Complying with timing requirements is crucial to mechanics lien claims, but, as we’ve mentioned before, calculating these deadlines can sometimes be difficult. This is especially true in states with more than one date that must be calculated, and when there are different methods to calculating those dates. Even when the deadlines have been successfully navigated, and the lien claim is valid and enforceable, the process is still not yet complete. If the property must be foreclosed to satisfy the mechanics lien, is the whole property sold, or just part? A recent Virginia case provides some insight to the calculation of deadlines, and raises some questions related to the sale of property to satisfy valid mechanics liens.

Background of the Recent Virginia Mechanics Lien Case

In Glasser & Glasser, PLC v. Jack Bays, Inc., 285 Va. 358, 364 (Va. 2013), the Virginia Supreme Court provided some insight into the multiple timing requirements of Virginia mechanics lien law, as well as posing a question as to how a sale of a property to satisfy mechanics liens should be effected.

Jack Bays, Inc. (“Bays”), was the general contractor on a project to construct a new church building. The property as a whole was 22 acres, and the buildings were to be located on 2.8 acres of that total. After work had been ongoing for approximately two years, the church ran out of money and stopped paying Bays. Because of this nonpayment, Bays sent a letter to the subcontractors on the project on September 28, 2007 stating that Bays was stopping work on the church, and immediately did so; the subcontractors remained onsite demobilizing and securing the site.

Bays filed a mechanics lien against the property on December 28, 2007, and 12 subcontractors followed suit and recorded mechanics liens later that month, and in January 2008.

90-Day Rule for Virginia Mechanics Liens

Bays filed its mechanics lien on December 28, 2007, and last performed work in September, 2007. Clearly the filing of Bays’s mechanics lien complies with at least the first prong of the 90-day rule – December 28 is within 90 days of the last day of September. It was argued, however, that since December 28 is 91 days from September 28, Bays missed the second prong of the deadline by one day, a result which would have rendered the mechanics lien ineffective. The court did not agree with this argument. The court determined that the end of the project was not the September 28 date on which Bays stopped work, and sent the letter to the subcontractors stating that it was stopping its active work on the project. In reaching this determination, the court noted that subcontractors stayed on the project site into November demobilizing the site and performing work to render the site safe. Because of this ongoing work, the court concluded that the lien filed by Bays on December 28 met both prongs of the 90-day requirement, because it was filed within 90 days of the last day of the month in which the claimant last performed work, and it was filed within 90 days of the completion of the project.

150-Day Rule for Virginia Mechanics Liens

The court examined an argument that Bays violated the 150-day rule by using September 28 as the look-back date, even though Bays was onsite through its subcontractors for an additional period of time. The court rejected this argument, stating that the additional work performed by the subcontractors after the September 28 date did not add value to the project to extend the 150-day calculation; it was merely demobilization and safety work, not work adding value to the property.

Sale of Property

Because the two findings above rendered the mechanics liens valid and enforceable, the court was required to review the lower court’s order that the entire property be sold to satisfy the mechanics liens. As you will recall, the construction took place on 2.8 acres of a 22 acre property. Virginia mechanics lien law states that the a mechanics lien does not necessarily apply to an entire property, but only to “so much land. . .necessary for the convenient use and enjoyment thereof”. Evidence must be provided to demonstrate whether all of the land, or what portion of the land, is necessary to be sold for the enjoyment thereof. As no evidence had been presented to such in Bays, the court remanded the case for consideration of that issue. It will be enlightening to see what the lower court determines on this issue, and the finding will provide some guidance as to how a foreclosure proceeding may proceed, and to what lien claimants can expect when forcing the sale of a property to satisfy a lien claim.

Written by Nate Budde See original article at Virginia Mechanics Liens: New Case Provides Answers and Questions Originally posted on the LIEN

The Lien Blog recently discussed changes to the mechanics lien law scheme in Virginia. These changes mandate that every mechanics lien claimant have a license, and that the license number and dates of issue and expiration be listed on the face of the lien document, in order for the claimant’s lien to be valid.

How Much Does This Actually Change Virginia Mechanics Lien Law?

This looks to be a large change to the structure of lien law in Virginia; a previously (potentially) protected party is no longer entitled to mechanics lien rights, and the formal requirements of the lien claim and certain notices have been altered. There is no question that the mandatory inclusion of the lien claimant’s license number, and the dates of issuance and expiration of that license, is a significant change to the law. The mandatory licensing provision seems to be a large change, as well. But, are they really?

