As headlines warn of an impending recession, parties should take proactive measures to avoid (or perfect) liens. Below are five tips the savvy owner, developer or contractor should consider as work continues in uncertain times.
1. Can I See Your License?
Under Oregon law, subject to certain safe harbors (see below) a contractor may not perfect a lien unless it has a valid license with the Construction Contractors Board (CCB) “[a]t the time the contractor bid or entered into the contract for performance of the work,” and “[c]ontinuously while performing the work for which compensation is sought.” (ORS 701.131(1).)
Owners/Developers: Upon receipt of a lien, the owner’s first step should be to check the licensing status of the contractor on the CCB’s website. The owner should also confirm if the contractor was licensed (i) when it bid the job, (ii) when it executed the contract, and (iii) continuously while performing the work.
Contractors: If the contractor lacked a license at any relevant time, then it should closely review the “safe harbor” provisions in subsection (2) of ORS 701.131 before it files a lien. The safe harbor provisions provide some latitude to the CCB, arbitrator or court to disregard the above license requirements.
2. I Thought You Were Getting the Lien Waiver!
Owners/Developers: Although lien waivers are commonplace, they are all too often left in a drawer after the parties execute the contract. Owners should develop a system at the start of each project to diligently track the receipt of conditional and unconditional lien waivers. It can be helpful to have a document czar for each project who tracks receipt of insurance documents, lien waivers, etc., and uses a matrix or other system to ensure nothing is missed.
3. I Waived What?!
Contractors: Contractors executing lien waivers should closely review the waiver language and expressly preserve certain claims. Sophisticated owners will request lien and claim waivers that not only waive a contractor’s lien rights, but also waive its right to file a host of claims (such as negligence, breach of contract, delay and impact claims). To avoid an unintended waiver, contractors should expressly reserve certain claims each time they execute a lien waiver.
4. Can You Help with One More Thing?
Six months after completing its work, the owner requests that the contractor return to the job and perform additional, non-warranty work. Should the parties execute a change order or enter into a new contract?
Owners/Developers: Under Oregon law, a lien claimant generally must file its lien within 75 days after it stops providing labor, renting equipment or furnishing materials, or 75 days after the “completion of construction” (a term of art; see ORS 87.045(1))—whichever is earlier. In the above scenario, If the parties execute a change order, the owner may inadvertently revive the contractor’s lien rights for work performed more than 75 days earlier. To limit the contractor’s lien rights to only the new work, the owner should request the parties enter into a new contract.
Contractors: The contractor will want to take the position that all of its work, including the new work, was done pursuant to a single contract. As little as $578.13 of work performed eight months after a contractor completed its original contract work and submitted its final billing has been held sufficient to revive a contractor’s lien rights for the entire project (provided the work is not “trifling” work). The contractor should request a change order to the original contract.
5. What Does This Notice Mean?
Oregon’s lien laws include a range of statutory notice pitfalls for contractors. Owners and developers should take advantage of these notices.
Owners/Developers: One tip for owners is to start running the 75-day clock to file a lien by posting a “completion notice” (see ORS 87.045(2)), and recording a copy of the notice with the county. If a contractor overlooks the completion notice then it may forfeit its lien rights. Another tip, if a lien has already been filed, is to issue notices under ORS 87.027 and/or ORS 87.057, which require that the contractor provide specified information under a tight timeline. If the contractor fails to timely respond it can lose its right to recover attorneys’ fees and costs, one of the primary leverage points for lien claimants.
Contractors: Contractors should carefully examine owner communications to ensure they don’t overlook potentially critical statutory notices that may be buried in seemingly innocuous communications.
The above tips are merely the tip of the iceberg when it comes to negotiating Oregon’s complex lien laws. All involved should be vigilant in protecting their rights as we continue to wade into a potential downturn.
Originally published as “OP-ED: Recession warnings piling up: a harbinger of liens?” by the Daily Journal of Commerce, Sept. 19, 2019.