Public Improvement Liens on Government-Owned Projects

While prior blog posts have discussed the basics of mechanics liens as they relate to private construction projects, this post addresses public improvement liens on property owned by the state, a subdivision or agency thereof, or by any city, county, urban-county, or charter county government (hereafter collectively “Government Entity”).[1] As one may imagine, while the principle purpose behind the filing of public improvement liens and private mechanics liens is the same (i.e. to ensure payment for labor, materials and/or supplies furnished on the project), perfection and enforcement of public improvement liens on property owned by a Government Entity differs significantly from the perfection and enforcement of mechanic’s liens against privately owned property.

KRS 376.210 et seq. addresses the filing and perfection of public improvement liens as they relate to property owned by a Government Entity. As you will note below, the time frames for filing and perfecting public improvement liens on property owned by a Government Entity are shorter than for private mechanic’s liens. However, the most significant difference is that, where the property is owned by a Government Entity, the lien claimant has a lien on the funds due the general contractor from the owner of the property improved rather than a lien on the property itself (as with a private mechanic’s lien).[2] The public improvement lien shall be for the full amount owed for labor, materials and/or supplies furnished on the public project and shall be superior to all other liens created thereafter.[3]

The statement of public improvement lien must be filed by the lien claimant within sixty (60) days after the last day of the month in which any labor, materials and/or supplies were furnished or by the date of substantial completion, whichever is later.[4] The lien statement must include the amount due, the date on which labor, materials and/or supplies were last furnished, and the name of the public improvement upon which the public improvement lien is claimed.[5] The lien statement must be filed in the county clerk’s office of the county in which the seat of government of the owner of the property is located.[6]

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Once the lien statement has been filed, in order to properly perfect the lien on the funds, the lien claimant must deliver an attested copy of the lien statement to the public authority which contracted for improvement of the subject Government Entity-owned property and must file with that public authority a signed copy of a letter addressed to the contractor owing the lien claimant monies, along with a post office receipt, showing that an attested copy of the lien statement has been sent by the lien claimant to the contractor via certified mail.[7] At that point, the lien claimant shall have a lien on the funds due the contractor which is superior to any subsequently perfected liens.[8]

The public authority is then required to endorse on the attested copy of the lien statement the date if its receipt and shall deduct and withhold the amount claimed from any amount due the contractor or which may become due the contractor.[9] Unless the contractor, within thirty (30) days after delivery of the attested copy of the lien statement, files a written protest with the public authority disputing the correctness of the amount or its liability for payment to the lien claimant, the public authority will pay the lien claimant the amount withheld.[10] If the contractor does file a written protest with the public authority within the 30 day time period, the public authority is required to promptly provide the lien claimant with written notice of such protest and shall continue to hold the withheld amount until directed by the contractor to make payment to the lien claimant or until it is directed to do so by a court of competent jurisdiction.[11] The lien claimant must then file suit for enforcement of its lien and have summons served on the public authority within thirty (30) days after written notice of the protest is mailed to the lien claimant or the lien shall be automatically released and the withheld funds paid to the contractor.[12] All lawsuits for the enforcement of a public improvement lien must be filed in the Circuit Court of the county in which the property on which the labor, materials and/or supplies are provided (except where the property is owned by a public university).[13]

The time frames for filing and perfecting a public improvement lien as opposed to a private mechanic’s lien are much shorter and the requirements for perfecting such a lien are very specific. A public improvement lien is an effective tool to ensure payment for labor and/or materials supplied by the lien claimant on a public project owned by a Government Entity. However, as is clear, such a tool must be used with precision and efficiency.

For more information about public improvement liens or liens in general, contact the attorneys of McBrayer.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] The information contained herein is intended as a general overview of the basic requirements for filing and perfecting a public improvement lien. It is not exhaustive and does not contain a detailed procedure for the filing and perfection of such liens.

[2] KRS 376.010(1).

[3] KRS 376.210.

[4] KRS 376.230(1).

[5] Id.

[6] KRS 376.230(2).

[7] KRS 376.240.

[8] KRS 376.240.

[9] KRS 376.250(1).

[10] KRS 376.250(2).

[11] KRS 376.250(3).

[12] KRS 376.250(4).

[13] KRS 376.250(5).

