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.
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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 (631) 608-1346.
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