Author Archives: Strang Scott

About Strang Scott

Strang Scott is a dynamic business and litigation firm, dedicated to serving the needs of businesses of all sizes.

When Should Property Management Companies Contact An Attorney?

By on July 7, 2015

For most property management companies, picking up the phone to contact a lawyer is usually done with a sigh. If you are reaching out to an attorney, that often means that something has gone wrong and you need help in a difficult situation.  So when should property management companies contact an attorney?  The below topics are those most typically encountered by our property management clients. When these issues are addressed early with an attorney, a property management company will save substantial time, money and unnecessary aggravation.

Corporate Matters

Every property management company has some form of company structure (e.g. sole proprietorship, limited liability company or corporation). At the inception of a company, many owners simply ignore their structure while focusing on their expanding business. As the business grows, however, company owners need to look at their company structure and make sure it still makes sense. After all, internal disputes do not arise until there is real money at stake. When a dispute does occur, if the company structure is lacking, the ensuing litigation is going to become expensive very quickly. As such, company owners should ask themselves these three questions: (1) what happens if there is a falling out between the owners or someone passes away; (2) what happens if the company wants to expand; and (3) what happens when another company wants to purchase the existing company? Your company documents, such as your operating agreement, should contain the answers to these questions. If not, you should contact your attorney to make sure these items are addressed before they become an actual issue.

Document Drafting

Running a successful property management company requires careful compliance with a lot of different local, state and federal law. Although there are many “standard” lease and property management agreements available on the Internet, the drafters of those agreements are usually not aware of the local nuances that may govern those documents. For example, unlike most states, it is illegal in Massachusetts to charge tenants certain upfront fees such as application fees and pet deposits. A standard lease from another state like New Hampshire may be unenforceable in Massachusetts. As such, it is important that you have a professional review your tenant lease documents. The same caution is applicable to property management agreements (i.e. agreements between you and your owner-client). Given the nature of their business, property managers are exposed to liability from several parties. Therefore, make sure you review your property management agreement with your lawyer and periodically update it as circumstances change.

Employment Issues

Whether your company is a small operation or a Fortune 500 company, you will likely have employment issues at some point. Property management companies deal with unemployment claims, wrongful termination lawsuits and employee-misclassification. As mentioned in one of our recent articles, simply improperly classifying an employee as an “independent contractor” can be a costly mistake. If a suit is brought under the Massachusetts Wage Act, a company may be liable for triple damages, attorney fees and, in some cases, owners of the company may be personally liable. Unfortunately, many clients contact their attorney after one of these issues arise. To avoid unnecessary litigation, it is best to contact your attorney early to establish best practices for employment-related issues. When set up correctly, proper policies (e.g. employee handbooks, social media policies, etc.) and other preventative measures can minimize the exposure for employment claims.

Evictions

The eviction process, particularly in Massachusetts, is very tenant-friendly. Nevertheless, acting early can greatly increase a property manager’s potential for recovery and reduce the amount of rent loss. The key to an expeditious eviction is ensuring that the eviction notice is sent as soon as possible. In Massachusetts, you generally need to send either a 14-day notice or a 30-day notice, depending on the situation. It is important to remember that the eviction process does not begin until the correct notice is sent. If you fail to send the right notice, your case may be dismissed and you will be forced to start the process from the beginning. The other important aspect of evictions is making sure you have good information about your tenant. Setting up a proper screening process is critical. Too often, we have clients who do not have key information about their tenants (e.g. social security number, employment information and references). Without these critical items, collecting from a delinquent tenant is next to impossible. You should contact your attorney if you are unsure whether your screening process is adequate, or want to confirm that you are following the proper procedures for starting an eviction.

