CONNECTICUT MECHANIC S LIEN LAW

Transcription

1 CONNECTICUT MECHANIC S LIEN LAW Go to: Connecticut Mechanic s Lien Forms More Info: Section Contents Pre-lien Notice(s) Name of Notice Who Must Use This Notice When How to Serve Verified or notarized? Section Contents Connecticut Mechanic s Lien Who is Entitled to a Lien? When to File/Record Where to File/Record How to Serve Amount of Lien Property Subject to the Lien Furnishing Information Verified or Notarized Priorities Lien Release Bond Miscellaneous Issues Page 1 of 11

2 Section Contents Lawsuit to Foreclose Lien Introduction When Where to File Arbitration Need a Lawyer? Connecticut Mechanic s Lien--General Notes Be Careful: The courts consider a mechanic s lien to be a privilege and not a right. You receive its benefits only if you strictly adhere to the state law requirements. Bottom line: miss a deadline by one day and you have lost it. Unlike other areas of the law where you can argue equities, find technical exceptions, and lawful excuses, there is no forgiveness here. In this case, knowledge is not only power, it s a necessity. In Connecticut you will be writing down dates for at least three documents: a) Notice of Intent to Claim Mechanic s Lien; b) Connecticut Mechanic s Lien; and c) lawsuit to foreclose the mechanic s lien. Write down all the deadlines in your calendar. Use a highlighter or red pen. If you have a staff, use a fail safe system by doubling up and putting it in their calendar also. This reminds you twice. The first calendar entry should be two weeks before the due date as a preliminary reminder. On the second calendar entry, do a white lie to yourself. Put the due date as one week before it is actually due as insurance in case you get busy or need legal advice. Time is money. You will waste a lot of valuable time running around and doing it at the last moment, as opposed to doing it early. PRELIEN NOTICE This state requires a Notice be sent out before the mechanic s lien is filed/recorded. For simplicity, this notice will be referred to as a Prelien Notice. The basic information on this Notice is as follows: Name of Notice: Notice of Intent to Claim Mechanic s Lien Page 2 of 11

3 Who Must Use this Notice: When: How to Serve: All contractors, subcontractors, laborers, and material/equipment suppliers who do not have a direct contract with the owner or the owner s agent. For example, a general contractor with a direct verbal or written contract with the owner who acts as the prime is not required to give the Notice. See free Time Deadlines table. The owner must be served. The general contractor must also be served if he or she has filed an Affidavit ( Affidavit of Notice of Identification by Original Contractor available on this web site) with the Town Clerk stating the general contractor s name, business address, and a description of the property subject to the lien within 15 days after commencing work. If the owner or general contractor reside in the same town as the construction project, they must be served by hand delivery, which is either through a process server, a marshal, or some other independent person. A private process server is recommended. If the owner or general contractor is not home at the time, there may be other forms of service which your process server can perform. If the owner or general contractor resides outside the town in which the project is located, service can be made by certified mail, return receipt requested. You must also file this prelien notice with the Town Clerk, in addition to service on the owner and/or general contractor. If your certified mail is returned unclaimed, you have the option of either serving by publication (publishing it in a newspaper too time consuming and expensive) or simply retaining a process server or marshal to personally serve the prelien notice(recommended). It is recommended that all general contractors file with the town clerk s office of the city or town in which the project is located, the Affidavit of Notice of Identification by Original Contractor. The affidavit states the name and address of the general, the description of the project, and that the construction has begun. It must be filed within 15 days after the first work by anyone is done on the site. If filed, all subs and suppliers must give the general a copy of the Notice of Intent to Claim a Mechanic s Lien it is good to receive this noticed since it allows the general to plan for and negotiate payment issues before the filing of the lien itself. This is especially important since most owners expect the general to handle payment disputes and make sure the property is lien free. Page 3 of 11