Formal Requirements – License Number & Dates of Issuance Expiration

The inclusion of the license number and dates of issuance and expiration is modified by some savings-clause language in the statute. This savings language,

An inaccuracy in the memorandum as to the claimant’s license or certificate number, if any, the date such license or certificate was issued, or the date such license or certificate expires shall not bar a person from perfecting a lien if the claimant can otherwise be reasonably identified in the records of the Board of Contractors.

seems to remove some of the teeth from the requirement. While the mechanics lien law statutes are strictly read and interpreted in Virginia, the above clause provides a significant “out” for the contractor who fails to properly identify his or her license number (and associated dates) on the lien claim. 

Mandatory Licensing for Lien Rights

Potentially, the most significant change to Virginia lien law is the new requirement that a lien claimant be licensed in order to have a valid lien claim. Va. Code Ann. Sec. 43-3(D) states that:

A person who performs labor or furnishes materials without a valid license or certificate issued by the Board of Contractors pursuant to Chapter 11 (§ 54.1-1100 et seq.) of Title 54.1, or without the proper class of license for the value of the work to be performed, when such a license or certificate is required by law for the labor performed or materials furnished shall not be entitled to a lien pursuant to this section.

There is at least some Virginia jurisprudence in which courts have agreed with an interpretation of Virginia law disallowing mechanics lien rights to unlicensed parties – when those parties knew a license was required for their work. In Lower v. Cranch, 32Va. Cir. 110 (1993), the court noted that if a subcontractor had actual knowledge that the general contractor on a project was not licensed, that knowledge would bar recovery on the subcontractor’s mechanic’s lien. Also, the court in Butler v. Creative Design Builders Inc., 24 Va. Cir. 362 (1991), the court concluded that an ower could assert a lack of license as a defense against a subcontractor’s mechanics lien to the same extent as it could be asserted against the general contractor.

Both of the above cases make reference to the licensing law noted by the recent revision to the mechanics lien law – Section 54.1. Section 54.1-1115(C) provides that no person can assert lack of licensure as a defense to a lawsuit “if the party who seeks to recover from such person gives substantial performance within the terms of the contract in good faith and without actual knowledge that a license … was required … to perform the work for which he is seeking to recover payment.” (emphasis added). This statute has been interpreted by at least the courts noted above, to mean that lack of licensure could be asserted (even against a mechanics lien) when the lien claimant did have knowledge that a license was required.

So, what does this mean for Virginia lien claimants? Now, a Virginia lien claimant is required to be licensed to have a valid mechanics lien claim, whether or not they know it.

Written by Nate Budde See original article at Virginia Mechanics Lien Law Amendment: How Much Really Changes? Originally posted on the LIEN

Virginia Lien Law Amendment

The Lien blog is constantly writing about both effective and potential changes in a state’s mechanics lien law.  As we’ve noted, sometimes these changes can be innocuous, such as when Louisiana substitutes an English word for Latin one for its statutes, but others, such as Illinois’ proposed bonding-off amendment, can have major consequences.  Virginia is currently one of those states that into the latter category: Just three little lines that were recently added to the Virginia’s mechanics lien law are sure to have a huge effect.

How Did Virginia Mechanics Lien Law Change?

After bouncing around both houses of the Virginia legislature and their respective committees for just a little more than two months, Governor Bob McDonnell signed into law the following amendment’s to his state’s mechanics lien law:

A person who performs labor without a valid license or certificate issued by the Board for Contractors pursuant to Chapter 11 or without the proper class of license for the value of the work to be performed, when such a license or certificate is required by law for the labor performed shall not be entitled to a lien pursuant to this section.

The message of the amendment is clear: Either get a contractor’s license from the state first or lose your right to file a mechanics lien later.  Although not many states currently have strict standards for who can file a mechanics lien, Virginia may be been inspired by New York mechanics lien law, which bars parties without both a contractor’s license and a license to do business from filing a mechanics lien.

The statute does add a few other requirements that potential Virginia lien claimants should be aware of:

1. Starting July 13, 2013, the date that these amendments become effective, a memorandum of lien must include both the claimant’s state license or certificate number and the date the claimant obtained that license as well as its expiration date.
2. Inaccuracies in this memorandum of lien, such as reporting the wrong license number or expiration date, will not bar a claimant from perfecting a lien so long as the correct information can be verified by the Board of Contractors.
3. If a building permit has the name and other important information of a lien agent, then a claimant must also file notice with that lien agent in certain circumstances.  This notice must also contain the claimant’s license number, date the license was obtained, as well as expiration date.

