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Construction Law Blog

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Recent Developments in New York Lien Law

  
  
  
  

Mechanic's Lien Invalid Where No Contract Payments Due

     In the recent case of Wm. B. Morse Lumber Co. v. North Ponds Apartments, LLC,[1] a supplier’s mechanic’s lien was cast into doubt by a question of whether any funds were due to the contractor for the lien to attach. There, a supplier which had filed a mechanic’s lien asked the court to determine whether its lien had priority over a construction mortgage.

     On appeal, the Appellate Division of the Supreme Court, Fourth Department, agreed that the construction mortgage was improperly filed, but it declined to state that the mechanic’s lien was valid. The Lien Law restricts an owner’s liability on a mechanic’s lien to the amount that is due and owing on its contract, and where the supplier could not prove that there were such funds owing, but the holder of the construction mortgage could not prove that payment had been made in full at the time the mechanic’s lien was filed, the appellate court remanded the matter for trial to determine the truth of the allegations.

Supervision of Site After Work Stopped
Insufficient for Mechanic's Lien

     In a condominium-related case, 8th Avenue Recoveries Corp. v. 111 Stellar 8 Owner, LLC,[2] the issue was the validity of a mechanic’s lien. A contractor performed work on a construction project and submitted its final payment application on September 2, 2010 for work through March 26, 2010 and filed a notice of mechanic’s lien for its work on February 2, 2011 alleging that the last items of work had been performed on November 2, 2010.

     The lien was later assigned, and the assignee, in a lien foreclosure lawsuit, argued that an employee of the contractor had performed work within eight months prior to the lien’s filing by supervising the site to ensure that it was safe. This was relevant because the filing of the lien on February 2, 2011 for work completed on March 26, 2010 would have been invalid, being more than eight months after that work had been performed.

     Although the court acknowledged that the supervision of construction work can form the basis for a mechanic’s lien, it nonetheless found the lien in question to be invalid because it had been filed more than eight months after the last items of work had been provided. In doing so, it observed that the “supervision”, which amounted only to checks to secure the site, had been provided voluntarily and without charge, and that no permit for construction work was active after June of 2010. The court essentially distinguished mere supervision of an inactive construction site for security purposes, which is not lienable work, from supervision of construction activity, which is. For that reason, no lienable construction work had been performed after March of 2010, and the court vacated the lien as being filed too late.

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[1] 114 A.D.3d 1215, 981 N.Y.S.2d 492 (4th Dep’t 2014)
[2] 42 Misc. 3d 1212(A), 984 N.Y.S.2d 631 (Sup. Ct. Kings Co. 2014)

     Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorney        The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

     This is a general information article and should not be construed as legal advice, legal opinion, or the formation of an attorney client relationship.  Readers are encouraged to seek counsel from a construction lawyer for specific advice.

The Perils & Pitfalls of Mechanics Lien Waivers

  
  
  
  

     For contractors and subcontractors in New York, mechanic’s lien waivers are a part of life. That’s because owners (and, often, their mortgage holders) want to keep their properties from becoming encumbered by a lien. This means that, as a contractor or subcontractor, you will undoubtedly be asked to execute a mechanic’s lien waiver at some time or another, often in conjunction with applying for progress payments. If you do so without paying attention to the language of the waiver form, however, you might lose more than you bargained for.

     In general, there are two types of mechanic’s lien waivers: those that are part of a contract, and those that are part of a document executed later during the progress of your work (i.e. with the receipt of progress payments). As a practical matter, you don’t need to worry about waiving your mechanic’s lien rights in a contract because such provisions are unenforceable under New York law. In High Tech Enterprises & Electrical Services of N.Y., Inc.,[1] a subcontractor sued a prime contractor to recover for breach of contract and to collect under a bond that had discharged its mechanic’s lien. The court dismissed the contractor’s counterclaim for attorneys’ fees, which was based on a clause of the subcontract which provided that the subcontractor would not file any lien and would reimburse the contractor for attorneys’ fees in the event that one was filed, stating that this clause was “unenforceable as against public policy.” New York Lien Law Section 34 is clear that “any contract, agreement or understanding whereby the right to file or enforce any [mechanic’s] lien is waived, shall be void as against public policy and unenforceable.”