4 Verified or Notarized?: A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. This notice must be notarized. MECHANICS LIENS Who is Entitled to a Lien: A Connecticut mechanic s lien is primarily for general contractors, subcontractors, laborers, as well as material/equipment suppliers. But it also covers architectural services. The list of persons who can file a mechanic s lien is broad and is based upon the physical enhancement test. The construction service must enhance the property in some physical manner, lay the groundwork for the physical enhancement, or be an essential part of the overall scheme of construction. In general, the services must relate to the improvement of any building or plot of land. It appears that only those persons who have directly aided the improvement of the land receive a lien. For example, an attorney s legal services does not qualify. Nor, would services provided by insurance agents, real estate agents, financial advisers, bankers, and accountants, even though they might indirectly affect the improvement. A lien is not allowed for landscaping services under a maintenance contract. Home improvement contractors who fail to comply with the Connecticut Home Improvement Act are not entitled to a mechanic s lien on residential projects. This means that if you are a general contractor doing residential work, you must have a Connecticut home improvement contract that has special statutory provisions. If you are missing some of those provisions or do not have such a contract, lien rights are not available. Nor would you be able to receive your money under a cause of action for unjust enrichment. On the other hand, if you are a subcontractor, there is no requirement to comply with the home-improvement law. And, you will still be able to lien, even if the general contractor has not complied with the Act. Effective October 1, 2000, Connecticut allows liens for persons who lease construction equipment or machinery. Page 4 of 11

5 When to File/ Record: Where to File/Record: How to Serve: See free Time Deadlines table. With the town clerk of the town in which the project is located. The clerk will record it with the deeds of land. You are required to serve the owner of the property with the mechanic s lien which is called a Certificate of Lien. The service is made in the same manner as the prelien notice described above. In other words, if the contractor and the owner reside in the same town, there must be personal service by a process server or a disinterested person (hand delivery). If they do not live in the same town, service can be made by certified mail. You are required to serve the mechanic s lien on the owner within 30 days after filing the mechanic s lien. Under a recently reported case in 2006, each owner of the property must be served with a copy of the mechanic s lien. For example, as to a married couple, each spouse must be served separately. If serving by certified mail, this simply means you mail in separate envelopes. If by personal service, each owner would be handed a separate copy of the lien. Amount of Lien: Primarily for unpaid labor, material, and equipment supplied. Generally, only items that become permanent fixtures are subject to the lien. This, by definition, will exclude indirect or consequential damages, such as impact or delay damages, as well as lost profits from other jobs. Effective October 1, 1999, attorney s fees can now be part of the lien. The previous law had a loophole which allowed owners to avoid attorney s fees by taking out a surety bond releasing the lien. That bond did not include attorney s fees and therefore owners were not held liable for such fees. The new statute provides that owners will be liable for such attorney s fees regardless of whether the lien has been bonded off by that surety bond. In addition, the surety company will not be liable for such attorney s fees and costs unless specifically covered under the bond. The lien amount being asserted by a subcontractor or material supplier is limited to the amount of the unpaid balance under the general contractor s contract, reduced by back charges caused by the general, such as construction defects, damages, costs to complete, or deletions under the contract. Page 5 of 11

6 Property Subject to the Lien: A Connecticut mechanic s lien applies only to private projects. No lien is allowed in public projects against government property. The land and buildings of charitable organizations as well as quasigovernment owned property are also subject to a lien. As of October 1, 1999, Connecticut allows a mechanic s lien against a tenant s interest under his or her lease. Furnishing Information: Verified or Notarized?: Priorities: Upon request, the general should furnish others with information about the owner so the required notices and lien can be filled out properly. A verified notice simply means you sign it and are representing the contents are true and accurate. A notarized notice is signed in front of a Notary Public or other official. A verified notice is all that is required in this state. The mechanic s lien must be both verified and notarized. A Connecticut mechanic s lien takes priority over a construction lender s mortgage if work by any of the contractor s on the job started before the recording of the mortgage. It is the recording date, and not the date of execution of the mortgage, which is important. If work begun before the recording of the construction mortgage, everyone on the project has lien rights superior to that construction lender. If the property is foreclosed and there is enough money to take care of all of the lien claimants, the holders of the liens, other than the general contractor, are paid first, with the general contractor getting what is left over. If there is not enough money to satisfy all the lien claimants, the original contractor gets nothing and the balance of money is equally divided amongst the other lien claimants. The distribution to the other lien claimants is in proportion to the amount of their liens. If an owner goes on title after work on the project first commences, a lien will be invalid as to that person s interest. So if you perform work for owner A, but later the property is sold to owner B, the lien is not subject to the latter s interest-- even if some of the work is performed after B acquires title. (New England Sav. Bank v. Meadow Lakes Realty Co., 706 A.2d 465 (1998)). In other words, the lien does not run with the land. Page 6 of 11