Vendor Disputes

Property management companies of all sizes have multiple trades and vendors at their disposal. In fact, many have multiple vendors for the same services so that they can remain competitive and ensure they are receiving the best service for the best price. Often, these vendors have either (1) their own contract; or (2) no contract at all. Under either circumstance, if a dispute arises, the property management company is at an immediate disadvantage. If the contract was drafted by the vendor, it likely is one-sided. If no contract exists, the parties will be stuck piecing together what they believe to be their agreement. Therefore, make sure you review each and every contract with your vendors to make sure your interests are protected. If you do not have a contract with a certain vendor, contact your property management lawyer to draft one for you.

Proposed Changes to The Retainage Law for Massachusetts Private Construction Projects

By on June 30, 2015

*with contributions from Christopher D. Strang

In November 2014, the Massachusetts Legislature passed Mass. Gen. Law c. 149, § 29F, entitled “Payment of Retainage in Private Construction Projects” (“The Retainage Law”).  The Retainage Law reduced the amount of retainage that can be withheld on many large private construction projects. It also provides deadlines for paying retainage amounts and methods for determining the date of substantial completion.  The Massachusetts Senate recently held hearings on proposed Bill Number 1006, which seeks to amend the statutory language of this law.

Under the changes proposed in Bill 1006, The Retainage Law would be limited in its application and would only control the amount of retainage withheld on certain private construction projects. Below is an explanation of the standards The Retainage Law currently sets forth, followed by an explanation of the changes Bill 1006 proposes.

Projects Covered by The Retainage Law

The Retainage Law applies to all private construction contracts entered into after November 6, 2014 valued over $3 million dollars, with the exception of residential projects for four or fewer units.

Limitations on Retainage

Retainage is specifically limited to 5% of each periodic payment. Contracts that either waive, limit or subvert the 5% retainage cap may be void and unenforceable under the statute.

Notices of Substantial Completion

Under The Retainage Law, general contractors must submit a “Notice of Substantial Completion” to the owner within 14 days of determining that it has achieved substantial completion. The statute defines “substantial completion” as the stage in the project where the project work is sufficiently complete as to permit the owner to occupy or utilize the premises for its intended use. Substantial completion may be applied to the project as a whole or to a phase of the entire project where the contract permits substantial completion for project phases.

The owner then has 14 days to notify the general contractor whether it accepts or rejects the Notice of Substantial Completion. To reject it, an owner must notify the contractor in writing and include “the factual and contractual basis for rejection,” along with a certification that the rejection was made in good faith. Rejection of the Notice of Substantial Completion permits the contractor to utilize the dispute resolution procedures provided for in the contract, which must begin within 7 days after the rejection (unless the contractor later resubmits a Notice of Substantial Completion). If the owner fails to deliver notice of its rejection within 14 days, or fails to comply with the requirements of Section 29F(d), the date indicated by the contractor in the Notice of Substantial Completion will be deemed accepted by the owner.

The owner has 14 days from the date the Notice of Substantial Completion is accepted to submit a written punchlist to the contractor. The punchlist must describe all incomplete or defective work items and deliverables required of the contractor, and include a certification that it is made in good faith. A “Deliverable” is defined by Section 29F(a) as “a project close-out document that shall be submitted by the [contractor] seeking payment of retainage under the [contractor’s contract] for construction; provided, however, that a lien waiver or release, which is a deliverable, shall comply with chapter 254; and provided further, that ‘deliverable’ shall not include any document affirming, certifying or confirming completion or correction of labor, materials or other items furnished or incomplete or defective work.” The contractor must then pass on a written punchlist to each subcontractor it is holding retainage against within an additional 7 days (or 21 days after the date the Notice of Substantial Completion is accepted), detailing all incomplete or defective work items and deliverables. The punchlist to the contractor’s subcontractors may include items beyond those on the owner’s punchlist and must also include a certification that it is made in good faith. Both the general contractor and subcontractors are permitted under The Retainage Law to dispute the items listed on punchlists.

