At its most basic, a mechanic’s lien is a security interest in real estate for those who have supplied labor or materials for the property. Much like a mortgage, if an owner becomes insolvent or unable to pay its debt, the contractor can enforce its security interest on the property. A mechanic’s lien is not an exclusive remedy, and a contractor can maintain a breach of contract action against the nonpaying party at the same time. However, a mechanic’s lien can be invaluable when an owner or higher tier contractor becomes insolvent. In order to utilize the benefits of a mechanic’s lien, it is crucial to understand the basic requirements.
The “90 day rule” requires that a mechanic’s lien be filed within 90 days of the last day of the month in which the contractor last performed work on the project. A mechanic’s lien also must be filed within 90 days of completion of the project.
The “150 day rule” prevents a contractor from including the costs of any labor or materials furnished more than 150 days prior to the last day it supplied labor or materials preceding the filing of the lien. In fact, inclusion of costs for work or materials furnished more than 150 days prior to such date can be fatal to the entire lien. See Smith v. Building Supply, LLC v. Windstar Properties, LLC, 277 Va. 387 (2009). Generally, claims for attorney’s fees should not be included in the lien.
After filing a mechanic’s lien, a contractor has six months to file its lawsuit or 60 days after completion or termination of the project, whichever is later. All parties claiming an interest in the property must be named as defendants (e.g. the owner, lienholders, etc.). The lien must also reasonably identify the property, and name the legal owner of the property at the time the lien is recorded.
A general contractor (i.e. one who directly contracts with the owner) must file a certification of mailing of a copy of the lien to the owner’s last known address. A subcontractor must give written notice to the owner and general contractor of the amount and character of its claim.
One- or Two-Family Residential Dwelling Unit
If an owner designates a “mechanic’s lien agent” (typically noted on the building permit), then any contractor asserting their mechanic’s lien rights must give notice that the contractor is seeking payment for labor or material. Va. Code § 43-4.01 (B). Such notice must be given within 30 days of starting work on the project, or a contractor can only claim payment for work performed after notice was given.
Possible Defenses to a Mechanic’s Lien
Defense of Payment
As a practical rule, the defense of payment (an affirmative defense) recognizes that an owner or general contractor only has to pay for the project once. In practice, this means that if an owner has fully paid a general contractor for the project prior to a subcontractor filing a lien, the subcontractor cannot enforce its lien against the owner. Instead, its fight would be with the general contractor for nonpayment. If the owner has made some payment to the general contractor, then the owner would only have a partial defense of payment.
Recently, Virginia revised its mechanic’s liens statute (link to Va Code § 43-3) to address pre-work waivers or limitations on the rights of lower-tier subcontractors. The statute now prevents subcontractors from “waiv[ing] or diminish[ing] his lien rights in a contract in advance of furnishing any labor, service, or materials.” Practically speaking, this means that general contractors can no longer require subcontractors to agree to any pre-construction terms where lien rights are waived. The statutory change does not, however, prevent owners from requiring general contractors to waive these same rights. This means that a valid lien waiver by a general contractor will prevent them from asserting any right to a mechanic’s lien. The statue also does not prevent general contractors and subcontractors from waiving their lien rights at the time they receive a progress payment.