CH& partners Jim Wagner and Sandip Soli, both with years of experience in helping clients resolve lien issues, recently took some time to discuss liens and how they can be addressed. Click on the topics of interest:
1. Why are liens an issue for project owners and developers?
What Clients say about the Cairncross Construction Lien team:
“At the end of construction of our hotel project we faced a series of lien claims because of the general contractor's financial problems. Jim Wagner and his colleagues helped us get all of the liens resolved so our permanent financing could close on time.”
- Bret Wirta, CEO Wirta Hospitality Worldwide
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1. Why are liens an issue for project owners and developers?
Jim Wagner: The filing of a lien raises several issues. First, it’s an alert that the general contractor may not be making proper payments to its subs and suppliers. It raises a concern that the owner/developer might have to pay more than once for at least some of the construction work. Also, a lien on the property’s title is often a significant impediment to any sale or refinancing related to the property, including a project’s permanent financing, and may constitute a default under current financing.
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2. Who can file a lien on a construction project?
Sandip Soli: The right to file a lien is governed by specific statutes in each state. In Washington, under Chapter 60.04 RCW, anyone who furnishes labor, professional services, materials or equipment for the improvement of any property is entitled to file a lien covering any unpaid portion of the work. Each state’s lien laws are slightly different, but they all generally afford this sort of right.
3. So, basically, anybody I hire in connection with a development project has a right to slap a lien on my property?
Jim Wagner: Not necessarily. Lien rights and claims can be quite complicated. For example, one Washington appeals court recently held that a contractor (hired to dig test pits to determine the depth of groundwater as part of the preliminary engineering work on a project) had not provided labor for “improvement” of the property and was not entitled to a lien for that work.*
Sandip Soli: There are also a number of time limits that govern construction liens. For example, a lien must be filed within 90 days of the last date of work performed and the claimant must move to “foreclose” on this lien by filing a lawsuit within eight months of filing the lien.
* Colorado Structures, Inc. v. Blue Mountain Plaza, LLC, et al., Washington Court of Appeals, Division III, Docket No. 28480 (Jan. 25, 2011).
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4. So what can a project developer do to prevent liens from being filed against the property?
Sandip Soli: Lien rights can be restricted at least somewhat by making sure appropriate language is included in contracts for work on the property. During construction, it’s very important that cash flow be effectively managed, progress is appropriately documented so that payments properly reflect progress, and lien releases and other proper documentation is provided by the contractor with each payment application. Basically, the owner, architect and construction manager need to be proactive in managing the payment process.
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5. What can the owner do if a lien is filed against the property?
Jim Wagner: The lien statute provides the owner with the right to seek expedited removal of any frivolous or excessive lien, and includes the right to recover attorneys fees. Another option provided by the statute is posting of a surety bond to replace the lien on the property. Typically, however, the most effective approach is to be proactive in negotiating with the lien claimant, the general contractor and any other interested parties.
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