Applications for Payment of Retainage

General contractors and subcontractors must submit a written application for payment of retainage within 60 days after the date of substantial completion for a final and binding resolution regarding a disputed date. This application must include a written list of all punchlist items that were completed, repaired, and delivered, and must be certified by the submitting party that it was made in good faith.

The owner then has 30 days to provide payment of retainage to the contractor. When providing payment of retainage, owners are permitted to withhold portions of the retainage to cover incomplete or defective work, limited by the following:

  • for incomplete, incorrect or missing deliverables, either (a) the value of the deliverable, as mutually agreed upon in writing between the owner and contractor or (b) if no value has been agreed upon, the reasonable value of the deliverables, not to exceed 2.5% of the total adjusted contract price;
  • 150% of the reasonable cost to complete or correct incomplete or defective work items; and
  • the reasonable value of claims and any costs, expenses and attorney’s fees incurred if the claim is allowed under the contract.

Portions of retainage may only be withheld where the contractor seeking payment received a detailed punchlist from the owner prior to the date payment is due. The time period for payment under an application for payment is extended by a period of 7 days for the contractor at each tier of contract below the general subcontractor. Contractors may submit further applications for payment of retainage as work is completed on the project. The Retainage Law specifically prevents owners from withholding retainage payments otherwise due to subcontractors where the general contractor is not in default. General contractors have 7 days to forward retainage payments to subcontractors.

At a minimum, The Retainage Law requires applications for payment of retainage to be submitted at least once a month. Rejection of an application is also subject to dispute resolution procedures, which may be initiated 30 days after the rejection of an application for payment of retainage.

Bill No. 1006 – Proposed Changes to The Retainage Law

Bill 1006, if passed, will dramatically change the scope and effect of The Retainage Law. It would add exemptions for construction projects which are financed or supported, in whole or in part, by state or federal mortgage assistance, special taxing arrangements, tax credits, grants, issuance of bonds, loans, loan guarantees, debt, or equity assistance.

It also proposes removing the sections relating to notices of substantial completion and applications for payment of retainage entirely. Bill 1006 would reduce The Retainage Law to the following content: (1) retainage is limited to 5% of the contract price and (2) contracts which require or permit retainage in excess of 5% of the contract price will be void and unenforceable insofar as any such excess is concerned.

Impact of The Retainage Law and Bill No. 1006

Citing practical issues with meeting the deadlines set forth in The Retainage Law, some project developers and owners have articulated a desire to remove large portions of it. In particular, they cite the 14-day limitation to accept or reject the date of substantial completion as impractical and unachievable. Some general contractors criticize the additional 7 days for paying subcontractors, and for completing and forwarding punchlists. Some also claim the law does not adequately consider the complexity of communication between multiple parties on large projects.

Bill 1006 alters the language that retainage may not exceed 5% of “any progress payment” to state that retainage may not exceed 5% “of the contract price.” While the amount would equal out at the end of the project, the proposed changes would arguably allow an owner or higher tiered contractor to withhold more than 5% from any single payment, so long as the amount equals 5% of the total contract price. Such a change could negate the benefit contractors receive through larger progress payments throughout a project, but would have no impact on the amount of retainage outstanding at the end of the project.

Whether Bill 1006 will be enacted and what additional changes, if any, are to be made to the Retainage Law will be determined over the next several months. It is clear that there is significant interest in creating consistency in retainage guidelines for the construction industry.

The foregoing information is a general summary regarding proposed changes to retainage in private construction projects in Massachusetts. If you are uncertain about anything regarding the amount of retainage withheld on a project or the process of obtaining payment for retainage amounts, contact your construction attorney to ensure the necessary steps are taken to achieve the best possible outcome.

 

Partner, Christopher Strang, Selected as Young Lawyers’ Chair for BU Law Alumni Silver Shingle Award

By on June 10, 2015

Boston University School of Law is honored each year to present several outstanding alumni and friends with Silver Shingle Alumni Awards. These awards, a tradition at the School of Law since 1967, recognize notable contributions to the legal profession, leadership within the community, unfailing service to the School of Law, and superlative contributions to society.

