Welcome back to our DMV Construction Law Series, where we examine a different set of legal issues important to contractors each month. For our second installment, we briefly examine certain key parts of Washington, DC’s mechanics’ lien law that contractors should be familiar with when undertaking projects in Washington, DC.
A mechanic’s lien is an encumbrance on real property or a leasehold that acts as security for unpaid labor, material, or construction services. Such liens typically are available to contractors on private jobs if they meet certain statutory requirements. In our first installment, we covered the important timing mechanisms for recording liens in Washington, DC, Maryland, and Virginia.
Who Is Eligible to Lien a Project in DC?
To lien a project in Washington, DC, a contractor must be licensed to do business in DC and must typically be in good standing with the Department of Consumer and Regulatory Affairs. The DC mechanics’ lien law restricts access to lien rights to contractors, subcontractors, or suppliers who have direct contractual relationships with the owner or general contractor in a project. Unfortunately, this means Washington, DC does not give lower-tier subcontractors or suppliers access to lien rights, one of the most powerful tools in their arsenal to recover outstanding payments that they otherwise enjoy in jurisdictions like Maryland and Virginia. Lower-tier subcontractors and suppliers must therefore give careful consideration to the financial risks of contracting to perform work or furnish materials on projects in Washington, DC.
How Do I Perfect a Lien on a Project?
If a contractor is eligible to record a lien, they must comply with any existing preliminary notice requirements. Unlike Maryland and Virginia, Washington, DC does not impose preliminary notice requirements on contractors, subcontractors, or suppliers. Rather, to establish a lien in DC, a lien claimant need only record a notice of mechanic’s lien in the Recorder of Deeds office within 90 days after all work on the project is completed. As mentioned in our September installment, lien claimants must ensure that they serve a copy of the recorded notice of mechanic’s lien on the owner within five days of recording the notice of mechanic’s lien. Failure to do so will jeopardize the claimant’s lien rights. In general, the notice of mechanic’s lien must include:
- Lien claimant’s address;
- Owner’s and owner’s agent’s address;
- The name of the party in default of its payments obligations, and the amount claimed, less any credits for payments received up to and including the date of the notice of intent;
- A description of the work done, including the dates that work was commenced and completed;
- A description of the material furnished, including the dates that material was first and last delivered;
- A legal description and, to the extent available, a street address of the real property; and
- A copy of the contractor’s current license to do business in DC and a certificate of good standing issued no more than 180 days prior to the filing of the notice of mechanic’s lien.
The Recorder of Deeds provides a form notice of mechanic’s lien that can provide a useful starting point for lien claimants. It is not, however, a one size fits all form. Depending on the complexity of your dispute, it is prudent to consult legal counsel to ensure it is properly drafted. Following the recording of the notice of mechanic’s lien, a claimant has 180 days to file a lawsuit to enforce the lien in the Superior Court for the District of Columbia. A claimant also must record in the DC land records a notice of pendency of the action, known as a lis pendens, within 10 days of filing the enforcement suit. This is vitally important to a contractor’s lien rights, for failure to timely institute an enforcement action or record the notice of pendency will jeopardize the contractor’s lien rights.
The Owner Has Defense of Payment
Subcontractors and suppliers must be mindful that the DC mechanics’ lien law expressly recognizes an owner’s defense of payment. Specifically, if an owner has paid the general contractor in full, and in good faith, a subcontractor will not be entitled to a lien on the owner’s property. That said, if a subcontractor or supplier serves an owner with a notice of mechanic’s lien (or even a less formal notice of amounts that have not been paid), any subsequent payments made by the owner to the general contractor will be deemed to have been made in bad faith. Thus, it is important for subcontractors and suppliers to be aware of if and when the owner makes payments to the general contractor so that they do not find themselves out of lien rights. The owner defense of payment rule also gives claimants incentive to record their lien as early as possible to avoid the owner invalidating potential lien rights.
DC, however, has still equipped subcontractors and suppliers with a mechanism to stay apprised of the flow of money from an owner to a general contractor. DC’s mechanics’ lien statute gives subcontractors and suppliers the right to demand from an owner a statement of the terms of the prime contract, as well as an accounting of the amount due or to become due to the general contractor. Should the owner fail or refuse to answer such a demand for information, the owner will lose its defense of payment and its property will be liable to the lien of the demanding party.
The provisions described above are but a few of many components of DC’s mechanics’ lien statute. It is important that contractors understand these lien requirements when commencing work on a project in DC. While liens can be powerful tools to help a contractor obtain payment, failure to observe the statute’s requirements can risk invalidating any lien rights. Contractors should consult legal counsel to make sure they are taking full advantage of DC’s lien statute.