Most people involved in some manner with the construction industry have probably at least heard of the term Mechanic’s Lien. But when does it apply and how does it work?
Mechanic’s Lien Law rights are given to a general contractor, a subcontractor, a sub-subcontractor (usually a material supplier), and even a design professional that has a contract directly with the real property owner and provides contract administration services. A Mechanic’s Lien is a statutory remedy that allows these parties – known as claimants – to file a lien on real property (or a leasehold interest) within Pennsylvania for goods and services furnished in the erection, construction, alteration, or repair of an improvement to real property within Pennsylvania in connection with a private construction project.
A Mechanic’s Lien will be given the priority in the order it is filed. In other words, if you are the first to file a Mechanic’s Lien, you will be given the first lien on the real property. However, there are exceptions to this general rule. For example, county real estate tax liens will have priority over the Mechanic’s Lien, as well as construction loans, and purchase money mortgages. Once a Mechanic’s Lien is filed, and then perfected (served on the property owner), it may relate back to the commencement of the new construction, or the date materials were furnished, or possibly the date of its filing. This determination can be reached by reviewing certain factors relevant to the construction project.
Timing is critical when taking this action. A Mechanic’s Lien filing must occur within six months from when the work was “substantially” completed – not six months from when the project was completed. This nuance is extremely important because a filing made after six months from the date of substantial performance will most likely be stricken by the court if challenged by the property owner.
One of the drawbacks of a Mechanic’s Lien is that it limits the value of recovery to the amount actually owed and doesn’t allow for an amount that reflects the costs of a long-delayed payment. In other words, attorney’s fees, interest or penalties cannot be included. However, often the mere filing of a Mechanic’s Lien, in and of itself, may provide enough leverage to get voluntary payment.
When considering filing a Mechanic’s Lien, it is also very important to review all the statutory requirements – such as where to file, the formal notices, and the timing and deadlines – otherwise, it may result in a dismissal. The courts generally do not excuse technical missteps in these cases.