For the sake of thoroughness, the amendments, for some reason, also substituted “30″ for “thirty” in the context of how many days a claimant has to file a lien on a one or two family residential unit.

Moving Forward

As we discussed earlier, the law is pretty straightforward:  Either get a license or certificate from the state before July 13, 2013, or lose the right to file and later sue to foreclose on a mechanics lien under Virginia lien law.  The three months between the date the bill was signed into law – March 13, 2013 – and the date it becomes effective will hopefully be enough time for those that don’t currently have licenses to get them soon.

Written by Elliot Singer See original article at Mechanics Liens: Recent Lien Law Amendments in Virginia Originally posted on the LIEN

Unjust Enrichment, Quantum Meruit, and Express Contracts in Virginia

Here at the PAID blog we write a lot about how unpaid subcontractors can get paid by filing a mechanics lien because we think a mechanics lien is the best tool for getting paid.  Nevertheless, there are also other avenues unpaid parties can take, to recover payment.  Two other causes of action unpaid subs can utilize are quantum meruit and unjust enrichment.  However, when an express contract exists, can unpaid subcontractors in Virginia still get paid under quantum meruit and unjust enrichment in light of a recent Supreme Court decision in that state?

What is Quantum Meruit?

In Latin, quantum meruit literally means “respect earned.”  Legal scholars define the term as “as much as he has deserved.”

Whatever your choice of translation, a lawsuit that alleges quantum meruit is essentially asking the court to award damages based on the value of the work performed.

For example, let’s say a property owner enters into an agreement with a carpenter to build a deck on the owner’s backyard.  Unfortunately, the owner and the carpenter never specify how much money the carpenter should be paid upon successfully completing the deck.  What happens when the property owner refuses to pay the carpenter at all, or if the two parties disagree on how much the carpenter should be paid?

The carpenter may sue the property owner under a theory of quantum meruit. Essentially, the carpenter would be asking the court to assign a dollar value that the carpenter should receive based on the work performed.  When assigning damages based on quantum meruit, courts may look to the market value of the work performed, what other carpenters or construction experts believe the work is worth, or what the two parties may have intended the contract price to be.

What is “Unjust Enrichment”?

Unjust enrichment is another equitable form of relief that is somewhat similar – but different from – quantum meruit.  Though I’m sure some law professors would disagree with my oversimplification of the distinction, the basic difference between quantum meruit and unjust enrichment is that in unjust enrichment there may not have ever been any agreement to begin with, where as with quantum meruit, there was an agreement but the agreement never specified a price.

Using the carpenter and deck example above, perhaps the property owner in an unjust enrichment example is actually a condominium owner who belongs to a ownership association.  Without necessarily asking permission of each individual owner, the ownership association decides to hire a carpenter who will build a deck on the back of each condominium in the property.  Even though the carpenter and the individual condo owner never reached an agreement, the carpenter may be able to sue the owner to get paid for the work the carpenter performed because building a deck is a situation in which one would “expect compensation in return,” and the property owner gained something from the work..

Even without an agreement, courts may force the owner to pay the carpenter under a theory of unjust enrichment.  Essentially, the owner has received the “enrichment” of a deck without paying anything in return.  Like quantum meruit suits, courts will look to the market value of comparable decks, evidence from construction experts, and the intent of the parties when assigning damages.

What is an Express Contract?

An express contract differs from lawsuits claiming quantum meruit and unjust enrichment because express contracts not only explain what work is to be performed but also how much the work is worth.  How much the work is worth is called the contract price.

In lawsuits involving an express contract, all courts have to do when assigning damages is look at what the contract price is and whether the party performing the work did enough to earn the contract price.  These suits are called breach of contract lawsuits because, although the parties laid out exactly what must be done and how much that work is worth, one of the parties failed to meet its obligation.  In our deck and carpenter example, the property owner would have breached the contract by not paying the carpenter what the owner promised he would pay.

If an Express Contract Exists, Can an Unpaid Subcontractor Still Sue Under Quantum Meruit or Unjust Enrichment?

We are finally getting to the heart of this post in answering the question: If a subcontractor and property owner or general contractor are parties to an express contract, can the unpaid subcontractor use both a mechanics lien and quantum meruit/unjust enrichment to get paid?

For many years, courts in Virginia and all other 49 states have mostly agreed that a mechanics lien arising out of an express contract and all other claims are mutually exclusive.  In other words, if an unpaid subcontractor files a mechanics lien, it cannot also sue under quantum meruit and unjust enrichment.