 

Property Managers – Ensure The Property Owner Indemnifies You

By on March 23, 2015

Most property management companies focus their efforts on maintaining the day-to-day operations of their properties and really do try to address their tenants’ requests. Often times, it is a thankless job. A quick Google search of many property management companies will reveal horror stories about tenants’ negative experiences. When something goes wrong at a property, the tenant will make demands on the property manager, often times without including the property owner in those discussions. I have been guilty of this myself. If such a problem ultimately leads to litigation, the tenant will often sue both the property management company and the owner. If the property management company does not have adequate indemnification from the property owner, the property manager may have to defend the tenants’ claims, even if the owner actually caused the problem (e.g. a defect in the building).

As a Boston property management attorney, I recently had a large property management company that had to unnecessarily litigate a mold issue with one of its tenants. Obviously, an allegation of “mold” is very serious. The problem is that most mold is black in color and therefore many people may think they have “black mold” (Stachybotrys) even if they do not. Even so, an allegation of “black mold” is enough to give most people pause and can lead to very lengthy litigation. In my client’s particular case, the tenant sued both the property management company and the property owner when mold was discovered shortly after a flood. Prior to commencing litigation, the tenant gave notice to the property owner who attempted to remediate the mold. Unfortunately, our client did not have any sort of indemnification clause in its agreement with the property owner and, as such, the client was stuck litigating the case for years until it ultimately settled.

Generally speaking, an indemnification clause in the property management context states that an owner will indemnify a property management company (that is, step into their shoes and/or defend the property management company) for damages that are beyond the property manager’s control. Typical situations involve defects in the property, natural disasters and work undertaken by the owner. To be clear, a simple indemnification clause will not relieve property managers of all liability. For example, a property manager cannot refuse to act or to address property issues. In our client’s case, however, the owner was admittedly responsible for the damage as well as the remediation. As such, had our client had a comprehensive indemnification clause in its management agreement, it could have recouped its litigation costs from the owner. Instead, the case dragged on for over a year, several depositions were taken, and it actually reached the point where the parties hired their own professional experts.

An indemnification clause is not a cure-all, but it is a crucial starting point. A clause that is too broad (e.g. one that includes indemnification for gross negligence) may not be enforceable. So, if you are a property management company and do not have an indemnification clause with your clients, change that immediately. If you do have one, make sure you have your lawyer review it to ensure that it offers you adequate coverage and is enforceable. This seemingly simple process could save you thousands of dollars in unnecessary litigation costs.

Enforceability of Massachusetts’ New Earned Sick Time Act

By on March 2, 2015

By Michael T. Mullaly

On November 4, 2014, Massachusetts voters approved the Earned Sick Time Act (“Act”). The Act is codified at G. L. c. 149, § 148C and becomes effective on July 1, 2015. The application of the Act to unionized employees, however, raises complex legal issues and is already the subject of active litigation in Massachusetts.

The Act applies to all private-sector employers in Massachusetts, including individuals, and requires employers to credit each employee with one hour of earned sick time for every thirty hours worked by such employee. In the case of an employer with eleven or more employees, each employee is entitled to accrue and use up to forty hours of earned sick time — with pay — per calendar year. In the case of an employer with ten or fewer employees, each employee is entitled to accrue and use up to forty hours of earned sick time — without pay — per calendar year. Additionally, the Act provides for the limited “carrying over” of unused earned sick time into the following calendar year.

Under the Act, earned sick time may be used for a broad range of purposes relating to the mental and physical health of, or the effects of domestic abuse upon, the employee and certain of his or her relatives.

The Act provides strong protections against employer retaliation. Moreover, any violation of the Act, even an unintentional one, entitles the aggrieved employee to recover three times his or her actual damages, together with reasonable attorneys’ fees.

