Mountain Law: Know your notices under the mechanics’ lien statute
The Colorado mechanics’ lien statute was enacted in 1899, and has remained relatively unchanged since. The purpose of the law is to protect contractors who supply labor, materials, or services during construction projects (these people are all referred to in the statute as “mechanics”) by giving them a lien against the property for unpaid sums. The statute also affords certain protections to owners. One feature of the statute is that it provides for various notices, which have significant legal consequences, as explained in this article.
• Government Notice: When a county or town issues a building permit, it is required to send a notice to the address of the property for which the permit was issued to advise the owner that contractors could file liens if they are not paid for the work. This notice is purely advisory.
• Recorded Contract. Once an owner and contractor enter into a contract, the owner can record the contract in the public records. The recording of the contract will restrict the contractor (or any subcontractors under him) from claiming liens for more than the contract price. If the contract is not recorded, contractors are entitled to a lien for the value of the materials, labor, and services they furnished to the property, which may be more or less than the contract price.
• Disburser’s Notice: Construction funds may be disbursed by the owner or an agent of the lender. Whoever is acting as the disburser is required to file a notice of that fact in the public records before the first disbursement. This notice informs contractors whom they should ask for payment.
• Stop Notice: A person entitled to a mechanics’ lien may give the disburser a “stop notice” advising that the person has provided materials, labor or services for the project, or will do so. The disburser is then obliged to withhold enough funds to directly pay the person providing the stop notice (rather than paying the funds directly to the general contractor). The disburser may be liable for not withholding the funds.
• Notice of Nonresponsibility: It sometimes happens that work is performed on a property for which the owner has not agreed to be responsible (a common case is work requested by a tenant that is not approved by the landlord). The owner can post a “notice of nonresponsibility” at a conspicuous place on the property within five days after the owner becomes aware of the unauthorized work, and this will prevent the property from being subject to a lien for the work.
• Notice of Intent to Lien: A contractor who wishes to claim a mechanics’ lien must give the owner and general contractor a “notice of intent to file lien” at least ten days before recording the lien in the public records. Failure to send the notice prior to recording the lien renders the lien invalid
• Notice of Extension: A person who wishes to claim a mechanics’ lien must typically do so within four months after the person performs the last substantial work on the project. The person can file a “notice of extension” within the four-month window, which will extend the deadline for filing the lien until four months after the completion of the project or six months after the filing of the notice, whichever occurs first. If the project is not completed within six months after any notice of extension, the lien claimant can file amended notices of extension, which will again extend the deadline until four months after the completion of the project or six months after the filing of the notice, whichever occurs first.
Construction professionals should be aware of the various notices that may be filed under the mechanics’ lien statute and their legal effect. The form, timing, and delivery of all these notices must meet certain requirements contained in the statute; consult a real estate attorney for more details.
Noah Klug is principal of The Klug Law Firm, LLC, a general law practice in Summit County emphasizing real estate, business law and litigation. He may be reached at (970)468-4953 or Noah@TheKlugLawFirm.com.
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