March 14, 2019

Here's what you need to know about filing construction liens against condo projects

Reed

Hinton

On Feb. 11, Division One of the Washington Court of Appeals issued an opinion in the case of Woodley v. Style Corp. d/b/a Servpro of Shoreline/Woodinville, providing guidance regarding the scope of Washington's frivolous lien statute and the subtle intricacies of preparing and filing a construction lien against a condominium project.

The Woodley opinion is especially timely given the uptick in the number of condominium developments being constructed in the greater Seattle area. Construction professionals engaged in this market should possess a fundamental understanding of construction liens so they can effectively allocate risks related to liens asserted to secure payment for work furnished. This article summarizes Washington's construction lien laws and highlights important takeaways from the Woodley case.

Know the law

RCW chapter 60.04 governs construction liens on privately owned residential and commercial real property in Washington.

State law imposes several conditions on any person seeking to create and enforce a construction lien. For example, the statute narrowly defines the class of construction professionals that may qualify as a claimant. Likewise, for work to qualify as lienable, the claimant must provide labor, professional services, materials, or equipment both at the request of the property owner and pursuant to a contract. Moreover, lienable work must be performed or delivered at the project site and contribute directly to the physical improvement being constructed.

Failure to satisfy any of these conditions can be fatal to the success of one's construction lien.

Parties subject to liens

Generally, a construction lien attaches to the improvement on which the claimant worked and the underlying real property to the extent of the ownership interests of the person requesting the lienable work. Significantly, condominium projects present several different types of interests which may influence a claimant's strategy. A condominium is composed of individual units (subject to individual ownership and separately owned, taxed and financed) and common elements (jointly owned areas like walkways, elevators and landscaping).

A claimant may file a construction lien against an entire condominium project by naming an owners' association as the indebted person and listing the entire condominium as the property subject to the lien. As a result, any judgment enforcing the construction lien extends to all units in the condominium and each owner's interest in the common elements.

Conversely, a contractor may file a construction lien against an individual unit to the extent the unit owner authorized or expressly consented to the services. Then, any judgment enforcing the construction lien extends to only that unit and the individual unit owner's interest in the unit.

Preparing a lien

Except in a handful of instances, a claimant must serve a notice of right to file a lien claim in the required form and manner on the owner (or reputed owner) and the prime contractor within 10 days after starting lienable work on a single-family residence or 60 days after starting lienable work on any other project.

Then, a claimant must record a notice of claim of lien in the statutory form in the county where the property is located within 90 days after completion of the lienable work. The claimant must then serve a copy of the lien claim in the required manner on the owner within 14 days after the claimant files the lien claim for recording.

Securing payment

The overarching goal of any claimant is to secure payment for labor, services, materials or equipment furnished to improve the property. To effectuate this goal, a claimant may accept payment of the amount due for its lienable work in exchange for a lien waiver or release. Otherwise, the claimant may need to file a foreclosure lawsuit in the superior court for the county containing the property within eight months after recording the construction lien. Then, within two years after filing the foreclosure lawsuit, the claimant must obtain a judgment to prevent the court from dismissing the action and canceling the construction lien.

Once a judgment is obtained, the claimant may seek to sell the property under the procedures for a judicial foreclosure sale unless the judgment is satisfied by a lien release bond.

Frivolous, excessive liens

The Woodley case instructs claimants on the conundrum that may arise under Washington's frivolous lien claim statute.

The Woodley case arose when a condominium's property management company discovered water intrusion and engaged Servpro to clean up the water and perform restoration work. Servpro alleged that it was not paid for its work, so it filed a construction lien.

The construction lien named the association as the indebted person, stated that it applied to the 20 units and common storage area, and named each owner of the 20 units but failed to allocate the debt to each unit.

One of the unit owners filed a motion to release the lien under Washington's frivolous lien statute. The trial court granted the motion, finding the construction lien frivolous and clearly excessive, and released the lien. On appeal, Division One of the Washington Court of Appeals disagreed with the trial court's ruling and found that the lien was not frivolous despite a number of debatable legal and factual issues.

The appellate court found that a frivolous lien is one made without reasonable cause and beyond legitimate dispute, and that an excessive lien arises when the face value of the lien is unquestionably far greater than the value of the goods or services provided.

Under the limited summary proceeding authorized by statute, the only remedy for a frivolous lien is release, while the only remedy for a clearly excessive lien is reduction of the lien amount. The Woodley court refused to allow release of a non-frivolous, excessive lien because it would undermine the statute's language mandating the type of remedy.

In turning to the merits of Servpro's construction lien, the court opined that Servpro improperly conflated the approaches to filing a construction lien against a condominium. Specifically, the court criticized Servpro's failure to allocate the face value of its lien to the 20 unit owners identified as owning an interest in the condominium.

Accordingly, the court ruled that the lien was clearly excessive, awarded attorneys' fees to the movant as mandated by the frivolous lien statute, and remanded the case for further proceedings on the factual issues and reduction of the lien amount.

If nothing else, construction professionals should be aware that incorrect lien claims — including those characterized as “clearly excessive” under the statute — may result in harsh consequences like those suffered by the lien claimant in the Woodley case: A reduction in the amount of the construction lien and liability for attorneys' fees.

Again, this article is only a high-level summary of Washington's lien laws and by no means provides a comprehensive treatment of the subject.

More information on construction lien claims in Washington can be found in the updated version of “The Construction Lien in Washington: A Legal Analysis for the Construction Industry,” which is at http://tinyurl.com/SR-CLIW.

Loni Hinton is an attorney in the Construction and Design Group of Stoel Rives LLP in Seattle. Bart Reed is a partner and in the firm's Real Estate and Construction Group.

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