Since the Recession of 2008, the story of the construction project that fell through shortly after breaking ground has repeated itself far too frequently. In too many of these situations, financing dries up, leaving owners without project funds to pay general contractors and general contractors without funds to pay early-phase subcontractors who have already performed their work (e.g., demolition, excavation, and site work). With that uplifting backdrop, let’s discuss how these circumstances affect mechanics’ lien rights.
As many of our readers know, mechanics’ lien claims are powerful tools for contractors to ensure that they get paid for their work by “encumber[ing] the owner’s property and, if taken to their logical end, force a sale of the property to pay creditors.” A recent case in the Superior Court of Pennsylvania brought to light the issue of mechanics’ lien rights on buildings that go un-built.
In B.N. Excavating, Inc. v. PBC Hollow-A, L.P. and PBC Hollowb, L.P., a site contractor (“BN Excavating”) was hired as a subcontractor to perform excavation work for the proposed construction of a two-building project. BN Excavating performed its work, but the buildings were never actually constructed. The contractor that hired BN Excavating never paid for the work, so BN Excavating filed a mechanics’ lien claim on the property.
The owner argued that BN Excavating’s lien was invalid because the buildings were never actually erected. The Superior Court, however, allowed BN Excavating’s claim to proceed because the excavation work was incidental to planned construction. In other words, the Court held that BN Excavating’s lien rights were tied to the existence of a construction plan, not to the ultimate fulfillment of that plan.
For contractors, subcontractors, and suppliers who perform site work can rest easier knowing that your lien rights are tied to the nature of your work and not whether a building is ultimately erected. It is nonetheless critical for you to supply your attorney with detailed information about the project, so that he or she drafts the mechanics’ lien claim in a way that makes clear that your work was part of a construction plan.
For owners and developers, understand that the Mechanics’ Lien Law could be unsympathetic to situations in which a construction project falls through before a building is erected. Predecessor work such as demolition and excavation will still be protected under the Mechanics’ Lien Law.
Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law.
Trevor Taniguchi, a summer associate with Cohen Seglias, contributed to this post.