Of course, there are always complicating factors.  For example, using our carpenter and deck example one last time, what happens if there are two co-owners of the property but only one of them is listed in the contract to build the deck?  Can the carpenter file a mechanics lien against the listed property owner but file a claim for unjust enrichment or quantum meruit against the unlisted property owner?

The question just came up in a case before the Supreme Court of Virginia, Smith v. Owens.  (Unfortunately, the decision was unpublished so we can’t link to the actual opinion itself.)  In Smith, the court held that even if a property owner or other beneficiary of work performed isn’t listed in a contract, the question should be not what parties are listed but what the subject matter of the contract is.  So long as the subject matter of the contract is properly described and a contract price assigned, it doesn’t matter who is listed as a beneficiary or owner in the contract.

What Does the Ruling in Smith Mean Moving Forward?

For starters, because the opinion is still unpublished, it’s unclear how much weight the case will carry in influencing future court decisions.  In other words, the court’s ruling may be limited to the individual situation raised in the case only.

However, assuming that the case can be used as precedent, what does its ruling mean for unpaid subcontractors?

First, so long as an express contract exists, presumably unpaid subcontractors can only rely on mechanics liens and not unjust enrichment or quantum meruit.  Even if other parties besides the party or parties listed in the contract benefit from the subcontractor’s work, the subcontractor cannot sue those unlisted parties directly other than in a suit to foreclose on a mechanics lien.

Second, and in a much broader sense, the case affirms the power of a properly filed mechanics lien.  In all situations where an express contract or subcontract exists, a mechanics lien forces anyone who benefits from a construction project as a whole to pay off that lien, whether or not they are listed as parties in the contract.

Thus, while subcontractors in Virginia may be concerned that they have less avenues to get paid if an express contract exists, a mechanics lien still is the best way of forcing property owners and other beneficiaries of work performed to pay the party that performed that work.

Written by Elliot Singer See original article at Mechanics Lien Law: Is There Room for Quantum Meruit and Unjust Enrichment in Virginia? Originally posted on the LIEN

Virginia courts take an interesting and unique approach regarding pay when paid clauses in construction contracts. As outlined by Galloway Corp. v. S.B. Ballard Const. Co., 464 S.E. 2d. 349 (1995), and explained in a recent post, Virginia examines each pay when paid clause dispute on a case by case basis when the language of the contract is not explicitly clear. This is done in an attempt to determine the intent and understanding of the parties. This approach time consuming and inefficient judicially, and it puts contracting parties in a position where the actual terms of the contract may not be knowable until after a dispute arises, if the contractual language is not sufficiently clear. If the exact same contractual language can result in wildly different outcomes, no party to the contract can really be sure exactly to what it is that they are agreeing.

Intent Beyond the Language of the Contract May Matter in Virginia Pay When Paid Clauses

As pointed out previously, the parties’ intent behind the pay-when-paid clause in the construction contract may matter in Virginia. In fact, the parties’ understanding of the language is the cornerstone for determining whether the pay-when-paid clause functions as a timing mechanism or as a risk-shifting device when the language of the contract could reasonably be interpreted either way. On its face, this may not seem to be such a big deal. After all, generally speaking a “meeting of the minds” is required for a proper contract, which makes sense. If two parties contract for something, they need to be in agreement as to what that is. This doesn’t generally mean, however, that a fine-toothed comb will be dragged over the contract in the event of a dispute in order to determine whether or not each party understood each individual provision to mean exactly the same thing. The freely-given consent to the contract as a whole, evidenced by signing the contract and starting to perform under it, gives rise to the presumption that the parties were in agreement about the contents.

As described in a recent post, if there is ambiguity in the contractual language, the exact same contract terms can work in a different manner depending on how that language is understood by different parties. This was clearly set forth by Ballard, where numerous subs signed contracts with the exact same pay when paid clause. The court determined that some of the subs understood the pay when paid clause would shift the risk of non-payment (and work like a pay if paid clause), and one sub did not. Because the language of the contract contained what the court determined to be a “latent ambiguity”, the court was able to look beyond the words of the contract in an attempt to determine the parties’ understanding and intent. This clearly worked to the benefit of the sub that did not understand the pay when paid clause to work as a risk-shifting device in the event of non-payment by the owner.

What Does This Mean, and Why Does It Matter?

There are a couple of important things to consider regarding pay when paid clauses in Virginia construction contracts.

