Massachusetts Extends Mechanic's Lien Rights to Design Professionals: Effective July 1, 2011

On January 5, 2011, Governor Deval Patrick signed new legislation that extends mechanic's lien rights to design professionals on Massachusetts projects. This new law will bring Massachusetts in line with a growing number of states – including California, Florida and Rhode Island – in allowing, by statute, licensed design professionals to assert a mechanic's lien for their services.

The recently enacted amendments to Massachusetts General Laws Chapter 254 comprise the most significant and wide reaching changes to the Massachusetts mechanic's lien law since the landmark changes of 1996. With the new amendments, licensed design professionals such as architects, engineers, land surveyors and licensed site professionals will now be able to assert lien rights against any interest in real property owned by the party contracting with them or consenting to the design work when the party with whom they contract fails to pay for their services whether or not the construction work is actually performed. The new law will apply to all notices of contract for design professional liens recorded after the effective date of the statute, July 1, 2011. While the procedures for creating, enforcing and extinguishing design professional liens are similar to those for construction-related liens under the Massachusetts lien law, there are important differences which will have a significant impact on project administration. Therefore, it is essential for owners and contractors to understand the statute's effects and proactively manage the newly created risks to avoid delay in project funding and the project schedule which inevitably result when a lien clouds the property title.

The new law leaves unchanged the current process for construction contractors and subcontractors to assert their lien rights. As always, strict compliance with the statutorily mandated provisions of the lien law remains critical, as failure to comply with any step in the lien process is fatal to successfully establishing a lien.

Who May File a Lien Under the New Amendments?

Design professionals such as architects, landscape architects, professional engineers, licensed site professionals or land surveyors who are licensed or registered as such in the Commonwealth of Massachusetts may assert lien rights.

Additionally, any corporation, partnership, limited liability company or other legal entity that is authorized under Massachusetts law to practice any of these professions may assert a lien.

The new law extends lien rights to various levels of design professionals, and depending on the design professional's relationship with the property owner, will require compliance with different provisions of the statute, much like the distinction between general contractors and subcontractors for construction-related work. A design professional whose written contract is directly with the property owner must file his notice of contract under new Section 2C of Chapter 254. Second tier design professionals, who have no direct contract with the property owner and who are subcontracted by the prime design professional to provide design services, must file their notice of contract under new Section 2D of Chapter 254. In addition, where a design professional has a subcontract for design services with a construction general contractor, or a construction subcontractor, the design professional establishes his lien rights by following the lien law provisions previously in place for construction subcontractors under Section 4 of Chapter 254. As with construction-related liens, the form and contents of the notice of contract is specifically mandated by the controlling lien law section. The statutory forms prescribed for notices of contract for design professionals are substantially similar to the forms mandated for construction-related liens.

What Type of Design Services Are Covered?

The revised lien law defines "professional services" broadly to include services customarily performed by or under the supervision or control of a licensed design professional in the course of their practice. Professional services expressly identified under the amendments include, but are not limited to, "programming, planning, surveying, site investigation, analysis, assessment, design, preparation of drawings and specifications, and construction administration services."

Different Deadlines Apply for Design Professionals

To successfully establish a lien it is imperative for design professionals to understand what section of the lien law applies to their specific contractual relationship. This is important because the lien law amendments impose different deadlines for recording key documents with the registry of deeds, such as the notice of contract and statement of amount due, depending on what section of the lien law applies. For example, a design professional seeking to assert lien rights under Section 2C can file a notice of contract at any time after the execution of the written contract whether or not the professional services have been commenced or completed, but no later than the earlier of: (i) 60 days after filing the notice of substantial completion under Section 2A; or (ii) 90 days after such design professional or any person by, through or under him, last performed professional services. Similarly, a second tier design professional asserting lien rights under Section 2D can also file a notice of contract at any time after the execution of the written contract but must file no later than the earlier of: (i) 60 days after filing the notice of substantial completion under Section 2A; or (ii) 90 days after the last day a design professional who is entitled to enforce lien rights under "Section 2 or 2C"¹or any person claiming by, through or under him, last performed professional services for the project. For design professionals subcontracting with the construction general contractor, or a construction subcontractor, the deadlines previously in place for construction subcontractors under Section 4 of Chapter 254 apply. Similarly, the amendments establish a new deadline for filing the "statement of amount due" under Section 8 for design professionals seeking to assert lien rights under Sections 2C and 2D requiring their statement to be filed within 30 days after the last day that the notice of contract may be filed under the applicable lien section, or else their lien is dissolved.

