The New York Lien Law is a remedial tool that was enacted to allow laborers and materialmen (such as contractors, subcontractors and suppliers) to secure their ability to receive payment on a construction project.
There are two types of mechanic’s liens: liens under contracts for private projects and liens under contracts for public improvements. Each type of lien has different requirements. This post will focus on public improvement mechanic’s liens.
The goal of the state’s Lien Law for public improvement projects is to ensure that public improvement funds appropriated for the improvement actually get paid to those who did the work and furnished materials.
(Note: in New York, many public improvement projects also require payment bonds — also known as Section §137 bonds — which provide another avenue to parties that improve public property.)
A public improvement mechanic’s lien is filed against the public fund (i.e., the money due to the contractor who entered into the public works contract with the state or public corporation).
For this reason — unlike a private improvement — on a public improvement, the contractor who has a direct contract with the public owner does not have lien rights against the public owner.
Only those persons performing work for — or furnishing materials to — the contractor. or their subcontractor, may file a lien. That contractor may have other remedies, such as a lawsuit, for breach of contract against the owner.
The Lien Law contains many details about who can file a lien, how and where the lien must be filed, what information must be included in the lien, and how long the lien lasts after it is filed.
Below are a few key highlights related to filing a public improvement mechanic’s lien.
- Who can file
On a public project, a subcontractor, and the subcontractor’s subcontractors and suppliers may file a mechanic’s lien.
Note: A prime contractor who has contracted directly with the state or public corporation for the improvement project may not file a public improvement lien.
For public improvement projects, a mechanic’s lien can be filed at any time before the project is completed and accepted, and up to 30 days after the project is completed and accepted.
The statute contains a detailed list of requirements for the lien, including, but not limited to:
- The lienor’s name and residence or business address if the lienor is a business
- The name of the contractor or subcontractor for whom the labor was performed or materials furnished, if known
- The amount due or to become due
- The date when the amount is due
- A description of the public improvement contract
- The kind of labor performed and materials furnished, or manufactured, for the project, but not delivered
- A general description of the public improvement contract.
Importantly, the lien must be verified by the lienor.
- What amounts can be included
Only amounts due for labor and materials can be included in the lien. A lienor may not include items or damages such as lost profits on uncompleted work.
This point is critical because if your lien is found to be willfully exaggerated, your lien will be null and void, and you may be responsible for attorneys’ fees, bond sums (if the lien is discharged by a bond), and additional damages equal to the amount by which the lien is found to have been exaggerated.
A public improvement lien must be filed in two places:
(1) With the head of the department having charge of the public improvement project
(2) With either the state comptroller or the public corporation’s financial officer that is charged with the custody and disbursements of the funds for the public improvement
- How long does a lien last
A mechanic’s lien is valid for one year after filing. You must then file an action to foreclose the public improvement lien and a notice of pendency of the action within that year.
If you do not file an action to foreclose within the initial one-year period, you may seek to extend the lien for one additional year by filing an extension of the mechanic’s lien before it expires.
What happens after you file the public improvement lien?
After the lien is properly filed and served on the public entity, the public entity withholds payment from the contractor as security against the lien. Many times, that will result in the contractor paying your claim or attempting to settle your claim.
In other cases, the contractor may post a surety bond (in an amount of 110% of the lien amount) to discharge the lien. The surety bond acts as the “security” for payment if you successfully foreclose on the lien.
While the Lien Law can be a powerful tool, lien details are crucial.
The Lien Law must be strictly complied with and if you leave out any information or the lien is factually incorrect, the lien will be void (or subject you to damages).
To make sure your lien rights are properly exercised and protected, you should consult with an attorney experienced in this area of the law.
In construction, legal advice is not limited to disputes after something goes wrong. Risk mitigation, prevention and clear ground rules through well-drafted contracts may help to avoid a potential disaster and save you time and money in the future. If you find yourself in need of legal advice or representation, or have any questions, please feel free to contact me.