The administrative burden and considerable exposure that arise from the Act demand the attention of every employer in Massachusetts, irrespective of its size or sophistication. Indeed, the above description sets forth only a brief summary of the Act, which must be analyzed in its entirety and with careful attention to the circumstances of each employer.

Particularly complex legal questions arise where the Act must be applied to unionized employees. The source of this complexity is federal preemption, a legal term used to describe the situation that results when Congress demands, or the Constitution itself indicates, that only federal law may govern a particular matter. (Ordinarily, there is no prohibition against states enacting legislation addressing the same subject matter as federal law, provided that the state law does not conflict with or undermine the policy aims of the federal law.) Although preemption is, relatively speaking, somewhat rare, labor-management relations is one of the principal areas in which it does appear.

There are three distinct types of federal preemption in the realm of labor law. The Act implicates one type in particular, which is generally called “Section 301 preemption” in reference to its origin in § 301 of the Labor Management Relations Act (“Section 301”). See 28 U.S.C. § 185. Section 301 would appear simply to confer a right to sue in federal court upon a plaintiff alleging the violation of a contract between an employer and a labor union representing an employee (i.e., a collective bargaining agreement). The United States Supreme Court, however, has long read Section 301 to articulate a strong policy interest in favor of having all such contracts interpreted according to a single, nationally uniform body of law (i.e., federal law). As a result, the actual effect of Section 301 is to “preempt” — that is, extinguish — any state-law claim that requires the interpretation of a collective bargaining agreement. Some preempted state-law claims (e.g., for breach of contract) can be construed as claims under Section 301 and then be adjudicated under federal law. In other cases, however, the complaint must be dismissed for failure to state a claim.

Notably, the Act contains many provisions that, in the case of a unionized claimant, appear to require an interpretation of the underlying collective bargaining agreement. For example, in cases where the Act requires an employee to be paid for his or her use of earned sick time, the employee must be “compensated at the same hourly rate as the employee earns from the employee’s employment at the time the employee uses the paid sick time.” The Act also provides that “nothing in [the Act] shall be construed to diminish or impair the obligation of an employer to comply with any contract, collective bargaining agreement, or any employment benefit program or plan . . . that provides to employees greater earned sick time rights.” Further, the Act states that an employer may satisfy its obligations by means of “a paid time off, vacation or other paid leave policy” that makes “available an amount of paid time off sufficient to meet the accrual requirements of [the Act],” provided that such policy permits time off “for the same purposes and under the same conditions as earned paid sick time under [the Act].” Determination of the applicable rate of pay, of the comparative generosity of the labor contract and the Act, and of the compliance of any alternate paid time off policy all seem to depend upon an analysis of the collective bargaining agreement applicable to the claimant. For this reason, there is a strong possibility that unionized employees seeking to bring actions under G. L. c. 149, § 50 for violation of the Act will be thwarted by Section 301 preemption.

Section 301 preemption may likewise preclude the Attorney General from pursuing civil sanctions against employers alleged to have violated the Act with respect to unionized employees. In fact, this is among the relief sought in a recent petition for declaratory relief filed by a group of employer associations in the construction industry. See Labor Relations Division of Construction Industries of Massachusetts et al. v. Commonwealth of Massachusetts, No. 1:15-cv-10116 (D. Mass.). The litigation remains in its beginning stages, but may ultimately provide a greater measure of certainty in this area before the Act becomes effective on July 1, 2015.

michael

Massachusetts Wage Act

By on January 5, 2015
Every employer and employee in Massachusetts should be aware of the “Wage Act”, also known as the Weekly Wage Law (c. 149, sec. 148 et seq.).  This law governs wages paid to employees, and is part of a series of robust employment laws aimed at protecting employees.  This post is the first in a series about the Wage Act and related laws, and will highlight a few of the important provisions that can affect the working lives of everyone in the Commonwealth.

