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Your Contractor filed a Mechanic’s Lien. Now what?

Under New York’s Lien Law, a contractor can file a mechanic’s lien for unpaid fees or materials costs stemming from a construction project.   Thecontractor or subcontractor that performs labor or provides materials for a build-out of a store or office can place a lien against the premises. He serves not only the tenant who hired him but the landlord and even the landlord’s mortgagee. tThis lien is for the value or agreed upon price of the work that is due or payable.  A mechanic’s lien is entered in the county clerk where the premises is located and becomes an encumbrance on the title to the building.  The owner of the building typically will demand that the tenant vacate or discharge the lien immediately. It could violate the terms of the owner’s mortgage or financing on the building.  He may even be in the process of selling the building, and the buyer won’t close until the lien is discharged. Even if this is not the case, the tenant may need to discharge the bond because his landlord has contractually obligated him to in his commercial lease.

The tenant can bond the lien by purchasing a surety bond, and the lien would then attach to that bond.  Once the tenant files the bond with the county clerk, the mechanic’s lien is discharged and will no longer encumber the premises, and the contractor/lienor must foreclose against the bond.  Most well-drafted commercial leases allow the tenant the option of bonding the lien and defending the contractor’s claims on the merits. If the tenant’s lease does not permit him to bond the lien, the owner will simply pay the contractor and bill it as additional rent. The tenant must then sue the contractor to recoup the money.

Another option the tenant has is to attempt to have the lien dismissed summarily in Court. This can be done under Lien Law Section 19 if the lien is either void on its face or there have been errors made in the recording of the mechanic’s lien. The tenant can also file a Lien Law Section 59 notice demanding that the contractor/lienor start the foreclosure action within 30 days. At least the tenant shall have an opportunity to expeditiously defend the matter and counterclaim with any causes of action they may have. If the contractor doesn’t start the action within 30 days, the tenant can commence a summary proceeding to discharge the lien. Even if the mechanic’s lien is successfully vacated and the contractor loses the lien, it still has the right to bring a civil action or arbitration against the tenant for breach of contract.

Regardless as to what option the tenant chooses, the lien law can be an incentive for all parties to be proactive and resolve the dispute as quickly as possible. Defending a mechanic’s lien is a niche specialty. Someone facing a mechanic’s lien should consult an experienced construction lawyer like the Wright Law Firm.