Likewise, if a pay when paid clause is explicitly clear that it is to be interpreted as a timing mechanism, and not a risk-shifting device, it will likely be interpreted in that specific manner. Language that a sub is to be paid within 10 days from the date the general is paid, but “If, for any cause which is not the fault of the Subcontractor the Contractor does not receive timely payment or does not pay the subcontractor within 10 working days after receipt of payment from the Owner, final payment to the Subcontractor shall be made upon demand” is likely sufficient to render the pay when paid clause a mere timing mechanism, and not a risk-shifting device.

If, however, the language of the contract is not sufficiently clear so as to determine whether or not the pay when paid clause was intended to be a risk-shifting device or a timing mechanism, the court will look to the intent of the parties. This can result in the odd situation where the exact same contractual language can work in two different ways.

Since the court can look to outside evidence of intent and understanding when the contract language is ambiguous, it seems clear that the savvy subcontractor would have a policy, and internal communication detailing that policy, of only understanding pay when paid clauses as a timing mechanism. Evidence that a subcontractor believes pay when paid clauses to only pertain to timing, rather than risk-shifting can actually produce that result. If a party has that evidence, and follows a policy that provides more evidence of the same, that party is likely protected from risk-shifting pay when paid clauses acting as pay if paid clauses when the contractual language is ambiguous. This, in essence, provides a subcontractor with the potential ability to determine the terms of the contract unilaterally in instances where the contractual language may be ambiguous.

Written by Nate Budde See original article at Pay When Paid: Virginia Revisited Originally posted on the LIEN

Virginia Pay When Paid

Just a few weeks ago the PAID blog gave our readers a wonderful introduction to the complex world of pay if paid and pay when paid clauses.  As a quick refresher, construction subcontracts sometimes condition payment from the general contractor to the subcontractor on payment from the owner to the general contractor.  General contractors don’t want to have to pay their subs if the owner doesn’t first pay them first.  Yet the choice between “if” and “when” has serious consequences; generally speaking, a paid when paid clause only gives the general a reasonable amount of time to pay the subs but a pay if paid allows the general to withhold payment to subs entirely if the owner never pays (in states that don’t forbid such clauses as against public policy).

Why Virginia’s Interpretation is Unique

As the earlier post discussed, states have wildly different interpretations of these clauses.  Some states, such as New York, hold them completely unenforceable as a matter of public policy.  Other states, such as West Virginia, hold that, so long as the clause clearly and unambiguously shifts the risk of owner nonpayment from the general contractor to the subcontractor, both pay when paid and pay if paid clauses are always enforceable.  Another interpretation amongst states is that a pay when paid clause merely delays payment while a pay if paid clause permits indefinite withholding of payment to the sub.

Virginia’s interpretation, however, belongs in its own category entirely.  Specifically, courts in Virginia only consider the parties’ intent behind pay if paid and pay when paid clauses.  In Virginia’s landmark case on the issue, the Supreme Court of Virginia held that even if a general contractor uses the exact same language in all of its subcontracts, a pay when paid clause is sometimes enforceable if the sub intended the nonpayment risk to be transferred to the sub but unenforceable if the sub did not intend such a transfer.  

Intent Matters in Virginia

Virginia’s landmark pay when paid case, Galloway Corp. v. S.B. Ballard Construction Co., is really an exercise in applying the parties’ intents to contract language.  Some states only look to the words on the page in deciding how to interpret a contract; other states, such as Virginia, look beyond the page in an attempt to determine what rights and obligations the parties thought they were getting when they signed a contract.

In the context of pay when paid clauses, Virginia’s test for enforceability evaluates whether or not both parties intended to shift the risk of owner nonpayment from the general contractor to the subcontractor. 

Same Contract Language, Different Intent

In 1998, Galloway Corp. was hired to build a 14-story building in Norfolk, Virginia.  The developer agreed to pay Galloway $10.6 million for the entire project.  Work proceeded smoothly for the next year and a half – in which Galloway hired five subcontractors to help complete the building – until the developer’s funding dried up.  At that point, the developer had only paid Galloway $3 million and, in turn, Galloway had not completely paid off all of its subcontractors.

Every single subcontract Galloway signed with each sub had the exact same language:

Final payment, constituting the entire unpaid balance of the Subcontract Sum, shall be made by the Contractor to the Subcontractor when the Subcontractor’s Work is fully performed . . . and the Contractor has received payment from the Owner.

