Mechanics’ and Materialmen’s Liens
Statutory Authority For Liens
Private Project: KRS 376.010, Any person who performs labor or furnishes materials for the erection, altering, or repairing of a house or other structure, or for the improvement in any manner of real property, by contract with or by the written consent of the owner, contractor, subcontractor or agent shall have a lien thereon, and upon the land upon which the improvements were made or on any interest the owner has therein.
Public Project: KRS 376.210, Any person who performs labor or furnishes materials or supplies for a public construction project by contract, express or implied with the owner thereof or by subcontract thereunder, shall have a lien on the funds due the contractor from the owner of the property improved.
Furnishes materials : Lien may apply to any and all materials used in the construction of the structure. Materials delivered to job site but not incorporated into the improvement may also be included in lien. Materials picked up at yard or store may not be included. Tools and equipment used on project not included.
Written Agreement : Must have valid contract directly or indirectly with the owner of the property (privity). Contract can be with general contractor or subcontractor (but not a sub-subcontractor, i.e. can not be a supplier to a sub-subcontractor).
Rental Equipment: Lien exists for the reasonable rental price of equipment and machinery used in performing work to improve real estate.
Off-site Improvements: Must be directly connected to construction, erection or alteration of structure.
Overhead, Insurance, Taxes and Profit: Not valid for inclusion in lien unless included in contract price or where they constitute reasonable value of labor or materials furnished.
Perfecting and Enforcing Liens on Private Projects
Notice Requirements: Persons not contracting directly with owner must provide notice of intent to file lien with the owner. Purpose is to enable owner to retain money due contractor and apply it to pay lien claim.
Time Limits: Within 45 days (changes to 75 days on July 1, 2002), from the day the last item of material or labor was performed on the project for single or double family dwellings.
Within 75 days after the last item of material or labor is furnished for claims less than $1,000.00.
Within 120 days after the last item of labor or material is provided for claims over $1,000.00.
Contents of Notice of Intent :
Must be in writing, inform the owner of the clear intent to hold the property liable for the claim, the amount for which lien will be claimed, last day upon which work was performed or material delivered. Must be mailed via first class mail, (can mail certified, but also must mail first class).
Filing of Lien Statement: Lien itself, in Kentucky, is a separate written document. Lien technically exists when one performs labor or provides material. However, must file a written sworn statement within the statutory time frame or lien is dissolved. Must be filed within 6 months from the last date material supplied or labor performed.
Must be filed with the office of the county clerk of the county in which the improvement is located. Must describe the property with particularity. Must correctly be provided to the Owner. Must describe who the materials and or labor were provided to. Name, address and if a corporation, the name of the agent for service of process. Must be subscribed and sworn to before a notary public.
KEY: Claimant shall send by regular mail, a copy of the filed statement to the property owner within 7 days of filing.
Perfecting and Enforcing Liens on Public Projects
Preliminary notice of intent is not required to perfect lien, but is necessary to establish priority. Preliminary statement filed with county clerk in county where public agency is located. Must state that person has or expects to furnish labor or material and the price due. Effective date of lien relates back to the date of the filing of the preliminary notice. Must file lien itself within statutory time frame or lien dissolves.
Formal Lien Requirements: Writing verified by affidavit of the claimant or authorized agent (may be attorney or account manager).
Must be filed with county clerk’s office in county where work is performed or labor furnished.
Must be filed within 30 days after the last day of the month in which any labor or materials were furnished to project. Must include amount due and owed, include last date labor or material provided, and the name of the public improvement.
KEY: After lien is filed, it must be filed with public authority with proof that a copy was sent certified to the contractor or subcontractor with whom claimant contracted.
Enforcement of Lien: Lien must be enforced through a condemnation action within one (1) year of filing of the lien. Amounts received in condemnation action are pro-rated between various lien claimants.
On Public Projects: Once lien is filed with public agency, the contractor has 30 days to protest the imposition of lien. Once a protest is filed, the owner will hold the funds, and the claimant must file a lawsuit within 30 days or the owner can release funds.
