Punchlist work is a fact of life on construction projects. As too many in the industry know, not only are these punch lists commonplace, but they also have a tendancy to run on forever and ever, and even grow in size. It’s no secret that punchlist work can be an enemy to your company’s efficiency and bottom line if not properly accounted for and managed, but did you realize just how dangerous they are to your mechanics lien rights?
Danger: Punchlist Work Not Included In Calculation of Mechanics Lien Deadlines
The first and most discussed danger with punchlist work is that nearly every state’s laws exclude this type of work when determining your last date of furnishing to a project or even the project’s completion date. We previously wrote about this issue in With Mechanics Lien Deadlines, The Devil Is In The Details.
What does this mean exactly?
In every state, there is some deadline to file a mechanics lien. In most states, the deadline begins to count from your last day furnishing labor or materials to the project. In a minority of states, the deadline begins to run from the entire project’s completion.
Many would consider their last day of furnishing labor or material to the project or the completion date of the project to include punchlist work, but in the mechanics lien context, they would be wrong. For whatever reason, states almost universally exclude punchlist, warranty and other remedial type of work from any of these calculations.
The danger here is clear. If you don’t take this rule into account, you would consider your mechanics lien deadline to be one date when the actual date is much, much sooner.
Danger: Punchlist Work Holds Up Your Money, Putting You In A Catch-22
Earlier this week I was speaking with a client who was in a not-so-rare dilemma. Punchlist work on a project had gone so long that his mechanics lien deadline was approaching while he still had work to do on the site, and since he was still doing punchlist work, payments were held up.
For the purposes of this discussion, it really doesn’t matter whether the amount withheld from the contract for punchlist work is exaggerated or not, because in the mechanics lien context you’ll want to file a claim to secure everything owed to you – which will include amounts owed upon completion of punchlist work.
The Catch-22 is that your mechanics lien deadlines are expiring on money that you may not be contractually owed (b/c it’s contractually approved to withhold for a punchlist).
This situation is only addressed by state statutes and case law in a small minority of cases. Usually, there is little guidance to the subcontractor or supplier if this situation arises. The best practice may be to simply file the claim for the amount you expect to be due after punchlist acceptance. Of course, there’s the issue of project relationships when confronted with a mechanics lien deadline while still on the project.