New Pennsylvania Case: When Does a Contractor's Mechanics' Lien Rights Begin to Expire?
By: Tony Byler and Kathleen Morley
Mechanics’ lien claims are powerful tools for contractors and suppliers who are owed payment for work or materials. To be enforceable, the contractor or supplier (“Contractor”) must file a lien claim within six months of completing its work. Recently, in Neelu Enterprises, Inc. d/b/a KB Builders v. Ashok Agarwal et al., the Pennsylvania Superior Court clarified the term “work” to exclude corrective work from its meaning. Based on the Court’s explanation of “work” as it pertains to the lien law, the six-month time clock for filing a lien could start to run well before the Contractor performs its last work at a project. In other words, Contractors should be more vigilant with regard to protecting their lien rights because those rights could start to expire well before the Contractor actually performs its last work at a project.
The Six-Month Lien Time Clock
Under Pennsylvania’s Mechanics’ Lien Law (the “Lien Law”), a Contractor must file its lien claim within six months of completing its work. If a Contractor files a lien claim more than six months after it has completed its work, a court can dismiss the lien and leave the Contractor without lien rights. Given such high stakes, the calculation of the six-month timeframe is critical to ensuring the preservation of lien rights.
Determining a Contractor’s last date of work for the purpose of filing a lien is not as easy as it may seem because the Lien Law does not explain the circumstances under which the Contractor has “completed” its work. For example, does the clock start running when the final punch list is complete? Is it when the Contractor was last on site, or, in the case of a supplier, the date on which the last materials were delivered? What about when warranty work or material is performed or supplied many months after demobilization? The Lien Law does not answer these critical questions, which means the courts must fill in the gaps.
The Law after Neelu Enterprises
In Neelu Enterprises, the Superior Court shed light on the issue of work completion. The issue before the Court in Neelu Enterprises was whether the Contractor had timely filed a mechanics’ lien claim within the six-month limitation period under the Lien Law. After performing significant work without being paid, the project owner terminated the Contractor. Many months after termination, the Contractor returned to the site to perform corrective work at no additional cost to the owner. Thereafter, the Contractor filed a lien claim, using its last date of corrective work as its completion date, not the date on which it was terminated. The owner argued that the Contractor’s lien claim was untimely because it was filed more than six months after the Contractor was terminated. The Contractor argued that its lien claim was timely because it had performed work (albeit corrective work) less than six months prior to the filing of its claim. The Court ultimately rejected the Contractor’s argument, finding that the Contractor’s lien rights began to expire from the date on which it was terminated, not the date on which it last performed the corrective work.
In reaching its decision, the Court found significant that the Contractor sought payment for the work it performed prior to its termination, rather than for the corrective work that the Contractor performed after the termination at no cost to the owner. Relying on an opinion of the Pennsylvania Supreme Court dating to 1890, the Court distinguished extra work from corrective work, reasoning that the performance of extra work (such as change order work) entitled the contractor to additional payment and, therefore, prolonged the running of the six-month clock. Conversely, the Court reasoned that corrective work does not entitle a contractor to additional compensation and, therefore, does not extend the six-month time limitation.
While the Court in Neelu Enterprises dealt specifically with corrective work, the Court’s reasoning could arguably apply to any type of work that is performed without cost to the owner or for which payment has already been made (e.g., punch list, warranty and gratuitous work).
As a result of the Neelu Enterprises decision, when Contactors are not being paid in accordance with the terms of their contracts, they must be mindful of the nature of the work they are performing because it affects how much time they have to file a lien claim. As a consequence, keep this easy-to-remember saying in mind when determining whether your company’s work is complete: “if the Owner doesn’t have to pay, the six-month lien clock is likely in play.”
Tony Byler is a Partner at Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group. As a trial lawyer, he focuses his practice on representing public and private owners, contractors, subcontractors and material men.
Kathleen M. Morley is an Associate with Cohen Seglias Pallas Greenhall & Furman PC and a member of the Construction Group.