Does Punchlist, Warranty, or Corrective Work Extend the Deadline for Filing a Mechanics Lien?

Construction and Procurement Law News, Q4 2016

Firm Alert

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There is no stock answer to this question. The outcome depends on what transpired, how it was handled, and the requirements of the mechanics lien law governing the contract and project. A recent court decision by an intermediate court in Alabama addresses some of the factors that can influence the result.

In Massey Asphalt Paving vs. Lee Land Development, a paving contractor (Massey) entered into a contract with an owner (Lee) to install pavement on two properties known as Lee Gardens and Lee Commercial Park. Lee paid Massey’s first invoice in full. Massey sent Lee a second invoice in April, but Lee paid only half of it. Lee questioned the amount of the invoice, which was based on estimated (not actual) quantities. Massey agreed to allow Lee to delay payment of the balance until the quantity of pavement could be measured.

In October, Massey and Lee met at the jobsite and measured the quantity of paving that Massey had installed. The actual quantity was more than estimated in the April invoice. Nevertheless, Lee paid only a portion of the unpaid balance of the April invoice, either because Lee was not satisfied with the quality of the work or Lee simply did not have sufficient funds. Massey testified that Lee promised to pay the balance after the property was sold at auction, but Lee never paid the balance.

Shortly after the October meeting, Massey performed additional work to correct problems that arose after the paving was first installed. Although the cause of the problems was disputed, the court concluded that the problems could have been caused by defects in the original paving work. Although Massey took the position in court that it was entitled to be paid for the additional work, Massey never invoiced Lee for that work. In November, Massey filed a mechanics lien for the remaining balance of the April invoice, but it did not include in the lien an amount for the work performed in October.

Alabama’s mechanics lien law requires contractors such as Massey to file their mechanics liens within six months after the last item of work has been performed under the contract with the owner. Massey’s lien was filed within six months of the October work but more than six months after the work covered by the April invoice. The court determined that Alabama’s law was ambiguous as to whether “the last item of work” means the initial completion of the contract scope of work or the completion of corrective work performed at a later date. Under the specific facts of this case, the court decided that allowing the deadline to be extended would defeat the purpose of giving notice of liens to potential purchasers. It refused to extend the deadline and determined that Massey had lost its mechanics lien rights.

Would the outcome have been different if the October work was punchlist work (as opposed to corrective work), or if Massey had invoiced for that work and included it in his mechanics lien? Would it have been different if Massey had argued and shown that the scope of work under the contract had not yet been completed in October? Did Massey think his agreement to defer payment extended the mechanics lien deadline? As might be expected, the court limited its ruling to the proven facts of the case.

The decision to pursue or defend a mechanics lien should not be made too late, taken lightly, or made without reference to surrounding facts and circumstances. Because the issue is so specific to each jurisdiction, it often requires input from various sources, including project managers and superintendents, executives, and legal counsel. In some jurisdictions, lien rights should be considered before one even mobilizes. Had Massey been more attentive to its lien rights, the outcome for Massey might have been different.