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Mechanic's Liens in New York. (Construction Corner).

INTRODUCTION

New York State has had a comprehensive mechanic's lien statute since 1897. Designated as Article 2 of the Lien Law, the statute was rewritten in 1909 and has been periodically amended since. The mechanic's lien rules in the 1897 Lien Law were derived from existing statutory and common-law precepts, which had developed in the commercial hurly-burly of eighteenth- and nineteenth-century New York.

The purpose of the mechanic's lien statute is to protect contractors, subcontractors, materialmen and other persons whose services and materials add permanent value to real estate. The class of protected persons is quite broad, reaching architects, engineers, landscapers and other professionals whose labor or brainpower adds value to property. (i)

The Lien Law distinguishes between liens on privately owned property and those on public improvements, with different sets of rules for each type of lien. The key difference is that, while lienors against private property actually hold a lien against the real estate itself, a lienor of an improvement to public property only holds a lien against the cash assets of the public corporation with whom he has contracted Further, only a subcontractor or supplier to contractor may hold a lien for public improvements to the extent of monies still du to the general contractor. The general contractor has no lien and is required to sue for a money judgment in the Court of Claims.

What follows is a brief overview of the principles of the New York mechanic's lien law While some aspects of the law are straightforward, others are nuanced and complicated. Rather than explore every nuance and complication, however, the author' purpose is to flag the particularly difficult sections as areas requiring careful attention in the event that the reader has occasion to become involved with mechanic's liens.

LIENS FOR IMPROVEMENTS ON PRIVATE PROPERTY

Details of Lien Filing and Service

While a mechanic's lien is created by operation of law upon the furnishing of labor or materials to the owner, in order to enjoy the protection of the statute, the lienor must file and serve a document called a "notice of lien." The requirements of the notice are set forth in Lien Law [section] 9 and are discussed below.

Lien Law [section] 10 sets forth when a notice of lien may be filed. "Notice of lien may be filed at any time during the progress of the work and the furnishing of materials, or within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of materials, dating from the last item of work performed or materials furnished..." There is an exception to this rule for work performed on single family dwellings; liens on those properties must be filed within four months of completion.

There is no provision in New York for pre construction filing. There must be work performed and money due in order for the lien to attach.

The lienor must file the notice of lien in the office of the clerk of the county in which the property is located. If the property lies within two or more counties, notices of lien must be filed with the county clerk of each affected county. If the county clerk maintains an index of property by section, block and lot the lienor must include in the body of the lien a designation of every section, block and lot affected by the lien. Lien Law [section] 10(1)

Once the lien has been filed, the lienor has 30 days to serve the notice of lien on the property owner by one of the means set forth in Lien Law [section] II. Until the owner has been served with the notice, he may, in good faith (i.e., with no knowledge of the lien) pay any contractor or other person claiming a lien without liability to the filing lienor. Service is an important step, and the lienor must create and file a proof of service. Failure to file proof of service of the notice of lien with the county clerk within 35 days of the filing of the notice of lien terminates the notice as a lien.

CONTENTS OF NOTICE OF LIEN

Section 9 of the Lien Law sets forth the requirements for the notice of lien. While only good can come of knowing what the Lien Law requires, the reader should remember that notice of lien forms appear in a number of form books and treatises available at most law libraries with New York state materials. In addition, preprinted forms may be purchased at legal supply and stationery stores.

The notice of lien must contain:

* the name and address of the lienor and lienor's attorney (if any);

* the name of the owner of the real property against which the lien is being filed;

* the name of the person by whom the lienor was employed or retained;

* the labor performed or materials purchased and the agreed price; the unpaid balance;

* the time when the first and last items of work were performed and materials furnished; and

* a description of the property subject to the lien.

PRIORITY

The Lien Law's priority rules, set forth in [section] 13, are lengthy, complex, and technical. It is the most heavily litigated area of the Lien Law. It is not possible in an overview-type article to give a comprehensive analysis of the law of lien priority, and so this piece offers highlights only.

In general, a mechanic's lien has priority over any conveyance, mortgage, judgment or other claim against the property not docketed, recorded or filed at time of filing of notice of lien. The lien has priority over advances on mortgage or other encumbrance made after the filing, assignments for the benefit of creditors, and subsequent attachments or money judgments. As with any other lien, the hoary adage "first in time, first in right" applies to mechanic's liens.

