Beware of Inadvertently Waiving Your Mechanic’s Lien Rights!


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            Under Utah’s Mechanic’s Lien Act, a person or entity who performs labor, furnishes materials, or renders services provided for the purpose of constructing, altering or repairing an improvement to a parcel of land, including contractors, subcontractors, artisans, architects, engineers, and laborers, may claim a “lien” against that parcel of land for the reasonable value of the labor and/or materials provided.  A “lien” is a legal right or interest in another's property, which encumbers the property until the lien amount is paid.  In this context, the amount of the lien would be the reasonable value of the services, labor, or materials provided for the improvement of the property.  

            For example, if a plumber performs 40 hours of labor on the construction of a new home, the plumber can claim a lien against the land upon which the home is located, for the reasonable value of his/her services.  Similarly, if a plumbing manufacturer supplies $10,000 worth of materials to that home, it may also claim a lien for the reasonable value of the materials supplied.  In this example, the owner of the property would be required to pay the plumber and the plumbing manufacturer, in order to avoid the liens. 

            The purpose behind the Mechanic’s Lien Act is to provide protection to those who enhance the value of a property by supplying labor or materials.  Courts generally interpret the rules as generously as possible in order to serve that purpose.  However, there are many requirements one must follow in order to secure a mechanic’s lien, such as proper notice with the Utah State Construction Registry.  Moreover, people may unintentionally waive their right to a mechanics lien by signing documents with terms they do not understand.  Waiver of a mechanics lien right was at issue in the recent Utah Supreme Court case of Lane Myers Const., LLC v. National City Bank, 2014 UT 58, 342 P.3d 749. 

            In that case, a construction company agreed to build a home in Park City, Utah.  The construction company submitted multiple draw requests to the homeowner’s bank for payment.  The final draw request stated, among other things, that “I certify that no liens or claims that may result in liens exist against the above-described property….”  Later, the construction company filed a mechanic’s lien and brought a suit to enforce it.  The homeowners argued that that the draw request constituted a “lien waiver” and that by signing it and accepting the funds, the construction company had waived its right to file a mechanic's lien.  Thus, the following issue was presented: What is required in order to constitute waiver of a mechanic’s lien?

            The Utah Supreme Court noted that, pursuant to the language of the Mechanic’s Lien Act, a person waives his/her right to a mechanic’s lien simply by signing a “waiver” and receiving the payment that the waiver specifies.  The court then explained in order for a document to be considered a legal “waiver,” certain criteria must exist.  First, the person must have accrued an existing right to file a mechanic’s lien.  Second, the person must have knowledge of the existence of his/her right to file a mechanic’s lien.  Finally, the person must intend to relinquish his/her right to file a mechanic’s lien.  Under this standard, the court held that the draw request was unclear as to whether the construction company intentionally waived its right because there was no direct reference to any existing lien right. 

            With this framework in place, the court remanded the case for determination of whether the construction company actually intended to waive its right to file a mechanics lien when it signed the last draw request. 

            In Utah, a mechanic’s lien is very valuable for those in the construction industry, but a lien claimant must follow a number of steps to comply with the Mechanic’s Lien Act.  Kesler & Rust regularly advises clients on navigating such laws.