The COVID-19 pandemic has changed life for many. Many states such as California, New York, New Jersey, Louisiana and Illinois have closed “non-essential” businesses, affecting millions of American workers and businesses. 

So far, construction, and those businesses supporting construction, are generally not affected by these orders. Construction of commercial and residential projects, as well as renovations, are considered essential to the welfare of the state's citizens, and can continue to move forward. Because of these unprecedented times, first- and second-tier contractors will likely not wait to be paid. Longstanding business relationships will not be enough to stave off the filing of construction liens. While there may be an uptick in the intention of first- and second-tier subcontractors to file liens, there are certain procedural challenges arising out of the COVID-19 pandemic that will affect the ability of these entities to file liens and then to foreclose on those liens.

A construction lien is a security interest in the real property on which the construction work has been performed. The primary tools by which subcontractors and sub-subcontractors can protect their rights to payment for labor and material investments on a construction project with private or public owners are the lien rights, which are governed by statutes in each of the 50 states. 

Properly placed, filed and served, it stays with the property regardless of who may subsequently own the property. In short, the construction lien prevents the property owner from selling the property or borrowing more money against the property without resolving the underlying claim. The value of the land becomes the fund for payment of the persons who supplied labor, materials and services in improving the land. Ultimately, the property can be sold to pay the lien claimant in an action to foreclose the construction lien. 

In today’s tenuous times, while a construction lien is the same as filing a lawsuit or preparing a demand for arbitration, a construction lien can have similar effect upon a project for less of a cost for the entity filing the construction lien.

Each state defines, per statute, who is defined as a lien claimant. Below is a list of construction entities that are likely to be considered lien claimant’s under state statute:

• general contractors;
• licensed architects, engineers, land surveyors, certified landscape architects and professional planners who contract with the owner;
• construction managers;
• prime contractors on a multiple prime project;
• subcontractors to a general contractor, a prime contractor or a construction manager;
• sub-subcontractors to a subcontractor; and
• suppliers who have a contract with the owner, a general contractor, a prime contractor, construction manager or subcontractor.

In general, a claimant may assume that any work on the construction site supports a lien. The following are examples of the types of work for which liens may attach:

• design work on a building;
• performing construction management services;
• building a house, an office building, a warehouse, or a manufacturing facility;
• excavating a basement;
• rewiring a house;
• building an addition;
• installing a permanent generator outside of an office building even if there is no construction work on the office building itself;
• building a dock;
• supplying lumber for construction of a particular building (a construction lien may be filed for the full value of the lumber even if some of it is waste that is not actually used or incorporated into the building);
• repair or renovating a building; and
• landscaping and grading.

It is one thing to have a construction lien prepared. There are many lien services that can do so, however, it is quite another to have the lien filed and served upon the necessary parties in a timely manner under the respective statutes.

In most, if not all 50 states, in order to effectuate the filing of a lien, the lien must be filed in the county clerk’s office where the real property is located. Very few states allow one to “e-file” the lien claim. It appears that Texas and Wisconsin do provide for “e-filing” of a construction lien claim. This makes it difficult in the COVID-19 world to file the lien when the county clerk’s offices are closed. 

However, even if a subcontractor can e-file the construction lien, it must be served upon the property owner and contractor who hired the subcontractor. This can be done by regular mail and certified mail. Finally, while most states have the ability to e-file a foreclosure complaint, such a complaint must be personally served in order to effectuate proper service. In most states, personal service is required and this will be difficult during the current times. While service companies may still provide service of process (except New York and Pennsylvania) but this can change daily depending on what sort of limitations are provided by state and federal governments.

On the one hand, it appears that construction projects, especially active construction projects, are deemed essentially and work will continue. On the other hand, contractors who are required to work will likely not see payment in a timely manner. This will likely lead to an increase in construction lien claims and on bonded projects, payment bond claims as well. Nevertheless, the filing of a lien claim that complies with the respective state statutory requirements will be an uphill battle based upon the limitations due to the COVID-19 pandemic.