Tools of the Trade Project 365(3) Day 352 Keith Williamson
Background of Minnesota Mechanic’s Lien Law
In Minnesota a mechanic’s lien can be filed by a contractor or materialman to preserve their legal remedy for non-payment by a property owner. This legal process acts as insurance so that the provider of service will be paid. It is effectively putting a “hold” or lien on the improved piece of property. A mechanic’s lien can only be filed against a privately owned property or project (or a publicly owned project used for a private purpose) while bond laws apply to public projects exclusively.
The law is clear that a lien attaches on the last day that a contractor supplies labor for a project.1 The day the project is substantially complete is the day that the clock starts running on the contractor’s 120 days to file a lien against the property. A mechanic’s lien can be a powerful tool for contractors in order to ensure that they are not stuck with construction costs following the completion of a project. If a lien is filed against the property the landowner may not have clear title. In fact, this cloud on the title of the property can affect the owner’s ability to borrow against, refinance, or sell the property.
The Current Law – Minnesota Statute 514.08
Subdivision 1. Notice required.
The lien ceases at the end of 120 days after doing the last of the work, or furnishing the last item of skill, material, or machinery, unless within this period:
- a statement of the claim is filed for record with the county recorder or, if registered land, with the registrar of titles of the county in which the improved premises are situated, or, if the claim is made under section 514.04, with the secretary of state; and
- a copy of the statement is served personally or by certified mail on the owner or the owner’s authorized agent or the person who entered into the contract with the contractor.
Subd. 2. Statement by lien claimant; requirements.
Such statement shall be made by or at the instance of the lien claimant, be verified by the oath of some person shown by such verification to have knowledge of the facts stated, and shall set forth:
- a notice of intention to claim and hold a lien, and the amount thereof;
- that such amount is due and owing to the claimant for labor performed, or for skill, material, or machinery furnished, and for what improvement the same was done or supplied;
- the names of the claimant, and of the person for or to whom performed or furnished;
- the dates when the first and last items of the claimant’s contribution to the improvement were made;
- a description of the premises to be charged, identifying the same with reasonable certainty;
- the name of the owner thereof at the time of making such statement, according to the best information then had;
- the post office address of the claimant. (The failure to insert such post office address shall not invalidate the lien statement);
- that claimant acknowledges that a copy of the statement must be served personally or by certified mail within the 120-day period provided in this section on the owner, the owner’s authorized agent or the person who entered into the contract with the contractor as provided herein; and
- that notice as required by section 514.011, subdivision 2, if any, was given.
When the claimant files the notice, the Social Security number of an individual owner or the Internal Revenue Service taxpayer identification number for an owner other than an individual is not required.
How Do Contractors File a Mechanic’s Lien?
A contractor holds a mechanics lien on a single family dwelling or property after taking several specific steps. First, a contractor must notify the homeowner (there are a few exceptions for commercial properties) by providing them with a pre-lien notice of statement of their intent to file a lien against the property with the state. At that juncture, if the property owner still does not settle the payment due, the contractor is required to record their lien against the property within 120 days of the work being substantially complete.
It is highly advisable for contractors to set up their client files and to collect property information from the start of work on a project. Contractor are required to provide the state with critical information in order to file the lien, including: property address, legal description of the real estate, amount owing on the job, name of owner, name of the party contracted with, the first and last dates of work performed on the job, and a statement that the statutory pre-lien notice requirements were met, if applicable.
When is the Contractor Able to File a Lien Against the Property?
Contractors have 120 days to file for a lien against the property after their work on the property is “substantially complete.” But, although the law in this area is clear on the number of days, its practical application has proven more difficult. Many legal disputes have arisen to resolve this question as to the day the project is complete, and thus, when the clock starts running. In fact, the vast majority of litigation over mechanic’s liens is about when the project is substantially complete, and thus the filing deadline 120 days thereafter.
Often contractors may not file a lien against a property initially because they assume that the property owner will pay in full. Then by the time the contractor realizes that payment is not being made, or is being disputed, their 120 day filing period may have lapsed. Contractors who neglect to file a lien for the work may unfairly attempt to return to the property and perform de minimus work (such as removing equipment) in order to extend the lien’s filing date.
How Does the Court Determine the Validity of a Mechanic’s Lien in Minnesota?
The purpose of the statute is to protect laborers and materialman and liberal construction should be accorded to accomplish this purpose.2 But, a contractor who neglects to file a lien for finished work and then attempts to return to the property merely to extend the filing date only acts to circumvent the intent of the statute.
