lien rights were invented in the first place! Before accepting any project, it’s important to determine whether you have the right to file a lien in the first place.
Mechanics lien statutes are typically very strict, and detail who, and under what circumstances, lien rights arise. This presents some challenges to prospective lien claimants, and potential loopholes for property owners to challenge such claims.
A recent Virginia County Circuit Court tackled one such challenge. In that case, a tenant who commissioned improvements attempted to discharge a lien claim because the owners of the company/lessor contracted with the claimant, rather than with the company itself.
The right to file a lien in Virginia
The laws governing who has lien rights in Virginia can be found under Virginia Code §43-3(A)
“All persons performing labor or furnishing materials of the value of $150 or more, including the reasonable rental or use value of equipment, for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold, and all persons performing any labor or furnishing materials of like value for the construction of any railroad, shall have a lien, if perfected as hereinafter provided, upon such building or structure… when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.”
But what if the “owner” isn’t the one who authorized the work?
If an owner or tenant of the property is a business entity, do the improvements have to be ordered or authorized by that specific business entity? What if the owners of the entity were the ones who signed the contract?
Contractor hired by individual owners as opposed to the tenant’s company
The case in question is Barber of Seville, Inc. v. Bironco, Inc.
- Owner/tenant: The Barber of Seville, Inc. (Barber of Seville)
- Contractor: Bironco, Inc. dba We Design Build (Bironco)
Barber of Seville was operating a barbershop in a leased space in the Fair Oaks Mall in Fairfax, Virginia. Bironco had performed renovation work on the units under a contract with the Entruncs — and ultimately went unpaid.
Lien challenged for lack of contractual privity
After sending multiple payment demand letters, Bironco filed a mechanics lien against the Barber of Seville’s leasehold interest. Shortly thereafter, the lien claim was challenged. Barber of Seville filed a complaint to have the mechanics lien discharged, claiming Bironco had no right to file a lien claim.
Barber of Seville contended that Bironco was a subcontractor, which, under Virginia’s lien statutes, requires privity of contract with the general contractor or the owner on the project.
Thus, since the contract was with the Ertuncs as opposed to the corporate entity, they lacked the requisite contractual privity to file a valid lien claim.
Court refused to discharge the claim
Claiming that Bironco was a subcontractor was, in the court’s own words, an “erroneous assertion.”
A general contractor is specifically defined under VA Code §43-1, which “includes contractors, laborers, mechanics, and persons furnishing materials, who contract directly with the owner.”
Therefore, since Bironco contracted with the owners of Barber, they should be properly considered as a general contractor.
Furthermore, Va. Code Ann. § 43-3 notes the following:
“No such lien shall attach… unless repairs or improvements were ordered or authorized by the owner or his agent.” The Ertuncs identify and signed the contract as the owners of The Barber of Seville. In this role, the Ertuncs authorized the agreement for the work that is subject of the lien, thus satisfying statutory requirements.”
Accordingly, the court found that Bironco didn’t need privity of contract with The Barber of Seville, Inc.
The renovations were authorized by the owners of The Barber of Seville, and Bironco had complied with all the requisite statutory steps to perfect their claim. Therefore, Bironco’s mechanics lien was enforceable, and the case was dismissed.
Business entities can’t circumvent lien laws by contracting through their agents
Given the impact of a mechanics lien, and the potential threat of foreclosure, owners (and tenants in this case) will use any reason to challenge the claim. However, the Virginia courts drew a line in the sand with this decision.
“The result in this case makes sense because mechanics liens in Virginia, while statutory and very picky, are there to assure payment to contractors that improve an owner’s property and to avoid situations in which the owner gets the benefit of that work without payment. If privity were required in a situation that the Virginia General Assembly failed to require it, these dual goals could be thwarted by a savvy owner.”
The court echoed this sentiment. They conceded that “[t]he existence of a mechanic’s lien rests upon strict compliance with the statutory scheme.” However, allowing this challenge to stand means “corporate entities could evade payment by having their agents enter [a] written contract on their behalf.”