Lenders Are Not Required to Fund Over Design Professional Liens

Section 33 of the lien law prohibits a lender from withholding project funding, financing or payment because lien documents under Section 2 or Section 1 of the lien law have been filed, except on construction projects of one to four units. Instead, the lender was expected to continue funding the project in return for a validly completed and executed "partial waiver and subordination of lien" in the form mandated by the lien law. Prior to these current amendments, this "rolling lien" concept did not apply to liens asserted under Section 4, and a lender was not required to fund a project if there were any Section 4 liens on record.

Rather, owners, contractors or other parties in interest were forced to clear title usually by bonding off the Section 4 lien or prevailing upon the lien claimant to voluntarily dissolve his lien through payment or settlement. The amendments to Section 33 of the lien law now permit lenders also to withhold project funding or financing where liens under Sections 2C and 2D have been filed.

Dissolution of Design Professional Liens

Whether intentionally or through inadvertence, the legislature made no amendments to Section 12, one of the bonding provisions of the lien law, to incorporate Section 2C and Section 2D design professional liens. Unmodified, Section 12 of the lien law pertaining to "blanket bonds" or “lien prevention bonds,” which are filed before liens are asserted and keep the project lien-free, may be obtained by any person in interest, including the owner, but only in connection with a written contract covered by Section 2 or Section 4 of the lien law. Therefore, Section 12 bonds do not expressly protect against liens under Section 2C and 2D. No such disparity resulted with Section 14 bonds, also known as "target bonds" or “lien dissolution bonds,” which extinguish or dissolve specific and identifiable liens. By its existing broad terms, Section 14 permits any person in interest to dissolve "a lien" established under Chapter 254 which would encompass Section 2C and Section 2D liens. These changes may necessitate design professionals that hire subcontractors to establish lines of surety credit in order to bond off subcontractor liens if owners so require.

Section 4 Design Professional Contracts Fall Within the Purview of the Prompt Pay Statute

The amendments to the lien law now permit licensed design professionals who perform "professional services" under a written contract with the construction contractor or with a construction subcontractor to assert lien rights under Section 4. As a result, Section 4 design professional contracts fall within the scope of "contracts for construction" under the Massachusetts Prompt Pay Statute and may trigger its duties and rights if the other qualifying criteria of this statute are met. Specifically, the Massachusetts Prompt Pay Statute generally applies to all construction contracts qualifying for lien rights under Sections 2 and 4 of Chapter 254 on projects with prime construction contracts of $3 million or more, that were signed on or after the effective date of the statute, November 8 , 2010, and to all subcontracts of any tier under those prime contracts. The Massachusetts Prompt Pay Statute does not cover residential projects of one to four units. See Holland & Knight's Construction Alert, Massachusetts Adopts Landmark Subcontractor Payment Legislation (August 12, 2010).

Conclusion

The amendments to the Massachusetts mechanic's lien law will undoubtedly prompt significant changes in both construction industry business practices and contract terms at all levels. This alert only paraphrases and summarizes the amendments; the actual statutory language should be reviewed carefully in developing new practices and contract language.

We recommend that all industry firms, owners and contractors conduct a thorough review of both standard and custom contract terms in order to identify potential revisions needed to comply with and mitigate the effects of the new statute. The amendments to the Massachusetts mechanic's lien law can be found at:

http://www.malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter424 

1 Considering the statutory framework for design professional liens as a whole and when comparing it to the procedure in place for construction-related liens, it is unclear whether the reference to Section 2 was a drafting error and the legislature intended to reference "Section 2C or 2D."