Construction Law Blog

Top 5 Mechanic's Lien Waiver Pitfalls for Contractors and Subs

Posted on Mon, Apr, 11, 2016

     For contractors and subcontractors in New York, Mechanic’s Lien Waivers are a part of life, but the potential risks to the contractor in waiving more than intended or understanding of the terms are not always as common. Owners (and often their lender) require that the project be kept lien free through progression of the work to final completion. 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 payment. If you do so however without paying attention to the specific language of the Waiver, 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 seperate and 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 right to file Mechanic's Liens pursuant to contract terms, as any contract seeking to limit (or pre empt) a contractor's right to file liens would be unenforceable under New York construction 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.”

Click me      A contractor, subcontractor, material supplier, or laborer however 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 tips to avoid common contractor pitfalls with respect to New York 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 these and other pitfalls. This allos the contractor to retain control over your waiver of lien rights and ensure that you keep your Waiver language narrow enough to preserve other potential 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 in most situations. (another good reason to have and use your own waiver of mechanic’s lien form).

  3. Make the Waiver conditional. Although the economy has greatly improved over recent history, it is still not impossible that your project owner could go bankrupt 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 also conditioned upon the owner not filing for bankruptcy within 90 days of funds clearing.

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  4. The Waiver should apply only to lien rights. Ideally, you want to appease your owner (and their lender) with a Waiver of Mechanic’s Lien while preserving as broad rights as possible to allow other potential 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”. A better Waiver of Mechanic’s Lien language for contractors and subcontractors in New York would waive only lien rights while also preserving contractor's other potential claim rights.

  5. The Waiver should relate to payment, not performance. To explain, a Payment Waiver waives your lien rights only to the amounts for which payment is acknowleged (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. One concern for the contractor with a Performance waiver is that it could 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. Contractors should also be wary of signing and delivering a Waiver of Lien indicating contractor's receipt of payment when if in fact contractor has not actually recieved the claimed payment as if payment is not actually provided the contractor may no longer be able to claim a lien for such payment.

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     When executing Mechanic’s Lien Waivers, following these steps and understanding what is being waived is essential for the New York contractor. Although courts do sometimes find a way around lien waivers on behalf of contractors and subcontractors, the result is not guaranteed and not a place a contractor wants to be defending their claim for payment. Starting off on the right foot is the best way for the contractor to take control of their lien rights and be positioned 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, having legal review of the proposed language may be requried to protect your rights.

     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 or a legal opinion.  Readers are encouraged to seek counsel from a construction lawyer for advice.

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

[2] Id.


Tags: Construction Litigation, New York Lien Law, New York Construction Law, Defective Liens, New York Construction Liens, New York Contractor Liens, lien rights, Validity of Lien, Partial Waiver and Release of Mechanics Lien, Lien Waiver, Conditional Lien Waiver, Partial Waiver of Mechanics Lien, Partial Waiver and Release of Lien

What Design Professionals Should Consider Before Filing a New York Mechanic's Lien

Posted on Tue, Sep, 08, 2015

     Like contractors and material suppliers, architects and engineers are provided lien rights under New York law to secure payment for authorized professional services rendered. Although the architect or engineer has provided professional services, as compared to materials or labor, their need to comply with the same timeframes and filing requirements still apply. Failing to comply with either however can cause loss of the entire lien, and/or could subject the filing design professional to potential liability legal fees and costs.

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       The design professional should really consider the following prior to filing their Notice of Mechanic's Lien in New York. Where any lien claim is considerable, however, seeking qualified legal advice for  specific lien law compliance is encouraged prior to filing any New York Mechanic's Liens. Both in making sure the lien is filed in compliance with the New York Lien Law, but also to minimize legal exposure.

 1.         A Mechanic’s Lien Must Be Filed Timely  

      A mechanic’s lien can be filed in New York anytime while a project is in progress when payment becomes due, or after it is completed. For private projects, a mechanic’s lien must be filed within eight months from the date the project is completed, unless the project is a one-family residence, in which case you only have four months.[1] For public improvement projects, you can file at any time before the project is completed and accepted and up to thirty days after the project is completed and accepted.[2] Therefore, your consultation with a construction law attorney should be prompt if you are to maintain your right to lien.

 2.         Lien Amount & Contract Amount May Vary

      As a preliminary caution, keep in mind that your mechanic’s lien may not necessarily include every item to which you’re entitled under your contract, some of which might be recoverable only in a separate contract claim.