     There is, however, an exception in the Lien Law: a contractor, subcontractor, material supplier, or laborer can be required to execute and deliver a waiver at the same time as, or after, payment is made.[2] For that reason, you can be required to waive and release your lien rights when payment is made to you. The problem in those cases becomes satisfying your owner without waiving more of your rights than you should. Here are some of my tips to avoid common pitfalls that can be buried in the language of mechanic’s lien waivers.

  1. Use your own waiver of mechanic’s lien form. Whenever possible, submit your own waiver of mechanic’s lien, which you can develop with your attorney’s advice to guard you against the other pitfalls I mention below. In this way, you can retain control over your waiver of lien rights and ensure that you keep your waiver narrow enough to preserve other claims.

  2. Be wary of waiving subsequent lien rights in connection with partial payments. In all fairness, when you release lien rights in connection with progress payments, you should only be releasing your right to lien for the work that you have already completed. However, some owners use forms which contain wording to the effect that you waive claims that you “now or hereafter may have” to a lien on the property. This language, unfortunately, can be construed to waive your right to all liens—even those lien rights which arise due to subsequent outstanding payments. This language should be avoided: another good reason to have and use your own waiver of mechanic’s lien form.

  3. Make the waiver conditional. In today’s economy, it is possible that your project owner could file for bankruptcy sometime after paying you. This becomes an issue, however, if your project owner files for bankruptcy within 90 days of your payment clearing, because, in that case, the payment might be looked upon as a “preference”—unfairly paying one creditor at the expense of others on the eve of a bankruptcy—and can be cancelled, requiring you to repay the money. In that case, you would have waived your right to lien, but you would also not have the money. A better route is to insist on language in your waiver of mechanic’s lien that makes your waiver conditional not only on the receipt of the money but on the owner not filing for bankruptcy within 90 days of funds clearing.

  4. The waiver should apply only to lien rights. Ideally, you want to appease your owner (and their mortgage holder) with a waiver of mechanic’s lien while preserving as broad rights as possible to other claims. For that reason, avoid signing a waiver of mechanic’s lien that waives your right to “any and all claims” or that releases the owner from “all liability”. Better waiver of mechanic’s lien language waives only rights to lien but preserves rights to other claims.

  5. The waiver should relate to payment, not performance. To explain, a payment waiver waives your lien rights in a certain dollar amount (in other words, the amount of the payment that you’re receiving at the time of the waiver), while a performance waiver relates to all work performed up to a certain date. The problem with a performance waiver is that it can be interpreted to waive your right to lien for retention on the progress payment, among other things. Your best bet for a waiver of mechanic’s lien is to acknowledge receipt of your current payment and waive and release your lien rights in an amount equal to that payment: look for a specific dollar amount, and be wary of lien waivers that refer instead to “all work up to” a certain date.

     When executing mechanic’s lien waivers, following these steps is essential. Although courts do sometimes find a way around lien waivers on behalf of contractors and subcontractors, the result is not guaranteed. Starting off on the right foot is the only way to take control of your lien rights and set yourself up for a better outcome. The language in legal documents can be tricky; if a project owner will not allow you to use the waiver of mechanic’s lien form that you’ve developed with an experienced attorney, having an attorney review the owner’s form for the clauses I discussed above is essential to protecting your rights.


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[1] 113 A.D.3d 546, 980 N.Y.S.2d 387 (1st Dep’t 2014).

[2] Id.

Your comments and future article topic suggestions are invited in the field below.

John Caravella, construction attorney The author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

     This is a general information article and should not be construed as legal advice, legal opinion, or the formation of an attorney-client relationship.  Readers are encouraged to seek counsel from a construction lawyer for specific advice.


Homeowner Court Ruling Serves as a Reminder to New York Contractors

  
  
  
  

A recent ruling issued by the Supreme Court, County of Nassau, serves as a reminder to New York contractors performing residential work of the importance and necessity in having a home improvement license if you need legal action to pursue payment on the project.

