Virginia Real Estate, Land Use & Construction Law : Virginia Construction Lawyers & Attorneys : Bean Kinney & Korman Law Firm : VA Real Estate, Land Use & Zoning

 Earlier this year, Judge Bellows of the Circuit Court for Fairfax County found that repairing and replacing exterior building components including terrace soffits did not constitute an “improvement” for purposes of Virginia’s statute of repose. Now another court has limited what can constitute an “improvement” under Virginia’s mechanics’ lien statute.

In Summit Community Bank v. Blue Ridge Shadows Hotel & Conference Center, LLC, et al., Civil Action No. 5:10-CV-00005, Judge Conrad of the United States District Court for the Western District of Virginia (Harrisonburg Division) was confronted with whether furnishings including sleeper sofas, chairs, lamps, tables and art prints were properly claimed as “improvements” in a mechanics' lien under Virginia Code Section 43-3.

Judge Conrad began by pointing out that the General Assembly has failed to define the word term “improvement” in Virginia’s mechanics’ lien statute. Looking at Subsection A of Section 43-3, a mechanics’ lien is available for materials used in the “construction, removal, repair or improvement” of “any building or structure.” Judge Conrad reasoned that the “construction, removal, or repair of a building each results in a change to the actual building, not simply the building’s potential use or function,” and theorized that there must be a

greater connection between the materials furnished to improve the building or structure, and the building or structure itself. In other words, it is not sufficient for materials to simply add value to a building by their mere presence without any further connection to the building.

Judge Conrad concluded that a mechanics’ lien was not appropriate for the furniture at issue because the furniture had no real connection to the building itself other than its mere presence.

In reaching this conclusion, Judge Conrad had to grapple with a Virginia Supreme Court case, Moore & Moore General Contractors, Inc. v. Basepoint, Inc., 253 Va. 304, 485 S.E.2d 131 (1997). In Basepoint, the Virginia Supreme Court ruled that cabinets that had been installed and later removed from the building were properly the subject of a mechanics’ lien. Judge Conrad focused on the fact that the Virginia Supreme Court in Basepoint found that the cabinets, although removable, had initially been “installed and added value to the structure” itself. Therefore, the cabinets had actually been incorporated into the building. By contrast, the furniture in Summit Community Bank was not intended to be, and had not been, installed or incorporated into the building.

This is yet another lesson learned in the world of Virginia mechanics’ liens. Mechanics’ liens are an incredibly convenient way to recover costs, but the Virginia’s mechanics’ lien statute is a landmine for the unwary. And this is not only due to what kinds of materials will support a mechanics’ lien. Even more important are the very strict deadlines and procedures you must follow to properly file a mechanics’ lien. When in doubt, get advice right away!

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We have recently discussed the need for construction industry players to know the basics of liens and bonds. We have also examined one case example of what can go wrong in mechanic’s lien matters by examining the failed Granby Tower project in Norfolk. Expanding on this thread, we will now turn to laying out some of the basics in our local jurisdictions for filing mechanic's liens. Thanks in particular to Juanita Ferguson, another construction litigator in our firm, whose upcoming newsletter article on liens and bonds formed the framework of this post.

Virginia:

1. Who can file? All persons performing labor or providing materials for a construction project
2. What is filed? A Memorandum of Mechanic’s Lien must be recorded in the land records where the property is located. With the exception of parties in privity with the owner, claimants need to transmit a notice to the owner and file that notice as well. Finally, the claimant must subsequently file a “Bill to Enforce” which is a lawsuit enforcing the mechanic’s lien
3. When is it filed? No later than 90 days after the last day of the month that work was last performed or materials were provided, and in no event no later than 90 days after completion of work on the project. The Bill to Enforce must be filed within six months of recordation of the Memorandum of Lien.

Maryland

1. Who can file? All persons performing labor or materials for a construction project
2. What is filed? Subcontractors must file a Notice of Intent to Lien in the Clerk’s office of the Circuit Court where the property is located. The first notice required for a general contractor is the Petition to Establish Mechanic’s Lien. Subcontractors are also required to file a Petition in order to enforce the lien.
3. When is it filed? A general contractor must file a Petition within 180 days of completion of the work or delivery of materials. A subcontractor must file a Notice within 120 days after performing work or providing materials.