      The following are important items for a design professional to include in a mechanic’s lien amount:

 Preparing plans or specifications for use in a construction project.[3] This includes preliminary plans, even if the project is not ultimately constructed, as long as they are “sufficiently formal to be called plans”, and not just rough sketches;[4] and

  • Supervising construction work, including the demolition of old buildings and/or new construction.[5]

      However, the following services which an architect may provide in connection with a project cannot be made part of a mechanic’s lien:

 Applying for building permits and civil approvals;[6]

  • Obtain bids;[7]
  • Negotiating contracts;[8] and
  • Attorneys’ fees.

 3.         Do Not Ask For More Than You Are Entitled To

      Like contractors and suppliers, architects, engineers and other design professionals must be cautious of willfully exaggerating their liens (i.e. intentionally claiming more than they are actually entitled to). Willful exaggeration takes more than just being incorrect in what you claim in a lien; it requires intentional acts that you undertake to make the amount of your lien seem greater than it really is.[9] You have to be careful when calculating the amount of your lien, because the consequences of willfully exaggerating a lien include the cancelation of the lien, as well as the responsibility for attorneys’ fees, bond sums (if the lien is discharged by a bond), and additional damages equal to the amount by which the lien is found to have been exaggerated.[10] In this manner, you need to keep in mind what types of items can be included in your lien, and you need to make sure you are estimating the amount that is owed to you in good faith, in which case you should avoid the consequences of willful exaggeration claims.

 4.         A Mechanic’s Lien Is Effective For A Limited Time

              You must also keep in mind that you will not be able to sit on your claim just because you’ve filed your lien. Under the Lien Law, both private and public improvement mechanic’s liens are only good for a year unless a lawsuit to foreclose the lien is begun before then or the lien is extended.[11] Because of this brief time period, if your lien does not prompt your uncooperative owner or contractor to make payment on its own, you will need to retain qualified counsel to commence a legal action seeking foreclosure of the lien.

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  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.

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

 [1] N.Y. Lien Law § 10.

[2] N.Y. Lien Law § 12.

 [3] N.Y. Lien Law § 2(4).

 [4] Bralus Corp. v. Berger, 307 N.Y. 626, 628, 120 N.E.2d 829, 830 (1954).

 [5] Goldberger-Raabin, Inc., v. 74 Second Ave. Corp., 252 N.Y. 336, 341-42, 169 N.E. 405, 406 (1929); Henry & John Associates v. Demilo Const. Corp., 137 Misc. 2d 354, 355, 520 N.Y.S.2d 340, 341-42 (Sup. Ct. Queens Co. 1987).

 [6] Chas. H. Sells, Inc. v. Chance Hills Joint Venture, 163 Misc. 2d 814, 815-16, 622 N.Y.S.2d 422, 423 (Sup. Ct.  Westchester Co. 1995). Note, however, that the court in this case stated that professional services which assist an owner in obtaining municipal approval, as opposed to filling out applications or attending planning board meetings, can be part of a mechanic’s lien.

 [7] Henry & John Associates, supra.

 [8] Id.

 [9] See, e.g., A & E Plumbing, Inc. v. Budoff, 66 A.D.2d 455, 457, 413 N.Y.S.2d 776, 777 (3rd Dep’t 1979) (holding that lienor willfully exaggerated lien where lienor falsified invoices to increase amounts due).

 [10] N.Y. Lien Law §§ 39, 39-a.

 [11] N.Y. Lien Law §§ 17, 18.

  

Tags: New York Lien Law, professional liability, Defective Liens, New York Construction Liens, New York Contractor Liens, lien rights, lien trust fund, Architecture, Validity of Lien, architectural services

Homeowner Court Ruling Serves as a Reminder to New York Contractors

Posted on Thu, May, 15, 2014

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.

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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.

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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. 

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.

Tags: Construction Litigation, New York Construction Liens, New York Contractor Liens, lien foreclosure, contractor regulation, Licensing

Subcontractor Challenges under the New York Lien Law

Posted on Mon, Sep, 09, 2013

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.

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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.

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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.

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.

Tags: New York Lien Law, Long Island Contractors, New York Construction Law, construction risks, Private Construction, subcontractor agreements, Defective Liens, New York Construction Liens, New York Contractor Liens, Homeowner lien dispute, subcontractor, lien rights, lien foreclosure, burden of proof, lien fund, lien trust fund

Homeowner Challenges to New York Mechanic's Liens

Posted on Tue, Feb, 14, 2012

 

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).

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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.

Tags: Construction Litigation, New York Lien Law, Private Construction, Defective Liens, New York Construction Liens, New York Contractor Liens, Homeowner lien dispute