In this homeowner victory, represented by The Law Offices of John Caravella, P.C. in a matter entitled Holistic Homes ,LLC v. Alan B. Greenfield and Hudson City Savings Bank, the court found unconvincing the various excuses presented in its attempt to portray itself as anything other than a home improvement contractor pursuant to the Nassau County Administrative Code.

The matter concerned work performed on the owner's property to remedy damage caused by Hurricane Sandy. When a dispute as to payment arose, the contractor filed its lien on the owner's property and commenced legal action to seek recovery on its lien.

When challenged on the status of its license, the contractor then attempted to explain that it was not on the project as a contractor, rather based on some alleged personal form, as "fraternal brother", which failed to be persuasive nor did it relieve the contractor's statutory licensing requirement. The Court was further reluctant to excuse the statutory licensing requirement when the work performed was emergency repair work as made necessary across Long Island resulting from Hurricane Sandy.

Subsequently through litigation, the contractor admitted that it was not licensed as a home improvement contractor in Nassau County.

Without having a valid Nassau County Home Improvement Contractor's License, contractor's complaint for damages was dismissed and the lien vacated.

"Thus, a contractor who does not possess a license required by local law may not enforce a home improvement contract. This is true irrespective of whether the suit sounds in breach of contract or quantum meruit (Al-Sullami v Broskie, 40 AD3d 102[2d Dept. 2007]) or a claim made in the context of a lien foreclosure (Ellis v Gold, 204 AD2 261 [2d Dept. 1994] or an arbitration. Al-Sullami v. Broskie, supra.

Not even the necessity of prompt remedial efforts needed in the immediate aftermath of Hurricane Sandy is enough for the strict requirement for a licensure to seek legal action on any claims for payment.

New York contractors are reminded of the importance to regularly ensure that their licenses, contracts, and insurance coverages are properly tailored to serve the needs of your business and project types.

In addition to litigating construction issues, this office routinely provides review and consultation services to contractors to ensure their contracts, business practices as well as their required licenses and insurance policies are in proper working order or identify areas of potential exposure which could be better managed.

Your comments and future article topic suggestions are invited in the field below.


John Caravella construction lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Offices of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051. 

 

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This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

Subcontractor Challenges under the New York Lien Law

  
  
  
  

The adage that you can not get blood from a stone may have its place in the rationale of New York Lien Law. Not that you will find this term included in any of the sections of the law, but this concept of reality is reflected in the hierarchy, structure, and availability of funds in the occurrence of a construction dispute.

With the understanding that an owner should not be required to pay for the same work twice, the owner's maximum liability or financial obligation on the project is the amount owed to the general contractor, or the 'Lien Fund.' For the contractor seeking payment this is not a tremendous burden, as the contractor most likely has a contract directly with the owner, and has its monthly administration files available to establish any amounts that may be owed.

But the same can not be said for the subcontractor, who typically will not have a contract directly with the owner, nor does it have access to all of the contract administration between owner and contractor. Being further down the chain of construction and without direct contact to the owner causes additional challenges to the subcontractor or supplier in seeking to enforce their New York lien rights.

  • Challenge 1:  Must be a 'Lien Fund' of available funds to claim against

Of the money due and owing to the contractor by the owner, there must be some portion still available to satisfy the claims of any subcontractor or supplier. The New York Lien Law definition of Lien Fund is available here

"[The] critical issue is whether there are funds due and owing from the owner to the general contractor." DiVeronica Bros. Inc. v. Basset, 213 A.D.2d 936

 

  • Challenge 2:  Burden of proving existence of Lien Fund belongs to subcontractor

It falls on the subcontractor, or any party seeking to enforce their lien, to prove that money was due, or thereafter became due, from the owner to the contractor at the time the lien is filed, the lien would be void as there is no fund to which the lien can attach.

A 2011 decision of the New York Appellate Court confirms the uphill burden placed on those down-chain from the owner. For a subcontractor in New York seeking to enforce its lien, establishing that there remained a balance owing is insufficient to establish a lien fund. JMP Plumbing and Heating Corp. v. 317 East 34th Street, LLC, 89 A.D.3d 593, 933 N.Y.S.2d 252 (1st Dep't 2011).

