By Brent Carpenter, ShareholderThis article originally published in the May 25, 2021 edition of the Daily Journal of Commerce Oregon.
Construction liens are a powerful tool to ensure payment from an owner or a general contractor on private construction contracts and subcontracts. However, to preserve this security, a contractor needs to be cognizant of the deadline for recording a lien. In Oregon, that deadline is 75 days from the last day the contractor provided labor, material, and/or equipment to the project or the date of substantial completion of project, whichever is earlier. In Washington, the deadline is 90 days from the last day the contractor provided labor, material, and/or equipment to the project. While those deadlines seem straight forward enough, an issue that has arisen repeatedly is determining the date on which the deadline begins to run.
A decision by Washington Court of Appeals in March 2021, Brashear Electric, Inc. v. Norcal Properties, LLC, illustrates how this issue continues to arise even decades after the lien statutes were created. In Brashear Electric, the contractor argued that repairing its own work extended its deadline to record a lien. The contractor based this argument on the word “repairing” in Washington’s lien statutes. As mentioned above, Washington’s lien statutes provide that a person must record a lien “not later than ninety days after the person has ceased to furnish labor, professional services, materials, or equipment.” The statutes provide that the furnishing of labor, materials, or equipment must be “for the improvement of real property.”
The statutes define “improvement” to include “[c]onstructing, altering, repairing, remodeling, demolishing, clearing, grading, or filling in, of, to, or upon” real property. The contractor argued that its repair work—caulking around a rooftop air conditioning unit, which was the alleged source of a leak, and repairing a loose light fixture connection—was “repairing,” as the term is used in the statutes. The court rejected this argument, reasoning that “repairing” means to “restore” something that “once worked properly,” but is now broken. In the case of non-conforming work, such as that at issue in the case, the court reasoned that such work never “worked properly.” The court also reasoned that “[a] lien is intended to secure payment for money owed” and “[a] contractor is not paid to correct its own nonconforming work.” Therefore, the court held the contractor’s liens were untimely.
This holding is consistent with Oregon case law on the issue, which provides that the 75-day deadline to record a lien begins to run when the contract at issue is “substantially complete. Determining whether a project is “substantially complete” is a factual determination made by the court or jury on a case-by-case basis. Oregon courts have consistently held that “trifling” work or repairing one’s own nonconforming work does not extend that deadline. For example, in a case where the contractor replaced a defective heater, which required minimal labor and was performed under warranty, the court held that such work did not extend the time for recording a lien. Conversely, a court held that a project was not substantially complete when the project electricians had yet to wire the project appliances. However, occupancy of the project premises is not in and of itself dispositive proof that a project is substantially complete. Under the Oregon lien statutes, an owner or contractor may issue a notice of substantial completion, which alerts project contractors that they must record any claim of lien in accordance with the lien statute (i.e., within 75 days of the date of the notice). However, the Oregon Supreme Court has held that the statutory notice “is neither the exclusive nor conclusive test for deciding when completion of a structure has occurred.”
As the above discussion makes clear, there is a lot room for disagreement over when the lien recording deadline begins to run. Obviously, a contractor will want to avoid costly litigation to determine whether its lien was timely recorded. While this may ultimately be necessary in some cases, such a scenario may be avoided by simply keeping the deadlines in mind as you start to wrap up a project. If you are almost done with your contract work and are concerned about getting paid, it is a good idea to calendar the lien recording deadline (erring on the side of recording earlier) and start putting together your lien (i.e., determining the amounts you expended on labor, materials, and/or equipment and compiling the backup for those amounts). Doing so can preserve your payment security and put pressure on those up the contracting chain to get you paid.
Brent Carpenter is a shareholder at Jordan Ramis PC and focuses his practice on construction law. Contact him at (503) 598-5524 or firstname.lastname@example.org.