Be Aware (or Beware!) of Extended Mechanic’s Lien Rights

The Oregon legislature intended the mechanic’s lien laws to be relatively straightforward. On the issue of when to record a lien, ORS 87.035(1) requires a lien claimant under ORS 87.010(1) or (2) to perfect the lien by recording it “not later than 75 days after the person has ceased to provide labor, rent equipment, or furnish materials or 75 days after completion of construction, whichever is earlier.” This seems simple enough, right? If you’re an unpaid contractor, make sure you record your lien 75 days after you’ve completed your significant (non-trivial or non-trifling) contract work and removed your equipment. And, if you’re an owner, you should be able to rest assured of no subcontractor liens 75 days after each trade completes its work, and ultimately be worry-free of liens 75 days after project completion. Unfortunately, the law of unintended consequences often renders the simple and straightforward much more complex.

Take the recent case of Bethlehem Construction, Inc. v. PGE, 298 Or. App. 348, 447 P.3d 18 (2019). A subcontractor contracted with a general contractor (“GC”) to produce and deliver precast concrete panels to be used as part of a new power plant generation building for Owner. For the contract price of $122,851, Subcontractor produced and delivered the panels, completed the work in April 2015 and submitted its final billing to the GC at that time. Subsequently, the GC requested additional work from Subcontractor in December 2015. The additional work consisted of an engineering opinion regarding load tolerances. The parties memorialized the add-on in a change order to the original subcontract for $578.13. Subcontractor provided the additional work and billed for the same. Days later, the Owner terminated its prime contract with the GC. The GC failed to pay Subcontractor both the final payment due under the original contract and the amount due under the change order.

Subcontractor recorded its mechanic’s lien in January 2016, within 75 days of providing the work in the change order but well past 75 days after providing the work under the original contract. Owner contested the validity of the lien and Subcontractor sued. On cross-motions for summary judgment, the trial court sided with the Subcontractor and concluded that Subcontractor did not cease to provide labor or furnish materials within the meaning of ORS 87.035(1) until it performed the additional work requested by the GC in December 2015, pursuant to the first change order. The trial court thus concluded that Subcontractor’s January 2016 lien was timely. Owner appealed.

On appeal, Owner argued (1) that Subcontractor’s December engineering opinion was under a separate contract and thus not part of the original contract completed in April such that Subcontractor could not lien for any of that original contract work, and (2) that Subcontractor’s $578.13 December work was trivial or trifling when compared to the $122k original contract and thus inadequate to keep alive any lien claim for the work completed under the original contract (on this second argument Owner relied on prior Oregon case law holding that “a contractor does not extend the time to file a lien by returning to a job to perform some trifling work or a few odds and ends after apparently completing the job and removing its equipment” (citation omitted)).

The court of appeals dispensed with Owner’s first argument in finding that GC and Subcontractor “fully expressed their intentions through the change order.” The change order referred to the original contract and contract number and further specified the scope of change to that original contract. The court found no evidence in the record that any party, Owner included, intended or considered the December work not to be part of the initial contract.

On the trivial or trifling question, the court of appeals reasserted prior decisions that explained “cost alone does not determine if work is trifling.” Instead, the law will look to whether the later work is “directly related to the original work and in furtherance of (Subcontractor’s) contractual obligation to provide precast concrete panels that would perform a particular structural function…” The court found “the December work was significant because, absent the engineering opinion, (GC) could not rely on the panels to perform that structural function.” The court thus affirmed the trial court’s decision, upholding the validity of Subcontractor’s mechanic’s lien.

Lessons learned? For Contractors, be aware of your lien rights and calendar the 75-day expiration of the same following your completion of work on projects – don’t count on later change order work reviving your lien rights as happened for the Subcontractor here. For Owners, be aware of the various trade and prime contractor lien rights on your projects and ensure that trade contractors are being timely paid by requiring lien and claim waivers and releases with payment applications (conditional for current pay applications and unconditional for past pay applications). And, beware of later additional work constituting a change to an existing contract that extends the lien filing period. To mitigate this risk, use a new short form contract or purchase order (as opposed to change order on the existing contract) where possible to clarify that the new work is part of a new, separate contract.

Originally published as “OP-ED: Be aware (or beware!) of extended mechanic’s lien rights” by the Daily Journal of Commerce, Nov. 14, 2019.