"A subcontractor's lien can only be satisfied out of funds 'due and owing from the owner to the general contractor.....[Subcontractor(s) bear] the initial burden of showing that funds were, in fact, due and owing.'

A subcontractor's failure or inability to prove the amount due and owing to the general contractor can be a bar to the subcontractor's ability to collect on its lien. The existence of a remaining balance due subcontractor does not establish that the owner is obligated to pay those funds, especially where the owner may also be asserting a claim against the general contractor.

Each subsequent tier of contractors, subcontractors, and suppliers has its own 'Lien Fund' available for recovery of its claims (and only to the extent a 'Lien Fund' exists). A Lien can only attach to the funds owed to the party directly above the claiming party. Philan Dept. of Borden Co. v. Foster-Lipkins Corp.

For the New York Subcontractor, you must not only have a Lien Fund available for you to claim against, but you also have to be able to establish those amounts as Due and Owing as beyond just an open balance. Additional research is required to confirm that the owner has no valid reasons for any non payment to the contractor.

Your comments and future article topic suggestions are invited in the field below.

John Caravella construction lawyerThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (516) 462-7051.

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This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

Homeowner Challenges to New York Mechanic's Liens

  
  
  
  

 

When a private improvement lien is filed in New York, the entire body of the New York Lien Law is imported which establishes the rules for filing, enforcing (or foreclosing the lien) and for challenging or discharging the lien. There may often be defenses to the lien for the property owner as outlined below.  For those seeking to file a valid lien, the below serves as a reminder of common issues to avoid.

law books1Often in the construction context a homeowner may find a lien filed against their property by a contractor hired to perform work on the property. Also it is common for the homeowner to have complaints about or criticisms of the work performed. For the homeowner who finds their property with a lien, and unsatisfactory work performed, it is possible to seek relief from the court. “A lien will be vacated where the court finds the work was not substantially completed or is below industry standards.” New Day Builders v. SJC Realty 219 A.D.2d 623, 631 N.Y.S.2d 707, N.Y.A.D. 2 Dept., September 18, 1995 (NO. 93-06390).

The time provided for a party to lien a property for being unpaid for work performed is also limited under the New York Lien Law and strict compliance with all requirements is required for a lien to be valid and enforceable. For work performed on a single family dwelling the time allowed for a lien to be filed is 4 months from the date of last work NY Lien Law § 10. This time limit, however, can be unclear if there was a termination or an abandonment of the job by the contractor, or when the contractor returns for repairs or warranty work after completion.

“Where a contract has been abandoned (by the contractor), the date to file runs from the date of abandonment” Locke v. Goode 174 N.Y.S.2d 435. Any work done after abandonment will not extend the time allowed to file a lien. Likewise it follows that any repair or warranty call-backs on a completed project would also not extend the time available to the contractor for the filing of a lien. Nelson v. Schrank 75 N.Y.S.2d 761.

The homeowner often will not have direct dealings or agreements with subcontractors supplied by their contractor and can find their property liened by a subcontractor due to the contractor’s failure to pay the subcontractors. “If, before a lien is filed, the owner has paid the contractor, but the contractor has failed to pay the subcontractor, the subcontractor’s remedy is to look to the contractor [for payment]” Central Valley Concrete 310 N.Y.S.2d 925. “[An] owner’s liability to subcontractors is strictly limited to the amount of the lien fund, that amount owed to the general contractor.” NY Lien Law § 4.

The extensive requirements of the New York Lien Law is a large body of law, and is too broad to be condensed into this article, but the above considerations are commonly encountered in New York construction and serve to answer some common lien challenges.

Additional information may also be found in the blog article Pitfalls in Extending Mechanics Liens on Residential Properties.

 

John Caravella, construction attorneyThe author, John Caravella Esq., is a construction attorney and formerly practicing project architect at The Law Office of John Caravella, P.C., representing architects, engineers, contractors, subcontractors, and owners in all phases of contract preparation, litigation, and arbitration across New York and Florida. He also serves as an arbitrator to the American Arbitration Association Construction Industry Panel. Mr. Caravella can be reached by email: John@LIConstructionLaw.com or (631) 608-1346.


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This is a general information article and should not be construed as legal advice or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice on a particular circumstance.

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