Voluntarily Dissolve Previously Recorded Notice of Contract and Later Record Another to Re-Establish Your Lien Rights
January 15, 2003
The Massachusetts Supreme Judicial Court (SJC) affirmed the
remedial nature of the Massachusetts Mechanics Lien Law, M.G.L. c. 254, et seq.,
for contractors and held that a contractor can dissolve a previously recorded
notice of contract and later record another notice of contract to establish its
lien rights. This decision is important to Massachusetts contractors because it
promotes the purpose, intent and effectiveness of the omnibus changes to the
Lien Law amended in 1996. Tremont Tower Condominium, LLCI v. George B.H.
Macomber Company, 436 Mass. 677 (2002).
George B.H. Macomber Company (Macomber) entered into a $29
million contract with Tremont Tower Condominium, LLC (Tremont Tower) for the
construction of a luxury, high-rise condominium in Boston, Massachusetts. Before
the first application for payment was paid in February 2000, Macomber recorded a
notice of contract to establish its lien rights. When Tremont Tower’s lenders
informed it that they would not fund construction over Macomber’s lien, Tremont
Tower then requested that Macomber remove its notice of contract. Although
M.G.L. c. 254, § 33 prohibited the lenders from refusing to fund over Macomber’s
notice of contract, as Macomber was a § 2 lien claimant, Macomber agreed to
remove the notice of contract to avoid controversy early in the project, and
recorded a notice of dissolution, pursuant to M.G.L. c. 254, § 10, dissolving
its lien established by the notice of contract in March 2000.
As construction progressed, disputes arose between Macomber
and Tremont Tower, and a series of applications for payment went unpaid.
Macomber then recorded another notice of contract in April 2001. In May 2001,
Tremont Tower filed a summary action in the Superior Court, pursuant to M.G.L.
c. 254, § 15A, in which it argued that Macomber, by recording the voluntary
notice of dissolution in March 2000, had permanently abdicated its lien rights.
The Superior Court granted judgment in favor of Tremont Tower, and held that
Macomber’s lien was created by entering into the contract for construction and
that Macomber had forever dissolved its lien by recording the notice of
dissolution. Macomber appealed the decision, and the SJC granted direct
appellate review.
The SJC reversed the decision of the Superior Court and
reinstated Macomber’s second notice of contract. The SJC began its discussion by
establishing that the primary purpose of the Lien Law is to provide security to
contractors, subcontractors, laborers and suppliers on construction projects,
while providing notice and filing requirements in order to protect owners and
lenders. The SJC next determined that, although a contractor has a right to a
lien upon entering into a construction contract and performing work, a
contractor does not establish its lien unless and until it records a notice of
contract.
The SJC then distinguished the two cases that provided the
impetus for the 1996 Lien Law amendments — Mullen Lumber Co. v. Lore, 404 Mass.
750 (1989) and Blount Bros. Corp. v. Lafayette Place Assocs., 399 Mass. 632
(1987). In Mullen Lumber and Blount Bros., the contractors failed to follow the
time periods required for establishing and enforcing lien rights. Macomber, in
distinction from Mullen Lumber and Blount Bros., had complied with the required
time periods since it recorded its second notice of contract while it was still
performing work on the project. Therefore, Mullen Lumber and Blount Bros. remain
in force for the proposition that strict compliance with the time periods of the
Lien Law is required to establish and enforce a lien. Once a contractor has
complied with the statutory requirements, however, the Lien Law will be
construed in accordance with its primary purpose — providing security for those
who perform work.
The SJC also recognized that it has long been an industry
practice that contractors, and especially subcontractors, would record a notice
of contract, record a notice of dissolution in exchange for a progress payment
and then record another notice of contract to provide security for the next
progress payment. The SJC held that nothing in the 1996 Amendments altered this
mechanism.
In summary, the SJC determined that a contractor may record
a notice of contract, record a notice of dissolution, and then file another
notice of contract, as long as the contractor complies with the time period
established in the Lien Law. By doing so, however, the general contractor loses
its priority position for retainage established by the first notice of contract,
and establishes a new, later priority position for retainage as of the date the
second notice of contract is recorded.
This decision is significant for several reasons. First, it
clearly establishes that once a lien claimant strictly follows the filing and
time-period requirements of the Lien Law, the Lien Law will be interpreted
liberally to further its intended primary purpose of providing security to those
who perform work on construction projects.
Second, it provides general contractors with an option, in
addition to the partial waiver and subordination procedures in M.G.L. c. 254, §
32, to avoid controversy among general contractors, owners and lenders, by
re-affirming a contractor’s right to record a notice of contract after it had
recorded a notice of dissolution and re-establish its lien rights.
Third, this decision is particularly significant for
subcontractors who are without the benefit of the rolling lien procedure and the
partial waiver and subordination of lien provided by M.G.L. c. 254, § 32 for the
use of general contractors. Section 32, in conjunction with section 33, allows
general contractors, but not subcontractors, to execute a partial waiver and
subordination of lien in exchange for each monthly progress payment, which
subordinates the general contractor’s lien for a period of 25 days to allow
funding of construction and to maintain the bank’s priority position for funds
paid to the general contractor. Subcontractors cannot utilize the partial waiver
and subordination of lien and lenders can refuse to fund construction over a § 4
(subcontractor, supplier) notice of contract. If the Superior Court’s decision
was not reversed, a subcontractor could literally stop construction funding by
recording a notice of contract. Fortunately, the Tremont Tower decision
firmly holds that a § 4 lien claimant can establish a lien, dissolve that lien
in exchange for a progress payment, thus allowing construction funding to flow,
and then re-establish the lien for further security.
For more information, contact John W. DiNicola II, toll
free, at 1-888-688-8500.