After having their invoices unpaid, the five subcontractors filed mechanics liens on the property and sued the developer and Galloway to foreclose on those liens.  Although Galloway asserted that the clause quoted above clearly stated that it did not have to pay the subcontractors if the owner never paid, the trial court disagreed.  Instead, the lower court held that the clause only delayed payment to the subcontractors and could not “be construed to say that each sub must bear its own loss if Galloway never got paid.”

On appeal to the Supreme Court of Virginia, the court affirmed in part and reversed in part the lower court’s decision.  Instead of holding that the “pay when paid” clause could never transfer nonpayment risk to the subcontractor, the court found that the clause sometimes did and sometimes did not.  It all depended on the parties’ intent: Did each subcontractor understand that by signing the contract they would be bearing the risk of not getting paid if the owner didn’t pay the general contractor?

In a brief analysis of each subcontractor, the court concluded that four subcontractors understood that they were assuming the risk of nonpayment but that one, Ballard, did not understand that the pay when paid clause would do so.

What the Court’s Holding Means Moving Forward

Law surrounding pay when paid clauses in Virginia changed forever the day the Supreme Court of Virginia issued its holding in Galloway.  Yet since there’s no clear law, how can general contractors ensure that the subcontract will actually transfer the risk of nonpayment to the subcontractor, or, the other way around, how can subcontractors ensure that the risk will not be transferred?

The court does provide us with some guidance.  Instead of complex legalese, parties should make the contract language as crystal clear as possible.  

Whatever route parties to a pay when paid clause choose to take, one take-away emerges: The clearer the pay when paid clause is, the easier it will be for the court to interpret it.

Written by Elliot Singer See original article at Pay When Paid Clauses: Virginia’s Unique Interpretation Originally posted on the LIEN

This is a guest post from friend-of-the-blog Christopher Hill. Christopher is a construction attorney in Virginia, and the author of the Construction Law Musings blog.

First of all, thanks to Scott and the other good folks here at the Lien Blog for their continued support of my Construction Law Musings blog with both these opportunities to post and with Scott’s guest posts at Musings (the latest of which is here).

Scott has asked me to blog at a time when it seems that a group of statutes that have served contractors well here in Virginia for a long long time without change are in the crosshairs of the General Assembly like no other time I can remember.  These statutes are, of course, the Virginia mechanic’s lien statutes.  As you can tell by the titles of both my blog and the one you are reading right now, mechanic’s liens are near and dear to our hearts.  Changes to these statutes are changes to my law practice and to the way that contractors do business in Virginia.

While I have described the mechanic’s lien process in Virginia as tricky and at times overly form driven, once this process is understood (with the help of a construction attorney in Virginia), a mechanic’s lien becomes a powerful and necessary tool in a construction professional’s arsenal of collection tools.  In short (and by way of disclaimer), I like the statutes the way they are.

All of this said I can see where some legislators may see the necessity to occasionally tweak these years’ old statutes.  Two recent attempts to amend these statutes hit the Virginia General Assembly this term.  The first, a re-submission of a change I blogged about both in 2012 and this session, monkeyed with the notice and timing requirements for residential liens in a way that would be highly detrimental to construction in Virginia.  Luckily, this attempt was thwarted in subcommittee (Senate in 2012 and House in 2013) before it could become law.

Another, more debatable, change is currently wending its way through the legislative process.  With the support of the AGC of Virginia, and as more thoroughly described in the blog post linked above, the new bill seeks to require the listing of a Virginia contractor license within the four corners of any properly recorded memorandum of lien.  The bill also specifically precludes any contractor that is required to be licensed in Virginia from asserting a lien without such a license.

On its face, this change does not seem to be at all controversial.  States have licensing requirements for a reason and those that shirk those requirements should not be allowed the freedom to assert liens for work that they are most likely performing illegally.  A no brainer, right?

Not so fast.  Consider the changes in light of the very form driven nature of the various court opinions relating to mechanic’s liens in Virginia.  No amount of good faith seems to allow even the smallest deviation from the requirements of the form or statute.  Now, consider the contractor performing work under a personal license who then changes his operating entity from a sole proprietorship/dba to an LLC (a common and laudable action).  The new entity is then properly assigned its own license number.  Contractor performs work through the LLC and is not paid and files a lien, but lists the license number for his dba that he had used for the prior 20 years.

In this situation, and despite the alleged savings statute in Va. Code 43-15, I think that the contractor, under the bill as currently drafted, would lose his lien rights despite this being a clear case of a properly licensed contractor making a simple mistake.  Such a result would not move the public policy of requiring licensure forward.  It would only punish a contractor for a scrivener’s error and for using a past license number.

