June 18, 2014

Filing Your Claim of Lien: Be Honest and Be Careful or Risk Getting Nothing


You're the general contractor (or a subcontractor). The owner (or general contractor) owes you money on the project, and the time to file your claim of lien is about to run out. You want to file your lien both to protect yourself and to put strategic pressure on the owner (or general contractor) to get the payment issues resolved. But your project accounting isn't necessarily right up to date, so you're not sure precisely what you're owed. That means you're also not sure what the precise lien amount should be.

So you pick a big, safe number and file the lien to make sure you cover everything and to put extra pressure on the owner (or general contractor).


Wrong, probably. In fact, if the number is intentionally overstated or your calculations were too "casual," you might lose not only the "too much" amount, but the entire lien.

Generally, a general contractor can file a claim of lien for the unpaid contract price, while a subcontractor can file for the reasonable value of its work or materials or both. (In Oregon, a subcontractor's actual cost for work and materials is presumed to be their reasonable value for lien purposes, but either side can try to prove that the "reasonable" value is not the same as actual cost.)

So how can contract price or reasonable value be determined for a claim of lien so as to make sure the lien is valid?

First, the claim of lien must take into account appropriate credits and offsets. While minor or inadvertent mistakes in allowing for credits or offsets might not invalidate a lien, a significant or intentional error almost certainly will.

Similarly, the amount owed (whether unpaid contract price to a general contractor or reasonable value to a subcontractor) must be calculated in good faith and with reasonable care. An intentional overstatement of entitlement will probably invalidate the entire lien. And even an unintentional overstatement can invalidate the lien if there was gross negligence in arriving at the numbers. So if you must file a lien based on incomplete numbers, make sure whatever number you use is arrived at in good faith and make sure it is reasonable, even if not exact.

While it is not clear that the law absolutely requires it, best practice would be to segregate costs within the lien amount into categories such as labor, equipment rental, and materials and supplies. If that is done carefully, it will help to deflect an argument that the total lien claim was either overstated or a "guesstimate."

Of course, there are many other important requirements apart from the amount of the lien that must be met before a claim of lien is valid. And the fact that a lien claim is invalid does not mean that other claims, such a breach of contract or quantum meruit, cannot be pursued. But a lien claim has obvious advantages over other claims, and losing it because of carelessness or overreaching in calculations can be a major disadvantage.

So, make sure a claim of lien is made in good faith, and make sure it is reasonably calculated after allowing for offsets and credits. Then file.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations. For more information on this topic, please contact marketing@jordanramis.com or call (888) 598-7070.


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