What Subs Should Know About Mechanic’s Lien Rights On private sector construction jobs, subcontractors and material suppliers who have not been paid often come to us and ask about their mechanic’s lien rights. A mechanic’s lien can be a powerful tool in getting an owner to pressure a general contractor to pay his subcontractors and material suppliers; and if the general contractor has run into real trouble, it can be the only source of payment.

Here are some things you should know about the mechanic’s lien process:

It is a separate court proceeding, with separate costs.

In most states, you claim a mechanic’s lien just by filing a sworn notice with the court. In Hawaii, you have to file an application in Circuit Court, and if it is contested, there is a hearing to determine if you are entitled to a mechanic’s lien.

Often, simply filing the application for a mechanic’s lien, or getting the court to approve the application, is enough to get paid. But if it is not, then you have to file another action, to foreclose on the mechanic’s lien.

If you are successful in court on the foreclosure action, or in a simple lawsuit against the contractor, you can recover some or all of your attorney’s fees. However, there is no right to recover attorney fees in a mechanic’s lien proceeding. You may need to weigh the amount you are owed against the nonrecoverable cost of the mechanic’s lien proceeding application.

Even if you are licensed, if the general contractor is not, you lose.

Unlicensed contractors cannot receive a mechanic’s lien. But even a licensed subcontractor has no lien rights, if the general contractor was unlicensed when the work was performed. This can happen even if the general contractor was licensed when you contracted the work, but then had its license suspended before you perform the work, because its insurance coverage lapsed.

This also affects material suppliers, but only if the work is for repair or improvements to residential property: Materials supplied to an unlicensed general contractor or subcontractor for that purpose are not eligible for a lien.

If you wait too long, you lose your rights.

You must file an application for a mechanic’s lien no later than 45 days after the date of completion. Basically, the owner or general contractor publishes an advertisement in the newspaper for two weeks, stating the work is completed. The newspaper then files an affidavit in Circuit Court, attesting to the publication. This is the “date of completion, and 45 days after that, no mechanic’s lien can be filed.

You can look for Notices of Completion by going down to Circuit Court, or by subscribing to BidService Weekly, which includes this information. If the general contractor has been slow in paying, and the project is at or near completion, you need to keep watch for this; your attorney needs sufficient time within which to prepare a proper mechanic’s lien application, and if you wait too long you will lose your rights.

No liens for working for condominium associations.

If you subcontract to a general contractor who is working for a condominium association, you have no lien rights. The Hawaii Condominium Law bars the application of a mechanic’s lien to the common elements of condominium. In those cases, you should be aware that you are relying strictly on the general contractor, and make your decisions on that basis.

No residential liens if the general contract violates the lien disclosure law.

In an earlier article, we noted that contractors who do residential construction, repair or renovations must comply with HRS Section 444-25.5. This requires that contracts with homeowners must disclose lien rights (along with other required information and language). If the contract violates that statute, among other serious consequences, the contractor loses its mechanic’s lien rights.

The Circuit Court has held that this will apply, not only to the general contractor, but also to all of its subcontractors. Accordingly, if you are subcontracting for residential work, you may want to talk to the general contractor to make sure it is aware of the need to have the contract comply with the law.

Be careful of lien release language.

Many times, an owner will require the general contractor to submit lien releases from all of the subcontractors before payment will be made. Before you sign the release, read it carefully to ensure that it is only effective if you actually receive payment; and that if there any outstanding disputes, they are exempted from the release.

If you sign the wrong form, you could find that you have lost your lien rights, even if you have not been paid. If you are not sure, have your attorney take a look at the form.

Scott Batterman Hawaii Attorney Honolulu Law Firm
Scott I. Batterman

Partner

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