As you can see, the law of unintended consequences can kick in for statutory changes with the most laudable of goals.

In short, while some goals are good ones (namely requiring licensure), legislators need to be careful when making even the smallest of changes to a statute that is so strictly read as the Virginia Mechanic’s Lien statute.

What are your thoughts?  I’d love to hear your points (pro or con) relating to this statute.

Written by Christopher Hill See original article at Is Messing With Mechanic’s Lien Statutes a Good Idea? Originally posted on the LIEN

On the first day of 2009, I wrote a post about the “150-day rule” in Virginia: Virginia’s Interesting 150 Day Rule. Therein I offered a pithy explanation of the rule:

From the last day of work, the claimant must count backwards 150 days. Generally speaking, a contractor is not allowed to include any labor or materials supplied outside this window in its mechanics lien.

I was reminded about this often overlooked rule by Brian Loffredo (@LoffredoLaw)of Offit Kruman in an article recently published: The 150 Day Rule: The Real Deadline For Filing Your Mechanic’s Lien In Virginia.  The title to this article is fantastic – “The real deadline…” – because it underscores the two key points about any discussion of the 150 Day Rule:  (1) It matters a lot when filing a mechanics lien in Virginia; and (2) It’s usually overlooked.

How To Calculate Your Mechanics Lien Amount With The 150 Day Rule

It’s very important to responsibility set your claim amount when filing a mechanics lien. There are a number of things you have to consider in any state, such as whether you can include attorney fees, lien costs, interest, finance charges, or other non-labor or material charges. Virginia’s 150 Day Rule is another factor when setting your claim amount for work or material furnished in that state.

A mechanics lien must be filed within 90 days of the last day of the month that your company last furnishes labor or materials to the project.  The 150 Day Rule, however, states that you can only make a claim for the labor or materials you furnished within 150 days from the last date of work or furnishing.

So, take a look at this chart:

This graph explains the overall period of time that work is subject to a mechanics lien in Virginia. You cannot file your lien later than 90 days from last furnishing, but you also cannot lien for any work or furnishing contributed earlier than 150 days before your last furnishing.

And this one, too:

This graph may explain Virginia’s 150 Day Rule a bit more clearly. The arrow in green indicates all the work that is subject to a mechanics lien – everything furnished within 150 days from the last date work or materials were provided. However, for all work or materials furnished later than that (displayed in red), there is no right to include in your mechanics lien.

There are only 2 exceptions to the 150 Day Rule:

1. Retainage.  Retainage withheld for labor or materials furnished prior to the 150 day period may be included in the mechanics lien claim.  The retainage cannot, however, exceed 10% of the contract price.
2. Pay When Paid or Payment Issues.  If the lien claimant has not been paid because money has not yet been received from up the contracting chain, such as is frequently the case when parties have pay-when-paid type contracts, these amounts can be included as well.

These two exceptions can be found in Virginia Code § 43-4.

Getting This Calculation Wrong Could Destroy Your Entire Mechanics Lien Claim

You don’t want to make the mistake of including materials or labor outside the 150 day window in your Virginia mechanics lien claim. Making this mistake will invalidate your entire lien.

This situation was addressed by the Virginia Supreme Court in 2009 in Smith Mt. Bldg. Supply LLC v. Windstar Props. LLC, 277 Va. 387.

In the Windstar Prop. case, the mechanics lien claimant had included materials and labor furnished before the 150 day window in its claim amount. The question was whether the entire lien should be invalidated, or if the claim amount should be amended and reduced to the allowed figure.

The mechanics lien claimant relied on VA Code § 43-15 which provides that “no inaccuracy in the [mechanics lien] filed…shall invalidate the lien, if the property can be reasonably identified by the description given and the [lien] conforms substantially to the requirements…and is not wilfully false.”

The Virginia Supreme Court, however, considers filing a mechanics lien for furnishing outside the 150-day period to be a “violation of a statutory prerequisite to perfect a mechanic’s lien” rather than an inaccuracy in stating the claim amount. The entire lien claim was accordingly discharged.

If you commit this error, your mechanics lien will likely be discharged, too.

Written by Scott Wolfe Jr See original article at Don’t Forget The 150-Day Rule In Virginia Originally posted on the LIEN

This is a guest post from our friend Christopher Hill of the Construction Law Musings blog. Christopher is a construction attorney in Virginia who has contributed to the Lien Blog in the past. We follow his blog closely to keep up to date on mechanics lien law in Virginia and are honored to have him contribute here again.