The great equalizer (and perhaps wild card) is Lien Law [section] 45, which provides that, in a foreclosure action, the court may adjust and determine the equities of all parties and the order of priority of different liens.

DURATION

In general, mechanic's liens are valid for one year from the date of filing of the notice of lien. Lien Law [section] 17. A lienor may file for a one-year extension before the expiration of the lien, but only one such extension is permitted, and no extensions are permitted for liens on single-family dwellings. Any additional extensions may only be granted by court order or by the filing of an action to foreclose the lien within the life of the lien.

In an action to foreclose the lien, the lienor is also required to file with the county clerk a document called a "notice of pendency," or "lis pendens." This document puts other claimants to the property on notice of the lawsuit and extends the life of the lien until the resolution of the lawsuit.

For the duration of the lien, any transfer of the property is subject to satisfaction of the lien. Where the owner wishes to dispose of property that is subject to mechanic's liens, the owner must deposit with the clerk of the court enough money to satisfy the lien. Lien Law [section] 31.

ENFORCEMENT

Once the lienor has established lien priority over the property, enforcement may become necessary. Lien Law [section] 24 provides that enforcement is pursuant to Lien Law Article 3, entitled "Enforcement of Liens on Real Property." Within Article 3, [section] 41 is captioned "Enforcement of mechanic's lien on real property." The section is short and the meaning is simple.

Enforcement of a mechanic's lien on real property is by action in the Supreme Court. (ii) To retain the benefit of the lien during the lawsuit during lawsuit and to have access to proceeds from any foreclosure sale, the lienor must file suit within the one-year life of lien or any extension. Lien Law [section] 17.

There is no requirement that the creditor/lienor elect a remedy in New York. In the same action, the lienor may sue for foreclosure, money damages and any other causes of action related to the contract. Further, even if the lien expires without the lienor having commenced suit, the lienor may always sue for breach of contract within the six-year statute of limitations. The form of the action is no different than that of any other action in the New York courts. It is commenced by summons and complaint, served in the normal manner, with all of the usual tools and procedures available to the parties.

Necessary parties to an enforcement action are all lienors of record (whether mechanic's lienors, judgment lienors, mortgage lienors or any other class of lienor) and all owners of record in the county clerk's office. Lien Law [section] 44. In their answers to the foreclosure complaint, the defendant lienors are required to plead their liens or be deemed to have waived them.

OWNER'S RESPONSIBILITY FOR PAYMENT TO SUBCONTRACTORS

A subcontractor has a lien against real property for work done. Lien Law [section] 3. Contractual privity between the owner and the subcontractor is nor required. (iii) Indeed, in the usual case, a requirement of privity would destroy any lien a subcontractor would otherwise acquire, since subcontractors are generally hired by general contractors not owners.

Notwithstanding a subcontractor's right to a lien however, that lien is limited to the amounts remaining to be paid on the contract between the owner and the general contractor. Lien Law [section] 4(1). Because the general contractor is required to hold payments from the owner in trust for his subcontractors and materialmen, see generally Lien Law Article 3A, the owner's payment in full to the general contractor constitutes a defense to the subcontractor's mechanic's lien. The subcontractor's recourse is against the general contractor for breach of trust pursuant to Article 3A.

LIENORS MAY NOT EXAGGERATE LIENS

If a lienor is found to have willfully exaggerated the amount of the lien, a number of unpleasant consequences flow. First, the lien is void. Lien Law [section] 39. Second, the lienor is barred from filing any subsequent lien for the same claim. Third, in the event that a court holds a lien void due to exaggeration, the person filing the lien shall be liable to the owner or contractor for damages, including the cost of bonds, attorneys' fees, and the difference between the claimed value of the lien and its actual value. This punitive section is intended to make lienors think carefully about, and state accurately, the true value of their claims.

SUBDIVISION AND UTILITY IMPROVEMENTS

OFF-SITE WORK

I found no recent cases on this point. However, it has been held that a lien may be filed for work done on the abutting properties in connection with the job, (iv) and no authority contradicting the proposition was found. This rule is consistent with the logic and purpose of the law, which is to give laborers and materialmen access to the owner's real property in the event of nonpayment for improvements to that property. Off-site work can constitute an important component of the value added to the property. Indeed, the inclusion of architects, engineers and other professional in the class of potential lienors indicates the intention of the legislature to allow a lien for work performed off site when it adds permanent value to the subject property.