7 Lien Release Bond: A lien may be discharged from the property by the filing of a surety bond. To do this, the owner makes application to the court in the judicial district where the property is located. The surety bond must cover the amount of the lien as well as interests and costs. In some instances, this might also include reasonable attorney s fees. Once released, the lien claimant is entitled to proceed in court against the surety bond for payment. Miscellaneous Issues: A Connecticut mechanic s lien cannot be more than the amount the owner has agreed to pay the general contractor under the construction contract. The owner is also entitled to credits for payments made to the general contractor before receipt of the pre-lien notice. This is called the lienable fund. Under this scheme, the owner is not subjected to the requirement of double payments if the owner pays the general contractor and this does not filter through to the subs or suppliers, it is not the owner s problem. He or she still gets a deduction for the amounts paid to the general contractor. Note also that if the general contractor defaults, the total amount of all liens, is limited to the amount owed the general contractor after deducting the cost of completing the contract, as well as any damages. But the owner cannot pre-pay in order to defeat the interests of the subcontractors and suppliers. The owner is usually only entitled to make payments as they become due under the contract. Thus, the owner cannot make payments in advance. The only exception is the owner can do so if payments are made in good faith and a written notice of intention to make these payments is made to the various subcontractors and suppliers at least five days before the payment is made. If the owner wishes to knock-off a mechanic s lien against his or her property, they can make application before a judge of the superior court. However, these motions are hard to win because the owner must demonstrate by clear and convincing evidence that the lien is invalid or in an excessive amount. Usually the Connecticut lien claimant or contractor can simply win by showing sufficient facts to reasonably believe the lien is valid. In most cases, the lien goes off the record only after the filing of a surety bond. The owner has only one chance at making such a motion. The other way to attempt a discharge of the lien is for the owner to send a demand for discharge to the lienholder by certified mail. If the lien is not discharged within 30 days, the owner can make application to the superior court to discharge the lien. The burden of proof is on the owner to demonstrate the lien is invalid, which is usually found only if there is the failure to comply with the Page 7 of 11

8 statutory rules, including time deadlines. If the lien is considered invalid, the owner gets damages of $ per week for each week in which the lien was on the property for a maximum of $5, New Payment Laws: Effective October 1, 1999, as to commercial and industrial projects (excludes residential construction and public works), the owner must pay all amounts due a contractor, subcontractor, or supplier with whom they have entered into a direct contract within 15 days after request for payment. General contractors, in turn, must pay subcontractors and suppliers no more than 15 days after they receive their payments from the owner. General contractors must include such a provision in their subcontracts. Owners or general contractors who fail to comply with these conditions are liable for interest at the rate of 12% per annum. If there is a dispute as to the monies due, the owner or general contractor must place the disputed funds into an interestbearing escrow account with a Connecticut bank. If an owner or general contractor refuses to do so and the court finds this was done unreasonably, this person is also liable for reasonable attorney s fees. In addition, there will be the imposition of an additional 10% damage penalty if the payments were withheld in bad faith. The only exception is that if a subcontractor has not substantially performed his or her work, the disputed funds need not be set aside. Retention: Effective October 1, 1999, Connecticut states that no construction contract may require retention exceeding 7½% of the estimated amount of any progress payment for the life of the construction contract. However, there is no requirement to provide for retention in the first instance. LAWSUIT TO FORECLOSE LIEN Introduction: Your Connecticut lien is not valid forever. Because it directly affects the owner s title, it has a limited shelf life and must be enforced within a short period of time. That enforcement is done by filing a lawsuit to foreclose. Just like the time deadlines for a Pre-Lien or Mechanic s Lien, the courts strictly construe these time limits which are called statutes of limitation. Again, if you are literally one day late, the lien is ineffectual. Page 8 of 11

