The Effects of COVID-19 on Construction Project Completion and Mechanic Lien Filing Deadlines
For example, as noted in our two prior legal alerts “Construction Industry Update for New York – Only “Essential” Construction May Proceed” and “Building Greater Knowledge of COVID-19 Impacts to the Construction Industry”, states and municipalities such as California, New York, Massachusetts, Washington D.C., Virginia, and Maryland have applied different definitions of “essential” to construction projects in stay-at-home orders:
- In California, excepted from these orders were “Essential Critical Infrastructure Workers,” which includes contractors engaged in construction projects that “support the operation, inspection, and maintenance of essential public works facilities and operations,” including “construction of critical or strategic infrastructure,” “construction material suppliers,” “maintenance,” and “other emergent issues.” Also excepted from the stay-at-home orders are “[w]orkers such as plumbers, electricians, exterminators, and other service providers who provide services that are necessary to maintaining the safety, sanitation, and essential operation of residences.”
- New York, which initially exempted construction projects from its PAUSE Order (Executive Order 202.6) and allowed them to move forward, significantly narrowed the scope of “essential” construction on March 27, 2020. As a result, commercial projects and many other projects were halted.
Even where ongoing construction projects are allowed to proceed, however, COVID-19 may still result in shutdowns. Indeed, as construction funds dry up, supplies and materials become scarce, or critical personnel becomes unavailable, some projects will stop prior to completion. In addition, states and municipalities are reassessing and redefining “essential” services on a regular basis. Project participants need to be aware of the potential impacts of these events on project completion and corresponding mechanic’s lien filing deadlines.
In California, the time period for recording mechanic’s liens runs from “completion” of a project. When an owner records a notice of completion, the timing issues are generally clear. “Completion,” though, can also occur where there has been “cessation of labor for a continuous period of 60 days.” Similarly, completion can be deemed even earlier where an owner records “a notice of cessation after cessation of labor for a continuous period of 30 days.” (Cal. Civ. Code § 8180).
If an owner closes access to a worksite and does not record a notice of cessation of labor, the project is deemed complete 60 days after work has stopped. Early-stage contractors who provided grading, trenching or related site work but have not yet been paid need to stay vigilant for lien purposes. A project that was projected to end in 2022 may, in fact, be deemed “complete” in mid-2020. Owners who want to shorten the period for filing a lien can give notice of cessation of labor 30 days after work has stopped. Once the project is complete – whether by owner’s notice or cessation of labor – contractors who gave preliminary notices and have finished their work must record their mechanic’s liens before the earlier of (a) 90 days after completion of the work of improvement or (b) 60 days (for general contractors) or 30 days (for subcontractors) after the owner records a notice of completion or cessation.
Given all of the deadlines, some of which may arise without notice, project participants need to continuously monitor the project’s progress, or lack thereof, to determine mechanic’s lien rights.
Complicating matters further, an owner may “re-open” a site for renewed construction after a 60-day labor cessation and invite all prior contractors to resume work. Because the project has already been deemed “complete” by law, any post-completion work is technically part of a new project. This means that a contractor needs to serve a new preliminary notice – based on the scope of the work to be completed, rather than the scope of the original contract – and later record, if necessary, a mechanic’s lien based on the unpaid amount of work on the “new” project. This could result in a contractor having multiple liens on the same parcel based on work performed at different periods of time. In that situation, each lien needs to be perfected by filing a mechanic’s lien foreclosure action within 90 days of the recording of each lien, necessarily resulting in multiple lawsuits by the same contractor over work on the same parcel.
In New York, pursuant to N.Y. Lien Law §10, “notice of a lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished.” Mechanics' liens with regard to residential single-family dwellings must be filed within four months after completion of the work.
In addition, under N.Y. Lien Law, the deadline to file a lien is not affected by a suspension and subsequent remobilization of a project if the lienor’s work/services continue after remobilization. However, project participants should take note of those projects that are suspended and then subsequently terminated. In such instances, a claimant’s deadline to file a lien will begin on the date that the claimant last performed work/services for the project, not the date on which the project was suspended or abandoned, or the contract for the claimant’s work/services was terminated. Thus, claimants must keep track of when they last performed work/service for the project.