RENOVATION OR REPAIR WORK

There is no distinction in the Lien Law between original construction and repair. The lien applies to all "improvements to real property." Lien Law [section] 2 defines an "improvement" as a "permanent" addition to the real property. Predictably, the meaning of "permanent," as distinguished from "temporary," is somewhat slippery and has been litigated with some regularity. Whether an addition is temporary or permanent is decided taking into account all of the facts and circumstances of the improvement at issue. Generally, the addition of materials or things of value intended to become a part of the property, such as fixtures and structural additions, will qualify as improvements. An important factor courts consider is the frequency with which the work must be repeated. Work of a more temporary nature, such as painting and mowing the lawn, have been held insufficiently permanent to fall within the definition of "improvement."

TENANT WORK

A mechanic's lien against an owner is valid only if the work is done with the owner's consent, whether express or conveyed by an affirmative act. (v) A contractor who takes a job on behalf of a tenant without first having secured the owner's consent will, in all likelihood, have no mechanic's lien against the property and little, if any, recourse against the owner.

LIEN WAIVERS

Lien Law [section] 34 renders void as against public policy any contracts providing for a waiver of contractor's right to a lien prior to payment. The section is intended to protect contractors, subcontractors, etc. from predatory practices. Section 34 also permits the lienor to waive the lien simultaneously with or after payment. The issuance of such a waiver precludes the filing of any lien for work completed and paid for, but of course does not preclude a filing for uncompensated labor or materials.

LIENS FOR PUBLIC IMPROVEMENTS

Most of the rules and procedures set forth above for liens on private property apply to liens for public improvements. As noted, the most significant difference is the contractor's inability to obtain a lien on public real estate.

WHO MAY FILE

Lien Law [section] 5 makes clear that the persons eligible for a lien on public improvements are subcontractors, materialmen, laborers and the like. It pointedly does not include general contractors. Rather than attaching to the real property itself, the lien interest is in the payments from the state agency to the contractor and any judgment the general contractor has obtained against the state agency in the court of claims. (vi)

TIME OF FILING

The lienor may file notice of lien, verified by the lienor, with the county clerk at any time during the construction and within 30 days of completion. Lien Law [section] 12. This much shorter time period (compared to one year for private construction liens) is indicative of the Legislature's feelings about lawsuits against the state. The lienor must then serve the notice of lien not only on the owner of the property, but also on the contractor and any subcontractor who retained the lienor's services or material. Lien Law [section] 11-c.

DURATION OF LIEN

In contrast to liens for private work, a lien for public improvement only lasts for 6 months, with the possibility of one 6-month extension. Lien Law [section] 18. Accordingly, the lienor must bring an action even more promptly in order to enforce a lien against the state.

(i.) "A contractor, subcontractor, laborer, materialman, landscape gardener, nurseryman or person or corporation selling fruit or ornamental trees, roses, shrubbery, vines, and small fruits, who performs labor or furnishes materials for the improvement of real property with the consent or at the request of the owner thereof . . . shall have a lien for the principal and interest, of the value, or the agreed price, of such labor . . . or materials . . ." Lien Law [section] 3.

(ii.) Non-New Yorkers should be aware that what New York describes as the "supreme court" is actually a trial-level court of general jurisdiction. It is "supreme" only in the county in which it is located.

(iii.) Rainbow Electric Co. v. Bloom, 132 A.D.2d 539, 517 N.Y.S.2d 273; Hartman v. Travis, 81 A.D.2d 692, 438 N.Y.S.2d 633; Regal Lumber Co., Inc. v. Buck, 157 Misc.2d 376, 596 N.Y.S.2d 1000.

(iv.) Gates v. Jno. Stevens Constr. Co., 169 App. Div. 221, 154 N.Y.S. 605, aff'd, 220 N.Y. 38, 115 N.E. 22.

(v.) Lien Law [section] 3; see, e.g., Tri-North Builders, Inc. v. Di Donna, 217 A.D.2d 886, 629 N.Y.S.2d 850 (3rd Dep't 1995).

(vi.) Lincoln First Bank, N.A. v. Spaulding Bakeries, Inc., 117 Misc.2d 892, 459 N.Y.S.2d 696.

Thomas J. Luz is a principal with the firm of Pearce & Luz LLP. He can be reached by calling 212/986-7714 or by e-mail at tluz@pearcenluz.com.
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Author:Luz, Thomas J.
Publication:Business Credit
Geographic Code:1U2NY
Date:Oct 1, 2002
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