9 When: Within one year after filing the Connecticut mechanic s lien. Where to File: Arbitration: In the applicable court in which the construction project is located. Many construction contracts state that all disputes will be decided by binding arbitration, as opposed to a court proceeding by judge or jury. In fact, it has long been a tradition to do so in the construction industry. Arbitration is usually quicker and less costly, especially because it cuts down on expensive discovery. The decision is final and binding, with no right to appeal. You lose your right for a jury trial, but few contractors want that in the first place. You usually pick an experienced construction attorney or retired judge to hear the case in their conference room. It is just like a court proceeding with the same general rules of evidence, but more informal. On the other hand, you can only foreclose your lien through a court proceeding, not arbitration. So, how do you keep your arbitration rights and at the same time preserve your lien rights? Simple. You bring a lawsuit to protect the lien and then immediately request the court to stay the court proceedings. When arbitration is done, you go back to court and turn the arbitration award into a judgment. Need a Lawyer? In this country, every individual has the statutory right to represent themselves. This means they can prepare all necessary papers, appear at hearings, and actually try the case. In so doing, the court considers you to be acting either in pro se or pro per. Before making this decision, consider the following factors: 1. You are a professional and thoroughly know the ins and outs of not only the construction industry but of the project itself. The best lawyer on his or her best day will probably not know more than 50% of what you know. 2. How is your public speaking abilities? If you are uncomfortable speaking to a group, you will even more uncomfortable in court or arbitration. You could be the sharpest wit in town but may not be able to present your arguments. Remember, appearing uncomfortable is perceived as having deficiencies in your case. People usually think that if you are not comfortable about your own facts, then they must Page 9 of 11

10 not be that strong. 3. If the other side has a lawyer, you might want to think twice about representing yourself. You will certainly know the facts quite well, but you may be blindsided by legal technicalities. 4. You may also want to think twice if this is a really nasty and emotional case. In other words, if the other side is going for blood. Having a lawyer can shelter you from this emotional trauma. No matter how strong you are, lawsuits are taxing not only on your time, but on your physical and emotional energies. 5. If you have a good case in which you have complied with technicalities and performed good work, you are essentially engaging in a collection action. These actions are typically very simple because there are few defenses or defects alleged by the other side. It makes it easier for you to represent yourself because it is more a question of when and how much they will pay as opposed to whether you will win at all. 6. If you have a binding arbitration provision, you may consider representing yourself. These proceedings are much more informal and the arbitrator tends to give you more leeway. There are also fewer rules and not they are usually not quite as strict. 7. You could consider representing yourself but get advice along the way from a lawyer. It is much cheaper that way. On the other hand, the lawyer cannot watch over every move and you might slip up. Many times lawyers can also help you with preparing the forms, simply putting your name on the pleading. You can also bring in your lawyer at the end to actually try the case. 8. Judges and courts do not give legal advice. They only help you with what forms to use. However, clerks can be invaluable in steering you in the right direction as far as where to file, time limitations, the nature of the form or pleading, etc. But, remember when it comes right down to the ultimate advice, they cannot help you. 9. Judges usually treat you the same as an attorney which means they expect strict compliance with the rules. Although some judges give you more slack, don t count on it. Page 10 of 11

11 10. The biggest dilemma is whether you should hire an attorney for a smaller case, typically in the $5,000 to $10,000 range. You have to watch this because you may eat up that amount in attorney s fees. You never make money on lawsuits, only lawyers do. Try to settle for the best price you can get and move on. Prepared by: Thank you for your business. Page 11 of 11