The timeframe for recording a mechanic’s lien in Massachusetts under M.G.L. c. 254 § 2 is the earlier date of (a) 90 days after the recording of the Notice of Substantial Completion; (b) 120 days after the recording of the Notice of Termination; or (c) 120 days after the lien claimant last furnished labor or materials to the project. Thus, should a project in Massachusetts be suspended, abandoned or terminated, as defined under the construction contract, a lien claimant has 120 days to record a mechanic’s lien from the last day said claimant furnished labor or materials to the project. Contractors may look to stop work orders and/or suspension notices from the owner to assist in determining such date.
In Maryland, a subcontractor must provide written notice of its intention to claim a mechanic’s lien within 120 days after completing or substantially completing the lienable work, or providing the materials or work. (Md. Code Ann., Real Prop. § 9-104 (a)(1)-(2)).
The notice period runs from the time the work is completed or substantially completed. Once the time for giving notice starts to run, performing additional work will not extend the notice period. If the labor or materials are provided as part of the same contract or purpose, the notice date is triggered by the last item of work required under the contract.
The 120-day period may be difficult to calculate where work is performed intermittently, or where there are several cessations and resumption of labor or material delivery. For example, consider a scenario where construction and labor progress for an initial 15 days and then work is not resumed until after 90 days has elapsed. Would the 120-day period be triggered at the end of the initial 15 days, or the later date? It depends. Owners must consider whether the initial work was engaged in for the same purpose as the later work. One indicator is if the requested labor or materials are governed by a single contract.
District of Columbia
In the District of Columbia, “[e]very building erected, improved, addressed to, or repaired at the direction of the owner, or the owner’s authorized agent” is “. . . subject to a lien in favor of the contractor who contracted with the owner, in the amount of the contract price or, in the absence of an express contract, the reasonable value of the project,” recorded by that contractor. (D.C. Code Ann. § 40-301.01).
A notice of intent, which “identifies the property subject to the lien and states the amount due or to become due to the contractor” should be filed within 90 days after a project’s completion or termination, whichever occurs earlier. The notice of intent should include certain information, including the “the name of the party against whose interest a lien is claimed and the amount claimed, less any credit for payments received up to and including the date of the notice of intent.” The notice should also describe the completed work and beginning and end dates, any labor or materials provided, relevant dates, and provide a legal description of the property. Contractors must also file a business certificate of good standing and sworn affidavit, among other documents. If a notice of intent is not recorded during this period, then the contractor’s lien will terminate when the 90-day period ends. (D.C. Code Ann. § 40-301.02).
A contractor’s abandonment of the work is considered to be “completion.” This means that, in circumstances where a contractor abandons a project prior to its completion, the date of abandonment triggers the start of the 90-day time period. For any cessation of labor, the date that labor is abandoned or stopped may start the 90-day period for filing a mechanic’s lien, even if one or more parties intended for work to recommence at a later date. This is a fact-specific inquiry; work orders or other documentation may assist with this determination.
In Virginia, a claimant must “file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, or railroad is completed, or the work thereon is otherwise terminated.” (Va. Code § 43-4). The 90-day period may be triggered by the date that work was completed, terminated, or last performed. In the absence of bad faith or other efforts that may have an effect on delaying work on the project, this period is 90 days from either the date of completion or substantial completion of the project. If laborers totally cease work prior to completion of the project, the last day work was performed or materials delivered by contractors or subcontractors start the 90-day period. However, if work is temporarily stopped but later resumed in a subsequent month, or performed on intermittent basis, then this period will not be triggered.
Regardless of jurisdiction, owners and contractors should remain vigilant. Once a construction site is re-opened for construction, a contractor may need to serve a new preliminary notice on the basis of the remaining work to be completed. Depending upon the locality, a separate mechanic’s lien may need to be recorded for the “new” post-COVID project to finish the work that the outbreak halted.