District of Columbia

1. Who can file? Any person having a contract with the owner or the general contractor (note the difference here compared to Maryland and Virginia)
2. What is filed? A Notice of Mechanic’s Lien is filed at the office of the Recorder of Deeds in Washington, DC. In addition to filing, subcontractors must serve the Notice on the owner of the property. In order for any contractor to enforce the lien, a Complaint must be filed.
3. When is it filed? The Notice must be filed within 90 days after the project is completed or terminated, whichever is earlier.
    

Needless to say, while this is a handy guide on deadlines, there are plenty of issues, questions and nuances embedded in these several declarative sentences.  Mechanic's lien practice is highly technical and an area of law fraught with danger.  I would suggest this is definitely a subject matter where clients are well advised to stay away from at home remedies unless they are willing to risk their entire claims.

Image:  From the Luna Commons, part of the David Rumsey Map Collection

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The current state of the economy makes clear that cash-flow is king in the construction industry. As our last post discussing the failed Granby Tower project in Norfolk demonstrates, even very high profile projects can suffer disastrous failures if the players have not addressed financing issues appropriately. For both general contractors and subcontractors, the first key to protecting yourself is to know the applicable rules of the game regarding mechanic’s liens and payment bonds.

• Know the timing requirements – failing to comply can and often will be fatal to your claim
• Know the precise contents of required bond and lien notices – again, failure is not an option
• Do not assume that all states are the same – with regards to both liens and bonds, you must know the applicable rules for each state in which you are doing work, and states differ substantially on form, content, and timing of required notices
• For bonds, obtain copies of the bonds before you start work as a subcontractor – on private jobs, the bond terms will control and your notices need to comply with the bond or again your claim may fail
• Do the research before the last second - you do not want to find out no day 91 that your lien notice was required on day 90; it is best to know the requirements before the job starts
• Associated corollary - if possible, spare your lawyer the heart attack and get them involved early, before the last second!

Perhaps from a perspective of self-preservation, but also in the interests of potential claimants, I will choose to end by amplifying on the last point a bit.  Lien claims, for example, are highly complex, extremely technical, and quite challenging.  A modest flaw may prove fatal to the claim.  Knowing this, it is in your best interest as a lien claimant to give yourself the best chance for success by not waiting until the last minute to evaluate, document and pursue lien claims.  Placing a last minute rush on an issue increases the difficulty of obtaining required information, reviewing applicable materials, and accurately preparing, filing and transmitting required notices and documents.

Given the current prevalence of cash-flow, collections, bonds and lien issues, we will be spending some more time in future posts discussing some of the regional variances amongst Virginia, Maryland and the District on lien and bond claims. We will also highlight a number of specific potential issues with liens and discuss some recent cases surrounding the same.

Image by Purpleslog

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As noted earlier today, we had the opportunity to post on the Construction Law Musings blog today as a guest blogger.  The post discusses litigation involving the failed Granby Tower project in Norfolk, Virginia - Norfolk inhabitants will likely know this project as the excavated hole in the ground downtown filling with water for the last couple years.

Here is a partial excerpt of the post:

A recent Virginia case once again demonstrates that contract terms matter. An unusual financing term allowed the owner of a project a complete escape from any liability on a project despite significant work being performed. The opinion from the Circuit Court of Norfolk involved five separate cases consolidated together, four claims by subcontractors and one by the general contractor Turner. All five cases hinged on an unusual financing clause in Turner’s contract with the owner.  The provision stated:

This Agreement and any liability … of the Owner (other than liability …. for Preconstruction Services) shall be subject to and expressly conditioned upon the closing by the Owner, and the initial funding by its lender, of the construction loan (on terms satisfactory to Owner) and Owner shall have no obligation or liability to [Turner] for any costs for the Construction Phase under this Agreement unless such construction loan closing is completed.

The court found that despite significant efforts, the owner was not able to procure such financing. Substantial construction work started, including excavation for the project, without actual financing in place. Multiple subcontractors filed liens and filed suit to enforce the liens, as did Turner. The court found that the contract clause completed absolved the owner from liability. The court further ruled that the subcontractors could not recover. Virginia statutes provide that a subcontractor cannot lien a job for amounts in excess of what the owner owes to the general contractor. While often described as “the owner only pays once”, the court held that the owner’s total defense to Turner’s claims similarly buried the subcontractors’ lien claims.

Please visit the link above to see the entire post!

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