Last month, we talked about retainage claims and how you protect your ability to collect on retainage funds that are not timely paid to you.
This month, I wanted to discuss warranty claims. Many clients believe that warranty claims can extend their mechanic’s lien deadlines. For most clients, this would be generally untrue because the deadlines for their work performed or material supplied would not be calculated pursuant to the Substantial Completion rule, discussed below. However, there is what may be referred to as a “loophole” that can be used to extend deadlines in very particular situations. This would never be something I would recommend or could rely on with certainty as a court of law would have to determine its applicability to the particular circumstances.
That being said, in order to clear up some of the myths that are circulating relating to the extension of deadlines by warranty claims, it is important to understand the distinctions. Most lien deadlines are calculated from the date that work was first performed. Thus, doing more work does not generally extend the deadline. However, the lien deadlines are calculated by the earlier of the 3 / 4 months after work was performed (depending on whether it is considered a residential or commercial project) OR WITHIN 30 DAYS AFTER SUBSTANTIAL COMPLETION OF ENTIRE THE PROJECT (not just your portion), whichever is sooner.
So, while most subcontractors and suppliers fall within the normal mechanic’s lien deadlines, if you perform work at the end of the project (such as landscaping, which is generally one of the last aspects of a construction project), your lien deadline can be shorter than the typical 3 / 4 month time frames (as set forth in the “Deadline” portion of this email).
If you believe you are late on your mechanic’s lien or notice letter, there is quite a bit of case law that attorneys can and do use to argue around the deadlines. One such case law relates to warranty work. Warranty work can, in some instances, be the basis for arguing that substantial completion has not occurred, and thus a claimant is not late on a lien. Some courts have extended substantial completion deadlines to include punch and warranty work.
So, what does this mean to you? If you are a subcontractor or supplier that performs work or supplies during the first or middle portion of the construction project, it means absolutely nothing because your lien deadlines are not dependent on substantial completion of the project. However, if you perform work on what might be considered the later part of the project (about the last 4 months), your deadlines might be shorter than normal but, on the other hand, any warranty work that may have been performed on the project could possibly be used to extend the timeframe for you to properly perfect your lien.
There are a lot of companies out there filing their own liens and/or notice letters. As you can see, there is not one exact formula to the mechanic’s lien process. It depends on a variety of circumstances, all which must be taken in consideration to determine your deadlines and filing requirements. The best business practice is to meet with an attorney that understands your business and how your work fits within these deadlines. While the use of loopholes to extend your deadlines can be beneficial it certainly cannot be relied upon on a day to day basis.