Conclusion: Liens are effective tools if used properly. Liens filed before a loan closing are golden. If there is no upcoming financial impact, the lien can remain on property until suit is filed by claimant. Burden is on claimant.
Liens can be “bonded off” by owner or contractor, replacing the real estate with commercial bond. You then find yourself in a normal lawsuit.
The key to effective use is to train your accounting staff to send notice of intent letters early, and to file liens whenever you feel you are being ignored by the contractor or owner. Developing a strategy and a reputation for protecting your own interests will go a long way in developing a good credit policy.
Don’t be afraid of the impact of filing liens. Your customers will understand you are serious about getting paid for the work you do. You won’t lose good customers, only bad ones.
This document was prepared by Stephen E. Smith, Esq., Goldberg and Simpson, PSC
3000 National City Tower
Louisville, KY 40202
Some facts about mechanics and materialmen’s liens
Life as a lumber dealer is not always pretty. Sometimes you have to fight and scrape to get anyone to pay even the smallest bills. Even your best clients sometimes find a reason to put you off until next month. So what do you do? What leverage do you have to get some attention from the big fish, so they stop taking a bite out of you?
To help give some protection to the little fish in the sea, the legislatures of all of the states have seen fit to pass laws to give just a bit of leverage to even the smallest fish. These laws are called Mechanic’s and Materialmen’s Liens. The laws allow anyone who provides materials or labor to the improvement of another’s real estate to have a lien upon that real estate. And if that party is not paid for the work that was done, it allows that party to have the real estate sold at auction to pay the bills. In fact, that is pretty good leverage to have upon someone’s project if you are not paid. But how do you secure this lien, and how can you make it an effective part of your accounting procedures?
Included in this newsletter is an insert that sets out all of the details about mechanic’s liens, to assist you in following the letter of the law. But overall, there are only a few key points in the application and function of lien laws. The key questions are, “Who did you work for?” and “How long has it been since you have delivered to the job site, or worked on the project?”
Who you worked for is the most important question. A party who performs work or delivers material to a site has a lien at the time the work was performed or delivery was made. However, you have to perfect that lien to be able to enforce it. Perfecting the lien has two important components:
a. Notice to the owner. If you did not have a direct contract or purchase order with the owner, you must notify the owner of your intent to file a lien. The owner may not know that you have not been paid, especially if the owner has been making regular payments to the general contractor. Therefore the law requires that a notice of intent be provided to the owner. If you did have a direct agreement with the owner, then no notice is required because the owner is presumed to know whether you have been paid.
b. Within the appropriate timeframe. When you did the work is of the utmost importance. Timeliness is the key to liens. If you do not have a contract directly with the owner, you must notify the owner within very specific time frames. In the case of single or double owner-occupied dwellings, you must notify the owner of your intent to file a lien within 45 days of the last day of work or delivery. (Please note that the KLBDMA was instrumental in changing this time period to 75 days beginning in July, 2002). This still is a very short time period. In other than owner-occupied dwellings, the time periods are different. In the case of claims less than $1,000.00, you must notify the owner within 75 days. In amounts in excess of $1,000.00, notice must be given within 120 days. These time periods are absolute. One day extra and the lien is no longer valid.
If you have a direct agreement with the owner, no notice is required. Therefore all that is necessary to perfect the lien is the filing of the lien in the county clerk’s office where the work is located. The lien must be filed within six months from the last day that material was delivered or that work was performed. The information that must be contained in the lien document is listed in the insert. It is critical that all statutorily required information be included. Your attorney who specializes in construction matters can assist you in developing proper procedures and guidelines for your organization.
The key to effective mechanic’s liens is timing. Make sure you are aware of the time limits on each account, knowing specifically where you are in the construction food chain by knowing who you work for. Never be a supplier to a supplier, and never work for a sub to a sub. If those things are achieved, you can have a mechanic’s lien, if you just follow the rules.