STA LEGAL LOG – DECEMBER 2018
Mechanic’s Liens for
By Henry L. Goldberg, Legal Counsel, Subcontractors Trade Association
With the expanding acceptance and use of design-build project delivery in both the public and private sectors, the availability of a mechanic’s lien to secure payment for pre-construction services increases in importance. Contractors and subcontractors may be more regularly called upon to provide pre-construction and/or design services, even before project-wide financing is fully secured, raising the risk of non-payment.
Pre-construction services can include a wide range of activities such as preliminary planning, as well as design and engineering services. This often involves defining the project scope, schedule and cost, as early as possible, to develop a firm cost estimate and to assist in securing financing and required permits or regulatory approvals.
Pre-construction services are often considered to be any services before actual, physical construction work begins. Such an expansive definition not only encompasses the design and engineering phase of project development, but arguably services such as filing for permits and approvals and management or supervision of pre-construction services, or “aiding or assisting in procuring subcontracts or subcontractors”. This has led to disputes as to the validity and/or priority of mechanic’s liens for pre-construction services.
Statutory and judicial treatment of liens for pre-construction services
New York does not have express statutory provisions defining or authorizing liens for pre-construction services. Although design professionals’ services in preparing plans and drawings are expressly recognized as the basis for a mechanic’s lien (N.Y. Lien Law §2(4)), the Lien Law is silent on other aspects of pre-construction services. The Lien Law instead focuses on whether the labor, services or materials “improve” the property.
In a recent New York case regarding the application of a project owner to discharge the mechanic’s lien filed by a contractor retained to provide “pre-construction management services,” the court needed to look back to a decision of nearly a century earlier for guidance!
In this case, the project owner did not dispute that it engaged the contractor to perform certain pre-construction management services. Indeed, owner acknowledged that the contractor provided services for the project and attended meetings with owner’s consultants in connection with the site plan approval application. However, owner argued that the lien should be discharged because the services the lien was based upon did not fall within the lien law’s definition of services which “improve” the property.
The court observed, “[l]ittle guidance is provided in the case law as to what types of work fall within and outside the category of ‘improvements’ under the Lien Law. Notably, no case has been cited or found by this Court explicitly considering the term ‘pre-construction management services,’ or discussing the definition, nature and extent of such services.” The court then turned to a 1929 decision of the Court of Appeals, New York’s highest court.
The lower court noted that the Court of Appeals drew a distinction between “[lienor’s] services in aiding or assisting in procuring subcontracts or subcontractors,” which it held was not an improvement of property, and services managing the demolition of the old building and construction of the new building which it held was an “improvement of the real property” for which it was entitled to file a mechanic’s lien.
The lower court then turned to a more recent trial court decision, observing that while the Lien Law did not cover merely “applying for permits and approvals,” it would apply to the “professional engineering and professional surveying services rendered in connection with obtaining municipal approvals for the development…” The court observed that “the primary purpose of the Lien Law is to afford protection for workmen who at the request or with the consent of the owner of real property enhance its value by performing labor for the improvement thereof. If a landowner fails to take a project through to completion, for whatever reason, the claims for work done to improve the property are no less entitled to the benefits of this statute.”
Having concluded that a lien could, in fact, be filed for “pre-construction” services, the lower court then considered the specific labor and services provided by the contractor. The court found the contractor’s lien for pre-construction services was valid, stating, “[w]hile some of the [services] may be comparable to the non-lienable work of procuring bids or permits, some of the other described tasks, such as preparing site logistics and access plans for the property and performing a constructability review for the project at the property, appear to be comparable to the category of engineering planning work held to be covered by the Lien Law.”
Contractors are frequently being called upon to render pre-construction services for projected projects which are not fully funded. They often do so in an effort to maintain or develop a client relationship and to facilitate chances of securing the eventual contract for the planned project. The pressure to cooperate can be considerable.
The law regarding mechanic’s liens presents a technical minefield; numerous statutory definitions, deadlines and substantive and procedural pitfalls which, without care, could operate to waive or forfeit your rights. This could occur even before physical work on a project has begun. A contractor providing any pre-construction services must carefully consider the sources of project funding (public or private) to evaluate their rights and remedies.
Mechanic’s liens were designed decades ago to provide cost-effective protection for contractors, materialmen, and workers against the more powerful, “monied” class of owners and developers. Such liens are designed to help “level the playing field,” and protect your interests. You may want to consider this remedy, particularly where there is no formal contract in place to define and protect your interests.
Lien Law remedies for securing payment of fees should be reviewed and considered before problems arise to assure all statutory deadlines (which could be as short as a matter of months) are met. It is best to consult with experienced construction counsel before expending large amounts of time or money on a project in which you may have concerns regarding payment.
Henry L. Goldberg is Counsel to the STA and a partner at Moritt Hock & Hamroff LLP. He is the Chair of its Construction Practice Group. Robert J. Fryman, a partner at Moritt Hock & Hamroff LLP, and a member of its Construction Practice Group, assisted in the preparation of this article. If you have any questions, please feel free to contact Mr. Goldberg or Mr. Fryman at (516) 873-2000 or via email at firstname.lastname@example.org or email@example.com.
© Moritt Hock & Hamroff LLP 2018