October 29, 2010

The Liberal Application and Expansion of Contractors’ Rights on Lengthy Projects Under Section 6 of the Illinois Mechanics Lien Act Impacts Owners and Contractors: What Are the Practical Effects for Owners and Contractors After the Illinois First District Appellate Court’s Decision in Doornbos

Holland & Knight Alert
Gregory R. Meeder | James P. Chivilo

The Illinois Mechanics Lien Act (“the Act”) was unknown to the common law. By passing the Act, the Illinois legislature created a cause of action for contractors, subcontractors, materials suppliers and service providers to secure payment for their labor, materials and other services for these improvements to land and construction projects. However, because the Act creates a right of an action unknown to common law by statute, a plaintiff must strictly comply with the statute’s requirements. Cordeck Sales Inc. v. Construction Systems Inc., 394 Ill.App.3d 870, 875 (1st Dist. 2009). Accordingly, a lien holder must prove strict compliance with the Act in order to establish his right to the statutory remedy. Id.

One of the strict requirements under the Act mandates that claimants’ work must be completed within three years of commencement in order to confer lien rights under the Act. 770 ILCS 60/6. The requirement of the performance of work within the specified period is as old as the right to a mechanics lien in Illinois. 770 ILCS 60/6; Cook v. Heald, 21 Ill. 425 (Ill. 1859); Belanger v. Hersey, 90 Ill. 70 (Ill. 1878). See also Robb v. Lindquist, 23 Ill. App. 3d 186 (3d Dist. 1974); In re Acme Metals Incorporated, 257 B.R. 714 (Bankr. D. Del. 2000) (applying Illinois law). This has long been clearly acknowledged in several cases. See Cook v. Heald, 21 Ill. 425 (holding that lien was invalid where the claimant had not alleged completion of work within the statutory three-year period under the Act); Belanger v. Hersey, 90 Ill. 70 (holding that lien was invalid when the claimant did not assert it completed work within three years); In re Acme Metals Incorporated, 257 B.R. 714 (holding that the Act requires completion of work within three years of commencement in order for a mechanics lien to be valid). This long standing rule of law denies lien rights when completion is beyond three years from a contractor’s commencement of work.

However, the Illinois First District Appellate Court recently allowed a subcontractor’s claim for lien when the subcontractor’s work extended beyond the three years from its commencement. Doornbos Heating & Air Conditioning, Inc. v. Schlenker, 2010 WL 27557348 (Ill.App. 1st Dist. 2010). The court in Doornbos used language that changes §6 from a strict requirement necessary to confer mechanics lien rights under the Act and instead interprets it contrary to the plain language of §6 to justify a claim for lien. Doornbos converts §6 from a claim limitation statute into a damage limitation statute, which is not consistent with the history of this section of the Act. Both owners and contractors should be aware of the practical application of §6 after Doornbos.

Before Doornbos, owners, lenders and third-party claimants were insulated from mechanics liens when a contractor performed work for more than three years on a single project under a single contract. Based upon the strict standard, the contractor could not meet the requirements of the Act to enforce a claim for lien. Rather, contractors were required to be aware of the three-year limitations period and request that the owner issue a new contract to continue work on a lengthy project.

Unfortunately for owners and lenders, Doornbos relaxed this standard and allowed a contractor to identify the specific period of time in which the claim for lien is based. In Doornbos, a HVAC subcontractor commenced work on a construction project in April 1999 and terminated work on July 17, 2002. Id. The subcontractor worked for more than three years and three months on the project. The subcontractor was paid for all its work and materials from the commencement of its work through February 28, 2000. Doornbos, 2010 WL 2757348 at p. 11. The Illinois Appellate Court allowed the subcontractor’s claim for lien on the basis that the subcontractor’s lien was limited to work and materials which were supplied and provided after February 28, 2000, and within a three-year period. Id.

Three-Year Commencement Dates for Contractors Can Be Arbitrary

Lien claimants will now be allowed an unlimited duration of time to complete a project and thereafter apply the Doornbos principle. This will allow contractors to pick and choose any arbitrary date as the commencement date for calculating the three-year period under §6. Contractors should also be ready; however, to allege in their pleadings the defined period of time and the defined scope of work for which their lien claim is based within the three-year period. If a contractor intends to apply the Doornbos principle to its claim, it should also consider reviewing its invoices, project schedule, payment history waivers, and sworn statements. Contractors should also be careful to ensure that their mechanics lien claims comply with lien waivers, sworn contractors statements and project correspondence to ensure that their claims are properly prepared.

Owners and lenders should investigate these same issues. The Doornbos court allowed the subcontractor to limit the time period of its lien claim because the subcontractor was paid in full for all its work and materials from the commencement of its work through February 28, 2000. Doornbos, 2010 WL 2757348 at p. 11. Therefore, if an owner or lender recognizes that a contractor is proceeding under the Doornbos principle it should be ready to review the payment history to determine if there was a balance due the claimant throughout the course of the project.

The Doornbos Principle Is Here to Stay

It is likely that the Doornbos principle is the new standard which is here to stay. Construction law practitioners and industry participants should, therefore, be aware that the traditional application and understanding of Section 6 has changed. We should all be prepared to apply and react to the Doornbos interpretation of Section 6 on behalf of owners, general contractors and subcontractors.

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