Mechanics Lien in Virginia. By a General Contractor.
For a general contractor, filing a Virginia mechanic’s lien is not as easy as walking into the recorder’s office after the project is completed and payment is not forthcoming. One must also serve a pre-lien notice as a condition to such a Virginia lien. The purpose of this brief article is to go over those requirements.
The name of the notice is: “Notice of Contract to Mechanic’s Lien Agent (General)”. It is required only for residential projects which are defined as one or two family dwelling units. Most states require a pre-lien notice only for subs. But the Virginia mechanic’s lien statutes require this notice to be served by a general contractor.
Mechanic’s Lien Agent: In almost every state, such a notice is served directly on the owner of the property. Virginia varies this rule so that the service is on the owner’s “mechanic’s lien agent” (MLA). Who is that person?
Virginia mechanic’s lien statutes define such a person as: 1) a bank or savings and loan as well as a service company affiliated with such institution, or 2) the owner’s attorney who is licensed to practice in Virginia, or 3) a title insurance company or licensed title insurance agent. The statute does not allow the owner to designate anyone else, which is odd, because this would cut down the attorneys’ fees in having to designate an attorney. There is expense enough in filing a mechanic’s lien in Virginia, not to mention this additional requirement.
To cut down on cost, the MLA’s duties are quite limited. Such a person simply receives notices and provides a copy of each notice on request. Once received, the agent can then make sure the owner is not paying twice by receiving lien waivers on progress draws. The idea is that this would cut down on the number of Virginia liens.
The building permit, which must be posted in plain sight at the project site before work begins and during all phases of construction, must list the name and address of the MLA. If it does, the Notice must be served.
As of 7/1/2010 under Virginia mechanic’s lien statutes Section 43-1 (C), if the permit is not posted or if it does not state the name of the MLA, the prime is not relieved from sending out the Notice. The contractor must then make a “reasonable inquiry”. This is defined in Virginia mechanic’s lien statutes as going to the “appropriate authorities” (the building inspection department that issues the permit) and looking to see who is designated. There is no requirement of going to other agencies or taking other steps to investigate the name of the MLA. Under prior law, some contractors argued that if the agent was not stated on the posted permit, no further inquiry was required and the pre-lien notice did not have to be served. This is no longer the law.
However, if the agent’s name is neither on the posted permit nor designated with the building inspection department, there is no legal requirement of serving the Notice.
But the most prudent course is to serve the notice even the enough the MLA is not identified. Simply serve the Notice on the owner along with a letter indicating that when they designate an agent, please let the contractor know. If so disclosed, send the Notice immediately. Why do this? Because under Virginia mechanic’s lien law, the owner is only liable to subcontractors for the balance owed to the general contractor. Once all payments have been made to the general, there is no longer an obligation to pay the subs and suppliers. So, if the owner receives the Notice, they will take steps to make sure you are paid.
Changing the name of the MLA. Under new Virginia mechanic’s liens statutes Section 43-1(A) as of 7/1/2012, the owner can amend a building permit to name a different MLA, even after construction has begun. If a different MLA is stated, the contractor must send the same Notice to that person. Fortunately section 43-1(B) requires an amended permit be displayed at the premises and if not, the new agent need not be served. On the other hand, if you get wind of the fact that a new agent is out who it is–send a new Notice to that person.
If a contractor is local and within driving distance of the building inspection department, it is easy to check out the name of the MLA by going in person. But what if you are out of the area? Many either use a notice service which compiles the names of the MLA’s or simply place a call to the inspection department before sending out the Notice.
Before the new law, many attorneys who specialize in Virginia liens advised their clients to send the Notice right after signing the contract or shipping the material—so they would not forget. But because an owner can now amend the MLA, it is more common to call the building inspection departments within a week of the expiration of the 30 day period, just in case there has been an amendment. Then send the Notice at that point.
What about commercial projects? The notice is not required but still recommended. For this reason: if the owner receives the Notice they cannot claim the defense of full payment to the general contractor and must take steps to make sure you are paid.
When: Within a) 30 days of beginning work, or b) within 30 days of the date a building permit is issued, if the labor or materials are first furnished prior to the issuance of a permit. You may file later, but you only get a lien for the unpaid work incurred after service of this Notice.
For commercial projects (service is option but recommended), there is no set time limit as with a residential project. However, the owner’s liability for a Virginia mechanic’s lien lien is limited to the amount he or she owes the general contractor at the time of receiving the pre-lien notice. Note: if a sub delays giving the pre-lien notice, there is the risk that the owner will pay the general contractor the balance of the contract in the meantime. Once the balance of the contract is paid, the subcontractor will not have any lien rights left. Therefore, serving the pre-lien early is important.
The rule is different for residential construction, defined as a project that relates to one or two-family residential dwelling units. As of 1992 under Virginia mechanic’s lien statutes, the general contractor, subcontractor, and supplier must notify the MLA by certified mail within 30 days of the date the claimant first works on the property. If the claimant fails to give the Notice within 30 days, his or her lien is only valid as to work after the date the Notice is finally given to the MLA. In other words, the lien is only valid for the unpaid work done after the late service of the Notice.
What if the owner amends the permit to insert a new or different MLA and it over 30 days from commencement? Because it is beyond the 30 days, the time has expired to serve notice. The statute does not address this issue. It is recommended in those cases you immediately send a notice to the new MLA to prove due diligence.
How to Serve: Serve by certified mail on the MLA. The owner is not required be served, but some general contractors do so anyway to be safe.
If the certified mail comes back unsigned, it is presumed service has been made even though you do not have the certificate returned. This is based on new section 43-1(B) that says proof of mailing by certified mail is presumed to have been received by the addressee (called a “prima facie” case of delivery). The notices not have to be notarized.
The rules for Virginia mechanic’s liens, including pre-lien notices, are quite complicated in the state. If you have specific questions, feel free to give us a call.