|
by Thomas J. Westgard, Attorney at Law
http://www.ILMechLiens.com
(This article was originally written for a publication
directed at small Illinois businesses)
Every building needs maintenance occasionally,
sometimes on an emergency basis. Other times, renovation and
remodeling can be the motivation for the work. Thus every person
or business in Illinois which occupies a building - and that's
nearly everyone - is affected by the Illinois Mechanics Lien
Act. Because the title to the property or the tenant's rights
under a lease can be taken by a contractor or subcontractor to
pay for work on real estate in Illinois, one needs a fundamental
understanding of what this part of the law covers to protect
those rights. The Illinois Mechanics Lien Act automatically
inserts and removes terms from every agreement (both written
and oral) for work on real property in Illinois. These automatic
terms create rights and obligations for all parties to the agreement.
Failure to comply with these obligations can result in the loss
of title to the property, a lease, or loss of the contractor's
right to payment. However, knowledge of the law can turn it into
a powerful ally in avoiding conflict and guiding the building
project to its intended result.
Whatever your role in the construction process,
a fundamental understanding of the Illinois Mechanics Lien Act
can help you control the project to get the results you want.
The statute creates a system of required notices and disclosures
which, if properly completed, prevent many of the most common
payment problems in construction. Any participant in the building
process who has a better understanding of the mechanics lien
requirements has the upper hand in controlling who will be legally
required to do what and when. This opportunity to ensure that
the work is done properly, that all payments are proper, and
to avoid or minimize litigation should not be overlooked.
The information about mechanics liens available
from most sources starts with litigation, which usually starts
only after the damage is already done. In contrast, litigation
can usually be avoided, and most other times minimized, through
careful attention to the defenses available even before any disputes
arise.
Therefore, take a few minutes to learn the
names and uses of the most common legal documents described by
the Illinois Mechanics Lien Act, as a way to monitor and control
the project. These documents are (1) the contract, (2) the subcontractors'
notices, (3) the sworn statement(s), and (4) the waivers.
I. The Contract.
A. The agreement for the work should be in writing so that there
can be no question about what work is to be done, when, where,
and by whom. This should be drafted by an attorney familiar with
construction and mechanics lien work, to ensure that it is legally
enforceable and properly describes the work to be done.
B. A procedure for the parties to follow for making changes and
additions to the work should be included, along with some guidelines
on determining the costs for the changes and additions. This
is the single greatest source of conflict in construction.
C. Title to the property should be determined through a title
search (by the contractor), and the owner(s) of record and any
tenants should all be included in the contract. At bare minimum,
the owner(s) should be notified of the contract through certified
mail.
D. To avoid confusion or unpleasant surprise, the contract should
specify that all requirements of the Mechanics Lien Act will
be completed by the parties to the contract. (However, even if
the contract does not include this statement, the requirements
still apply, and cannot be avoided, even by agreement.)
II. Subcontractors' Notices.
A. The Mechanics Lien Act provides that all subcontractors (including
subsubs and materials dealers) on jobs at owner-occupied, single-family
residences (including condo units) must provide a certain notice
form described in the statute to the homeowner within 60 days
of the start of work, in order to have an enforceable mechanics
lien claim. This notice protects the subcontractor, but also
provides the owner the opportunity to ensure that all participants
are properly paid (see Part IV, Waivers and Payment, below).
B. Even when a subcontractor's notice is not required, or when
the time for serving it has already passed, providing such notice
to the owner may be advisable anyway. First, a fair-minded owner
will want to ensure that all workers are properly paid, and an
owner who actually receives notice of a particular subcontractor
cannot reasonably rely on a contractor's sworn statement which
fails to include the subcontractor who provided the notice.
C. A subcontractor's notice must include the matters required
by the Mechanics Lien Act, but can also be drafted to work as
a marketing tool for the subcontractor. In this manner, the notice
can function as a service to the owner and the subcontractor,
and avoid the perception of hostility that an unpolished "legal
notice" might bring. The subcontractor should work with
the attorney to develop such material.
