Question about a lien on a large bldg renovation project in Minnesota (bad guy perspective).

1 year ago

One of our subs was waiting to be paid for work they did for us on a large reno project. While we were in the process of making financing arrangements to pay them, they filed a lien with the bldg owner. The owner went ahead and paid them directly using funds that were owed to us from a separately executed contract (at the same location, but not the original contract that the sub performed work on). The owner is now asking us to endorse and return a joint check (issued to us and the owner) and lien waiver for the amount that was paid to the sub. Keep in mind, we were given no notices that any of this was happening and we made no agreements to any of it. We had every intention of paying our sub. But we had no formal contract with them stating payment terms and we just needed a little more time (not an excuse, just reality). Getting past the right or wrong thing to do argument, what would be in our best interest from a legal standpoint? Sign and return the documents, don’t sign and sue (six figures, and we really need the money), or file a lien of our own?

Chief Legal Officer Levelset

This seems to be a complicated and messy situation. Payment timing issues and liens can throw a wrench into any project, and when multiple parties get involved it can be especially difficult.

The first thing to remember is that communication is key. While it’s always better if communication can help avoid problems in the first place, just because an issue has erupted doesn’t mean it’s time to pull inside a shell, throw up the defenses, and stop talking. Often, things can be worked out without resorting to additional claims and problems.

That being said, from a purely “best-interest” standpoint, it’s never a good idea to execute and deliver an unconditional lien waiver for work for which one has not been paid. A “conditional” waiver may generally be delivered prior to payment presuming that the condition is actual receipt of payment by the waiving party. In a case in which a sub has been paid directly by the property owner, the property owner could easily request and require a lien waiver from the sub for the amount paid, and conceivably request some-type of waiver for the amount paid to the sub from the beneficiary GC t avoid double payment.

Joint checks can be dangerous for numerous reasons, but to determine the best course of action in this particular situation somebody would need more information regarding the amount and circumstances of the joint-check – it may be worth enlisting the help of a local attorney.

Finally, regarding a lien claim, provided the applicable notice requirements are met, a lien may be filed by a direct contractor within 120 days from last providing materials or labor. In order to be enforceable, the lien must be meet the timing, form, and service requirements, and must be for work actually performed for the improvement of the property. To the extent that work was performed or material furnished for the improvement of the property and it remains unpaid, a lien may be an appropriate remedy.

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