The courts look to several factors to determine if the subsequent work should extend the filing date by primarily asking if the previous work was part of the same contract. Kahle v. McClary is the case that paved the way in this area of law and its three factors are widely cited in the case history. Courts weigh the Kahle factors in order to reach a conclusion about whether all the work falls under one contract. Generally, revival of a lien period is disallowed when de minimus operations are performed for the sole purpose of extending the time for the lien and the work is otherwise substantially completed.3
The Kahle Factors:
- Intent of the subsequent work (good faith requirement)
- The timing of the subsequent work
- The scope of the contractual terms
How Does the Court Weigh the Kahle Factors?
- Intent of Subsequent Work (Good Faith Requirement)Basically, work is without good faith if performed for sole purpose of the lien extension. This good faith requirement is foundational to the courts in order for the contractor not to circumvent the intent of the statute by simply going back to the project site after expiration of their lien in order to revive it.General circumstances that help to support the contractor’s showing of good faith include: a) If the work was requested of the contractor by the property owner, or b) if the time to file the lien was still open when the additional work was performed.
- Long lapse of time (Not Weighed as Heavily)A lapse of time between projects is a circumstantial aspect that can be overcome by the overall scope of the contract and subsequent performance in good faith. The courts do not seem to think this is necessarily as a factor to be satisfied, as much as going to the weight of other considerations.
- Scope of the Contractual TermsThe following are general circumstances of the construction work that will tend to lead a court to hold that all work falls under a single unitary contract.
- If the evidence reasonably shows that the construction contract contemplates continuing acts, or if the contract price includes all of the work.
- Touch-up work, repair work, or punch-list items may all be held as a continuation of the contract if the work is occasioned by the ordinary process of construction and still being performed within the construction phase.
- If the general circumstances of the work show that the subsequent work was customary on jobs like these or between these parties. Or, more broadly, if the contractor and property owner have worked together in the past and have established course of performance wherein both parties understood and intended one continuous project from excavation thru construction.
How Does a Minnesota Property Owner Protect Their Rights?
Even before entering into a construction contract all property owners should get to know their rights and begin by being proactive in the process. Start by reading and understanding the statutory law of mechanic’s liens (Minnesota Statute 514.08 as above). As a property owner always try to maintain good communication and rapport with the contractor. By communicating with the contractor you will both be on the same page about if the project is complete, or whether more work is expected from the contractor. It is important to keep any invoices from contractor noting the date their work is complete.
If necessary send the contractor a letter to dispute amount owed, and state the reasons for your belief that the billing is incorrect based on work performed. It is advisable to send dispute letters via certified mail and to keep the receipt of their signature in your records as proof of delivery. In the case of disputes or problems with the quality of construction, property owners are well served to photograph critical aspects of the project with a time stamped picture.
In the case of questions about a potential lien don’t hesitate to call the county directly and determine yourself if a lien has been filed against your property. Make your call at least four months following the last day of work on the property. If, in fact, you have received a pre-notice lien letter from the contractor try to work it out with them directly before legal action is taken against your property.
During construction it is always important to keep detailed records of the bills, dates, and type of work done by the contractor. Only submit your final payment in-full to contractor (or subcontractor) after all work is complete and satisfactory in quality. Savvy property owners will always require the general contractor to provide them with a lien release when final payment is made to settle the account.
Minnesota Mechanic’s Liens Summary
The courts liberally construe the statute in favor of materialmen in determining the last item of improvement – of substantial completion. Because the statue is construed to protect materialman the courts have leaned toward holding lien filing periods revived by the subsequent work done. There is also an equitable aspect to these rulings as the courts do not desire for contractors to provide value to the community and receive nothing for their services.
The date that a project is considered substantially complete is highly circumstantial, but subsequent insignificant work that does not add value or finish a necessary aspect of the contract will not generally extend the period to file a claim against the property. Moreover, the lien period cannot be extended if the additional work is performed for the sole purpose of renewing the filing date.
1 Enviro-Fab, Inc. v. Blandin Paper Co., 349 N.W.2d 842 (1984).
2 Hayle Floor Covering, Inc. v. First Minnesota Const. Co., 253 N.W.2d 809 (1977).
3 Kahle v. McClary, 96 N.W.2d 243 (1959).
4 Rochester’s Suburban Lumber Co. v. Slocumb, 163 N.W.2d 303 (1968).