Bonding off a Private Mechanic’s Lien In Kentucky

In my previous post, I discussed the basics of filing a private mechanic’s lien in Kentucky. Today, the subject will turn to the release of a private mechanic’s lien by execution of a bond. Execution of a bond for release of lien (the “Bond”) provides the owner of property against which a mechanic’s lien has been asserted, or the contractor who contracted with the owner for the provision of labor and/or materials for improvement of the property, an avenue of relief whereby the owner or contractor can have a mechanic’s lien filed against the property released. Utilization of a Bond is particularly helpful when a dispute arises regarding the validity of an asserted mechanic’s lien.

The assertion of a mechanic’s lien against a parcel of property has multiple negative consequences. For example, the lien creates an encumbrance against the property which must be removed or addressed before the property can be sold or refinanced. Furthermore, often times, the filing of a mechanic’s lien against the property constitutes a breach of the contractor’s contract with the property owner. An owner who discovers a lien against the property may, among other things, terminate the contractor’s contract and/or seek damages for the contractor’s breach. Moreover, due to the fact that a lien claimant has up to twelve (12) months from the date of filing of the mechanic’s lien to bring an action enforcing said mechanic’s lien, assertion of a mechanic’s lien can tie up the property for up to one (1) year without any action being taken to resolve the issues related to the subject lien.[1]

New home constructionFortunately, KRS 376.100 provides the owner and/or contractor with the ability to have any mechanic’s lien “bonded off” and the encumbrance removed. Specifically, at any time before a judgment is rendered enforcing the subject mechanic’s lien, the owner or contract (or other person in privity with the contractor) may execute before the county clerk in the county where the mechanic’s lien was filed a Bond for double the amount of the mechanic’s lien claimed with good sureties to be approved by the clerk.[2] The Bond shall require its obligors to satisfy any judgment that may be rendered in favor of the lien claimant.[3] Upon execution of the Bond, the mechanic’s lien is released.[4] Furthermore, in any action instituted by the lien claimant to enforce its mechanic’s lien, the lien claimant may make the obligors under the Bond parties to the action and, in so doing, any judgment recovered can be enforced against any or all of the Bond obligors.[5]

It is also important to note that the Bond is merely a substitute for the liened property.[6] The Bond transfers the mechanic’s lien from the property to the Bond.[7] The obligation of the bond does not extend beyond the obligation of the lien for which it was substituted.[8] In other words, the lien claimant has no greater rights under the Bond than it would have had against the property.[9] Moreover, in order for a Bond to be effective and enforceable by the lien claimant against the Bond obligors, the subject mechanic’s lien must be valid (i.e. properly perfected).[10] Otherwise, the lien claimant may not recover under the Bond.[11]

Bonds can be an extraordinarily helpful tool. They provide the owner and/or contractor the ability to keep the property unencumbered and, in the case of the contractor, the ability to cure a potential breach of contract with the owner (as many contracts require a contractor to keep the property free and clear of any encumbrances related to labor and/or materials being provided). Bonds further allow for the owner and/or contractor to keep the subject property from being tied up in lengthy litigation where the owner and/or contractor dispute the amount and/or validity of the mechanic’s lien. Bonds are an important means by which owners and contractors can protect their respective rights and interests in the property being improved.

For more information on the operation of mechanic’s liens or bonds on those liens, contact the attorneys at McBrayer, McGinnis, Leslie & Kirkland, PLLC.

BYatesBrendan Yates joined the Lexington office of the firm as an associate in 2002. Brendan is a member of the firm’s Litigation Department, where he focuses his practice on construction and real estate litigation, workers’ compensation defense litigation, insurance defense and commercial litigation. He has successfully defended his clients in state and federal courts, the Kentucky Court of Appeals, the Kentucky Supreme Court, and in administrative agency proceedings in Kentucky. He can be reached at byates@mmlk.com or (859) 231-8780, ext. 208.

This article is intended as a summary of state and federal law and does not constitute legal advice.

[1] See KRS 376.090.

[2] See KRS 376.100.

[3] Id.

[4] Id.

[5] Id.

[6] Gil Ruehl Mechanical, Inc. v. Hartford Fire Insurance Company, Ky.App., 164 S.W.3d 512, 514 (2004).

[7] Id.

[8] Jungbert v. Marret et al., Ky., 231 S.W.2d 84, 85 (1950).

[9] Id.

[10] Id.

[11] Gil Ruehl Mechanical, Inc., 164 S.W.3d at 514.