At its most basic level, the purpose of the Wage Act is to ensure the employees are promptly paid by their employers.  Specifically, employers must generally pay their employers wages within six of the end of the applicable pay period.  While paying one’s employees is generally a sound business practice, the law includes harsh penalties for employers who fail to comply.

Below are a few questions commonly asked by employers:

(1)   Is it a wage?

This question appears simple but can be more complex: what is a wage?  The Wage Act itself does not fully define what constitutes a wage.   The term “wage” clearly includes money paid by an employer to an employee in exchange for working.  The Wage Act specifically includes “holiday” and “vacation” pay, as well as “tips”.  The definition of wages, however, does not include severance, and does not include bonuses unless the bonus was non-discretionary.   Commissions (such as sales commissions) are a separate category but still are considered wages once they are “definitely determined” and “due and payable.”  When in doubt, any moneys owed to an employee should be promptly paid by the employer.

(2)   Do I have to pay overtime?

Employers are required to classify their employees as either “exempt” or “nonexempt”, a classification that has ramifications under both the Massachusetts employment laws and the federal Fair Labor Standards Act.  All employees are nonexempt unless they fall into a certain categories, based on their job functions.  In general, only executive, professional, and sales employees will be considered exempt, and employers must be very careful in making this determination.  “Nonexempt” employees who are required (or permitted) to work more than 40 hours in a one week must be paid “time and a half” for all hours worked over 40.  For example, if an employee earns $8/hour, then all hours after 40 in one week must be paid at the rate of $12/hour.  Although overtime is not addressed in the Wage Act, failing to pay overtime is considered a Wage Act violation.

(3)   Do I have to provide breaks?

Massachusetts law requires that employees who work more than 6 consecutive hours in one day are entitled to a 30-minute break.   In that break, the employee must be allowed to leave the office and have no work responsibilities.  Employees are permitted to waive the break requirement, but if the employee makes that waiver, they must be paid for that time.  In sum, it is important for all employers, but particularly those with hourly employees, to make sure that employees are either provided breaks or clearly waive that right (and are then paid accordingly).

(4)   Deductions from Paychecks

Generally, employers may only deduct taxes (federal and state) and a few other deductions that are required by law.  In a circumstance where an employee owes money to an employer, the employer must not deduct what is owed from the paycheck.  The law does allow for a “valid set-off” with respect to certain moneys owed, but that only applies to a few select circumstances.  When in doubt, an employer should always pay the standard wages owed to an employee, and seek to recover any funds owed by the employee separately.

(5)   Penalties for Noncompliance

The Massachusetts legislature has taken a hard line on employer violations of the Wage Act.  Failing to comply with the Wage Act can lead to mandatory triple damages and reasonable attorneys’ fees, which is intended to provide strong incentives to comply.  In addition to being able to file a private lawsuit, an employee may also fill out a pre-printed form from the Massachusetts attorney general to seek an investigation into Wage Act violations.  Although the attorney general receives many complaints and will not pursue every case, the office will usually conduct an investigation, and an employer must be prepared to explain its wage payment processes.

To Lien or Not to Lien

By on January 5, 2015

Mechanic’s Liens and the Plight of the MA Subcontractor

The Fundamentals

In laymen’s terms, a mechanic’s lien is a tool whereby a subcontractor can attach a security interest on property that it has contracted to do work on. This lien operates to protect the subcontractor’s interest in payment for work provided in the event that the general contractor does not pay in full. While a subcontractor can file a Notice of Contract, which is the first step in perfecting a mechanic’s lien, at any time after the ink dries on its subcontract, it is a common practice to defer asserting a lien against the property until it is clear that one is in danger of not getting paid. This “wait and see” approach, while good for business relations, can be risky for subcontractors. Given recent developments in Massachusetts law, subcontractors may need to start asserting mechanic’s lien rights much earlier in order to benefit from the remedy at all. In Massachusetts, the first steps of the procedure that a subcontractor must follow in order to establish a mechanic’s lien are governed by G. L. c. 254, § 4. This section also defines the limit of the remedy provided. Specifically, § 4 states that “[s]uch lien shall not exceed the amount due or to become due under the original contract [i.e., the contract between the owner and the general contractor] as of the date notice of the filing of the subcontract is given by the subcontractor to the owner.” This quoted language is colloquially known as the “amount due” clause. The recent interpretation of this language by the Massachusetts Appeals Court will likely have far-reaching implications for subcontractors going forward.