As always, thanks to Scott for the kind invitation to guest post here.  I always enjoy sharing a few nuggets of Virginia mechanic’s lien wisdom here at the Mechanic’s Lien Blog.

Mechanic’s liens are near and dear to Construction Law Musings.  Mechanic’s liens are a great weapon in the toolbox of any construction contractor in Virginia.  However, the rules for perfection of these liens are strict and failing to follow them to the letter will cause the lien to be thrown out.

The Loudoun County, Virginia Circuit Court issued another reminder of this fact in a recent opinion.  As a bit of background, Va. Code 43-3(B) contains provisions whereby a site contractor (or other contractor that provides work and material that benefits and entire subdivision) can file a single lien memorandum and apportion the burden of that lien on a per lot basis.  In order to do so, that contractor must also file a disclosure statement at the local courthouse in order to be able to lien common areas and the lots that are subdivided and sold.  Like everything relating to the proper recording and perfection of a Virginia mechanic’s lien, this statute creates strict technical requirements that the Virginia courts will strictly enforce.

In William A Hazel, Inc v Sycolin Center the Court faced a question of agreement between a disclosure statement filed by a site contractor and the lien filed by that same subcontractor.  The Court looked at a disclosure statement filed by the Plaintiff that listed 3 lots for the subdivision and properly allocated the amounts due per the statute.  However, when filing the lien, the site contractor only listed two of the lots found in the initial disclosure statement and then divided the total by 2 (the number of lots liened, not the number in the subdivision).  The Court examined past cases regarding mechanic’s liens, apportionment and errors and then threw out the lien as having been improperly apportioned.  For more details, be sure to read the case in its entirety, it contains a great analysis.

This case is yet another example of the need to be diligent in the filing of mechanic’s liens in the Commonwealth of Virginia.  These powerful tools will be strictly construed and the assistance of an experienced Virginia construction attorney can be invaluable in the proper perfection and enforcement of them.

Thanks again to Scott for the great opportunity.

Written by Christopher Hill See original article at The Strict Nature of Virginia Lien Apportionment Rules Originally posted on the LIEN

Christopher G. Hill, LEED AP is solo practitioner, Virginia Supreme Court certified General District Court mediator, lawyer and owner of the Richmond, VA firm, The Law Office of Christopher G. Hill, PC.  Chris has been nominated and elected by his peers to Virginia’s Legal Elite in the Construction Law category on multiple occasions and is a member of the Virginia Super Lawyers “Rising Stars” for 2011. He is a current member of the Board of Governors of the Virginia State Bar Construction Law & Public Contracts Section.  Chris also authors the Construction Law Musings blog where he discusses legal and policy issues relevant to construction professionals.  Additionally, Chris is active in the Associated General Contractors of Virginia.

Recently, here in the Commonwealth of Virginia, mechanic’s liens have taken a front seat for us construction attorneys.  Of course the biggest headlines and uproar took place over an attempt to effectively shorten the mechanic’s lien deadline relating to residential construction to 30 days.  Thankfully, construction contractors and suppliers dodged this bullet (at least temporarily) when the State Senate tabled the bill.

While this storm of activity was both justified and in the forefront, the Virginia General Assembly (surprisingly and refreshingly) made a change to the mechanic’s lien statute that will make things easier rather than harder for those that provide site improvements and utilities that benefit the entire development.

The recent changes to Va. Code §43-3 (effective July 1, 2012) clarify several points regarding the allocation of lien amounts to individual lots.  The main points of clarification are as follows:

• Common areas are explicitly excluded from the “denominator” of the lien allocation equation.  In other words, where there are 10 home sites and one common area, a site or utility contractor no longer needs to worry if it should allocate part of its lien amount to the common area and can safely allocate the amount owed to the ten home sites;
• Traffic signalization, and installation of electric, gas, cable, or other utilities are explicitly included in the definition of “site development improvements;”
• Any payments to the contractor for which the owner/developer does not designate a particular lot will apply to any previously sold lot and the remaining lots will continue to bear their share of the liability.

Of course, the remaining provisions of 43-3(B ), including the memorandum of disclosure requirement, will need to be followed in order to take full advantage of these clarifications.

For a further analysis, check out this recent newsletter by Fullerton & Knowles.

Thanks again to Scott for the opportunity, and please contact me with any questions.

Written by Christopher Hill See original article at A Virginia Mechanic’s Lien Change for the Better Originally posted on the LIEN