Lien statutes have long been an effective leveraging tool for credit professionals looking to collect outstanding payments on a construction project. However, as a recent court case points out, warranty work does not extend the deadline to record a lien claim.
A recent case, Brashear Electric, Inc. v. Norcal Properties, LLC, before the Washington Court of Appeals exemplifies how certain misconceptions can be costly. Brashear Electric, Inc. had served as a subcontractor on two adjacent projects—one owned by Norcal Properties, and the other by Blue Bridge Properties. Both projects included a one-year warranty. More than 90 days after Brashear's last work on either project, a leak was discovered in the Norcal building's roof. Brashear fixed the issue under the warranty and also repaired a loose light connection on the Blue Bridge building. It was later discovered that Brashear was not responsible for the roof leak.
Following the warranty work, Brashear promptly recorded liens against both properties, and then filed an action to foreclose on the liens. Norcal and Blue Bridge argued that warranty work does not extend the 90-day period to record a claim of lien. The trial court ruled in their favor, and Brashear appealed. The appeals court determined that contractors are not hired and paid to correct their own nonconforming work and that warranty work is not subject to the protections of the lien statute. The fact that Brashear was not ultimately responsible for the roof leak had no apparent impact on the court's analysis.
Therefore, the court found that Brashear Electric's liens were untimely considering Washington's 90-day deadline to record a lien begins when the contract at issue is substantially complete. "Subcontractors and suppliers should never rely on warranty work, punch list items or replacement items to extend their filing deadlines," said Connie Baker, CBA, director of operations for NACM Secured Transaction Services (STS). Instead, she advises that they look at their last substantial shipment to the job or original contract work date to track their filing deadline.
Baker uses an example from her own experience with NACM STS where a client had to file a lien within 90 days of the last furnishing date. The client used a "branch pick up" as the last furnishing date but the owner argued that the last furnishing date was the last substantial shipment to the job—taking them beyond the 90 days from the last furnishing window.
"Our client spent a lot of money arguing that the pick-up date should be allowed as the last furnishing date, which would make the filing timely," Baker said. "Arguing your last furnishing date in a foreclosure to allow your lien to be filed timely can get very expensive. This customer was owed $95,000, so they spent the money to argue their last furnishing date. They even conducted depositions; but in the end, the judge ruled not to allow the branch pick up as their last furnishing date."
-Bryan Mason, editorial associate