A couple of weeks ago, I discussed what steps you, as an owner of a construction project in Virginia, could take should you receive a mechanic’s lien notice after a project was complete. However, this is not the only time such a lien may be recorded. Particularly on a commercial construction project that spans months, there are suppliers or other subcontractors on your project (as either a general contractor or owner) that provide materials or labor at a point in the project where their 90 day window for recording the lien may expire before project completion.
In this situation, you may be faced with a mechanic’s lien recorded on your property that potentially holds up financing or otherwise causes problems at your project. While many of the same defenses could apply in this situation that I discussed in my prior post (payment defense, 150 day rule, etc.). After ceasing all payments to the general contractor as of the date of receipt of the notice of lien, there are a few other issues/actions that you should consider when faced with a mid-project mechanic’s lien notice.
The first of these is what your contract with the general contractor (or subcontractor in the case of a general contractor) says regarding what the general contractor must do in this situation. If the lien is recorded by the general contractor, you should re-examine whether the general contractor waived its mechanic’s lien rights through its contract (remember, the recent change disallowing such waivers does not apply to general contractors). If this is the case, hopefully the general contractor will simply release the lien and if not then you can take advantage of the court process to force removal.
Your contract could also require the general contractor to take care of the lien in the instance that the lien is recorded by a subcontractor or supplier. This usually means assuring release of any lien within a certain time. This could be through the provision of a bond in the place of the lien so that the lien is released through the procedure found in Virginia Code Sec. 8.01-71 or by the forcing release of the lien through other means. Should the general contractor refuse to take such action, particularly in the face of a contractual requirement, you as owner can take advantage of the bonding process and move forward with the project if that is the financially prudent thing to do under the circumstances.
I cannot emphasize enough that should you get a notice of lien and still hold money relating to the project do not pay that money out. The payment defense only applies to money paid prior to the receipt of notice. An owner or general contractor will potentially have to pay the same money twice for any money paid out post-receipt of the notice. It is this stoppage of the flow of money that provides a mid-project lien its power for a subcontractor that remains unpaid for its work.
Of course, each set of facts presents its own wrinkles and you should therefore consult with experienced construction counsel to explore the best avenues for dealing with these mid-project mechanic’s liens.
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