III. The Sworn Statement(s).
A. The owner (or tenant, if the tenant is contracting the work)
is required to demand, and the contractor is required to provide,
a "sworn statement" which identifies all subcontractors
and materials dealers to the project. Failure to comply with
this requirement causes severe consequences. No money is owed
to the contractor until the sworn statement is provided. On the
other hand, if the owner does pay money to the contractor without
getting a sworn statement, and the contractor fails to pay a
subcontractor in full, then the owner still owes that amount
to the subcontractor as if no payment had already been made.
B. The owner is also entitled (but not required) to demand a
sworn statement from subcontractors, to identify any subcontractors
or additional materials dealers. Particularly in large projects,
these additional sworn statements should be demanded, since the
same obligation for the owner to complete all payments applies
to these lower-tier companies as it does for other subcontractors.
C. Provided that the sworn statement(s) include all of the information
required by the law and the facts of the particular project,
the owner is entitled to rely on it for purposes of making payment,
and will not be required to pay any amounts beyond the amount
stated on the form. However, if this form is deficient in any
manner, the owner runs a significant risk of being obligated
to pay amounts beyond the contract amount. Therefore, this form
should be carefully examined by the owner, in consultation with
an attorney familiar with mechanics liens, to ensure that it
includes all of the required information, before any payments
are made.
IV. The Waivers and Payment.
An additional and powerful protection for the owner is to receive
a waiver from the contractor or sub. A waiver releases some or
all of the rights to a mechanics lien. Owners are (or should
be) understandably hesitant to make payments without receiving
a waiver for the amount paid, just as contractors are (or should
be) hesitant to sign a waiver before getting paid. This can result
in a standoff in which each side demands that the other go first,
or more commonly, the contractor and subs cave in, because they
need the money more than the owner "needs" to release
it.
Still, this piecemeal "waiver-for-payment" process
is a poor way to avoid payment problems. The waivers are rarely
examined to determine whether all required waivers are present
and waive the proper amount, and against the proper interest.
A contractor has a lien against the property in two ways, and
a subcontractor has such a lien in four. Sometimes the waivers
should be compared to one another to determine whether the proper
amounts are stated. Thus, the owner may not get the assurance
that potential lien claimants are eliminated. Likewise, a contractor
or sub who signs a waiver can only be sure that the waiver will
be upheld, whether or not payment is made.
The simple and effective solution is to hold a closing, in which
the owner, contractor, and subs meet to exchange waivers and
checks. The Mechanics Lien Act permits the owner to pay the subcontractors
directly and to credit this amount against the contract amount
owed to the general contractor. This is a powerful protection
which the owner should exercise. The waivers should be examined
by an attorney familiar with the requirements of the statute
and the building project to determine whether they comply with
the legal technicalities and state the precise intent of the
parties. Additionally, a closing provides an opportunity for
any undisclosed subcontractors to appear and request payment.
The closing process provides additional assurance that all persons
owed money are paid the proper amount, and that the owner receives
the security of a full and valid waiver for all amounts paid.
V. Liens and Litigation.
In the event of a payment dispute, the next step would be the
completion of the lien documents and commencement of litigation.
The information about mechanics liens is available on most web
sites describes this later part of the process, and is thus not
included here. However, it must be noted that all parties to
the construction process are subject to very short time constraints
described by the Illinois Mechanics Lien Act, and thus a payment
dispute with regard to construction requires prompt defensive
action.
Thomas J. Westgard is an attorney based in Chicago, Illinois,
whose practice focuses on Illinois mechanics liens, and particularly
in preventing and avoiding conflict in construction projects.
For more information, visit his informational website at http://www.ILMechLiens.com,
or email him at tom@ilmechliens.com.
The Illinois Mechanics Lien Act. Learning
about this part of Illinois law can help you to guide your construction
project to the results you want.
|
