Lien Rights in Rhode Island - When 200 days isn't really 200 days

The Rhode Island Mechanic's Lien Law (the "Lien Law") is just plain confusing. Luckily, as a contractor doing business in Rhode Island, you don't have to worry about that because you have a really good lawyer who knows the ins and outs of the Lien Law and knows how to protect your lien rights . . . right?

Wrong. Of course, it's imperative to have a lawyer who is knowledgeable about the inner workings of the Lien Law. However, a contractor also must be aware of some of the Lien Law's requirements if it wants to protect its lien rights without calling its lawyer every time there is a small delay in a payment owed to it on a project (the bills for those phone calls tend to add up).

One requirement under the Lien Law that can become a black hole for a contractor's lien rights is the 200 day time limit for recording the lien.

To perfect a lien, the Lien Law requires that the lien be recorded within 200 days of the work performed and/or materials supplied, otherwise the lien is "lost." Put more simply, from the moment a contractor begins work on a project (and/or supplies material to a project) a 200 day time limit begins to run on that contractor's lien rights. If proper recording is not made within 200 days of the date of the performing of the work or the supplying of the material, the lien for that work/material is lost. So, what's the big deal? Sounds easy - the contractor should know when it worked or supplied material, right?

Not so fast. The problem isn't that contractors don't know/track the dates when they performed work or supplied materials - they most certainly do. The problem is that the Lien Law's use of the dates of work as the trigger for the running of the 200 day time limit is at odds with how contractors generally track delinquent payments on a project.. In a contractor's mind, liens protect payments owed, not work performed. Thus, contractors naturally track the delinquency of requested payments based on the dates of the requests, not based on the date that the unpaid work was performed.

And, therein lies the rub. Requests for payment are always sent after the work has been performed and the material supplied. Thus, by focusing only on the dates of unpaid requisition requests - as opposed to the dates that the unpaid work was performed - contractors inadvertently create a hidden risk of missing the 200 day deadline to record their lien, as a lien that is recorded a full 200 days from the date of a request for payment cannot (and will not) include the work covered by that request.

And, unfortunately, there seems to exist in almost every project a natural catalyst that can turn this "hidden risk" into a full-fledged disaster: contractor reluctance to assert lien rights during the course of the project. Liens asserted during the midst of construction can have drastic consequences on a project and provide powerful leverage for payment - that's why contractors like them so much. But, contractors are also keenly aware of the practical and disruptive ramifications of asserting their lien rights during the course of a project; they are often leery of asserting those rights as a first resort. Contractor liens can lead to the lender for the project withholding payments to the owner (who may withhold payments to the general contractor and so on), lengthy delays in the project, and even abandonment of the project by the owner. These liens, therefore, have the potential to cost a contractor a future business relationship with the owner or another contractor on the job.

Mindful of that potential, it is not unusual for a contractor to hold off on asserting its lien rights (and even to hold off on contacting its attorney with respect to those rights) for many months after a request for payment has gone unpaid, in the hopes that it will be able to negotiate payment from the general contractor (or the contractor's higher-tier sub) without involving the lien process at all. No contractor wants to ruin a lucrative business relationship just to speed up a delinquent payment or two.

Then again, no contractor wants to get duped into losing its lien rights by relying on the promise of payment by a delinquent payer, either. So, instead, the contractor hedges: It continues to demand and/or negotiate for payment while keeping a watchful eye on its lien rights - i.e., on the 200 day time limit. But, as the contractor waits and attempts to work out its payment issues, a simple, misplaced reliance on the dates of unpaid requisition requests to track the 200 days is like a hidden, ticking-time bomb. And, on the day that the contractor finally gets fed up and decides to unleash the fury of its lien power, it might very-well find itself being informed by its eminently knowledgeable attorney that the bomb already exploded and that the contractor's lien rights, along with all the leverage that comes with them, expired in the wreckage.

For more information about Rhode Island's Mechanic's Lien Law, contact Attorney Tom Gonnella at 401.824.5100. To download a copy of this blog, click here. We welcome your comments, questions and suggestions.

Source: Lien Rights in Rhode-Island: When 200 Days Isn't Really 200 Days

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