Recent Developments

The “amount due” clause was recently interpreted to severely limit the ability of subcontractors to recover payment due via the mechanic’s lien process. In Superior Mech. Plumbing & Heating, Inc. v. Ins. Co. of the West, 81 Mass. App. Ct. 584 (2012) (“Superior Mechanical”), the court stated a new rule for the interpretation of the “amount due” clause. Previously, so long as notice of a mechanic’s lien was filed prior to the formal termination of the contract between the general contractor and the property owner, the subcontractor could count on having the benefit of some security from the lien. Now, subsequent to the ruling in Superior Mechanical, the test for whether or not the subcontractor has the ability to recover payment via a mechanic’s lien requires that the court “[l]ook to whether the general contractor was entitled to payment under the terms of the general contract, and not solely to when formal termination occurred, in determining whether additional payments were due the general contractor at the time the owner received notice of the lien.” This new test implies that a subcontractor may be precluded from accessing the remedy afforded by a mechanic’s lien much earlier in the process than before. In Superior Mechanical, for example, a mechanic’s lien asserted by a subcontractor was held to have no value where the lien was created after the general contractor had materially breached its contract with the property owner but before the property owner issued a formal termination letter to the general contractor. The original contract in question contained a clause that required the general contractor to promptly pay its subcontractors upon receipt of payment from the property owner in order to receive future payments. Accordingly, once the general contractor stopped making payments to its subcontractors, it materially breached its contract with the property owner and no more money was “due or to become due” to the general contractor from that point forward. Thus, the court ruled that the date of the material breach of the terms of the general contract (rather than the formal termination date) was the decisive factor and that the subcontractor could not recover because, at the time its lien was filed, no money was due (or to become due) to the general contractor under the original contract. In other words, the reason the subcontractor filed the lien in the first place – nonpayment by the general contractor – was the material breach that excused the owner from liability to the subcontractor under the lien statute. Further, it is important to note that this new interpretation of the “amount due” clause has been cited in a subsequent Appeals Court case as good law supporting a similar holding. More specifically, in Nat’l Lumber Co. v. Blackwood Dev. Corp., 2014 Mass. App. Unpub. LEXIS 657 (Mass. App. Ct. May 20, 2014), a subcontractor was barred from recovery via a mechanic’s lien where the property owner had a judgment against the general contractor. The judgment against the general contractor both exceeded the amount due under the original contract and predated the subcontractor’s assertion of a lien. As a result, the court held that there was no amount due or to become due to the general contractor at the time the lien was filed, which effectively barred the subcontractor’s right to access payment via a mechanic’s lien.

Takeaway

The positive treatment of this new “amount due” rule by the courts is indicative of its staying power. Thus, subcontractors need to be aware of what this means for their business going forward. This new rule shifts the incentives and risks regarding the timing of filing a mechanics lien. In the past, with relatively little potential for loss of security, subcontractors could wait and see whether a situation necessitating a lien actually arose. Now that approach may be too risky. In the course of a project, there are an infinite number of situations that could prevent any further payment from becoming due to the general contractor prior to the formal termination of its contract. Under the new rule, this creates much more uncertainty for subcontractors. Accordingly, subcontractors now have an incentive to initiate the lien process much earlier, and prior even to a payment issue arising. Failure to do so can cost the subcontractor the security that mechanic’s liens were designed to provide.