Mechanic’s Liens – Legislative Update

Construction going on in the city.

Every year, state legislatures across the country pass new laws and revise old ones.  In fact, these state legislatures often tinker with existing statutes that have been in place for many years and are working as intended.  This year, the Connecticut legislature has raised a bill, Raised Bill No. 887, “An Act Concerning the Requirements for the Filing of a Mechanic’s Lien” (the “Act”), that may have an adverse effect on the construction industry through unintended consequences.

The Act would add a new requirement for a mechanic’s lien to be valid.  Specifically, the Act states that the contractor performing the work must hold “the appropriate registration or license to perform the services.”  On one hand, the Act has the valid purpose of discouraging unlicensed individuals from performing construction services.  On the other hand, this revision to the mechanic’s lien laws would be duplicative of the laws and regulations pertaining to licensure already in place insofar as the existing laws and regulations prohibit certain work from being performed without a license.  In addition, the mechanic’s lien statutes are not the best place to address this issue.

The mechanic’s lien laws were established in all fifty states to provide contractors and suppliers with recourse in the event of nonpayment for their labor, materials and/or services. Thus, under the Act, a statutory scheme that was put in place to benefit contractors and suppliers may no longer be available to them if they do not hold a required license.

While there is merit in discouraging unlicensed contractors from performing work, the mechanic’s lien laws already serve a similar purpose.  Like licensing laws, mechanic’s lien laws require work to be performed correctly.

Once a mechanic’s lien is in place, the contractor that filed it has a security interest in the subject property that must be foreclosed before the contractor receives payment.  A mechanic’s lien is foreclosed in the same manner as a mortgage.  Thus, converting a mechanic’s lien into a payment will require a court trial.  During the trial, the contractor will have to prove that its work was performed in a workmanlike manner.  Therefore, in some instances, the requirement for the contractor to be licensed in order to file a valid mechanic’s lien will prevent mechanic’s liens from being used to obtain payment for properly performed work.

The foregoing paragraph evidences why the license requirement does not belong in the mechanic’s liens laws.  The purpose of licensing is to ensure that work is properly performed.  The mechanic’s lien laws already have that requirement.  Thus, there is no reason to prevent a non-licensed contractor from filing a mechanic’s lien because he will only be able to enforce the lien if its work was performed in a workmanlike manner.  Therefore, the Act has the potential to create some unfair situations.

The Act may also have other unintended consequences.  First, the proposed language is not clear as to whether it only pertains to trade registrations.  It may be argued that the failure to register as a foreign corporation with the Secretary of State would bar a contractor from filing a mechanic’s lien but such a requirement would have no relationship to the contractor’s ability to perform the work.  Second, it may limit those who may file mechanic’s lien.  Despite the plethora of licenses available, not every trade on a construction site is required to hold a license.  Therefore, the Act may prohibit contractors that do not hold an occupational license (and are not required to do so) from filing a mechanic’s lien.

Interesting, at least one Superior Court case that has considered this very issue decided that a mechanic’s lien was valid despite the lienor not having the required occupational license.

If you want to learn more about how the Act may affect you, please give me a call at (860) 760-3317.

Scott Orenstein