What Can be Included in a Mechanic’s Lien?

Under classic common-law rules, a contractor is entitled to receive full compensation as long as there has been substantial performance (does not require perfection). Once that performance has been established, industry standards dictate there can only be offsets for 150% of the actual and reasonable cost to repair or complete allegedly defective performance. This standard is routinely applied by experienced construction industry arbitrators or judges. Thus, if a contractor is owed $10,000 retention and it is alleged by the owner (of which you may not agree) it will require $1,000 to repair or remediate, the withholding could only be for $1,500 with the balance to be paid immediately. And, the owner would be required to submit a written estimate or show that such remedial work has actually been performed. Further, a contractor is only liable for the amounts billed by a “back charge contractor” if specifically required to remediate any non-performance.

Thus, a general description of substantial performance might read:

“Performance of a construction agreement which, while not full performance, is so nearly equivalent to what was bargained for that it would be unreasonable to deny a contractor or supplier the full contract price subject to the owner’s right to recover whatever actual and reasonable damages may have been occasioned by the contractor’s alleged failure to render full performance.”

As far as the amount of a mechanic’s lien, a contractor or supplier is entitled to ask for all monies owed in good faith. The fact that a judge or arbitrator at trial reduces the amount does not invalidate the lien. The lien is invalid or reduced in priority only if it is intentionally overstated.

One is entitled to include all amounts for extras, whether not a written change order is signed. In other words, if actual labor and materials are conferred upon the project, that can be included. In many cases, a contractor is directed to do the extra work, but a change order is never ultimately signed. That amount is recoverable under the theory of estoppel.

Many owners attempt to secure a set-off by claiming the project was not completed on time. But one must show actual damages. This can almost never be shown for residential property. On the other hand, if there is a commercial property or tenant improvements and a business is delayed opening or re-opening, assuming the delay was not otherwise excused, such damages might be proper.

One should bear in mind that a construction project is not like producing refrigerators. Each project is unique and there is no such thing as perfect workmanship. Courts and arbitrators look at whether you have performed the work within industry tolerances.