Tuesday, August 16, 2011

Its Official: Lien Law Amendment Regarding Retainage Signed Into Law

On August 3, 2011, New York Governor Andrew M. Cuomo signed into law an amendment to Lien Law Section 10 which now provides that a mechanic's lien related to retainage may be filed within 90 days of the time that the retainage became due.  This will be a welcomed change for general contractors, subcontractors and even material suppliers that are used to having to file their mechanic's liens within tight time frames even though retainage may not yet be due.  The new amended Lien Law Section 10 will now take a more practical approach to lien deadlines and allow everyone on the site to wait up to 90 days to file their mechanic's lien related to retainage.  The new amended Section 10 will add this language effective immediately:  "and provided further where the notice of lien is for retainage, the notice of lien may be filed within 90 days after the date the retainage was due to be released."

CAUTION:  Contractors may read this new amendment to mean that they can withhold their entire mechanic's lien until 90 days after the retainge becomes due.  However, while the statute is, of course, brand new, and no court has interpreted yet, I believe the statute is clear that only the mechanic's lien for retainage may be filed up to 90 days after the retainage is due.  In other words, the lien for the remainder of the contract must still be filed within the normal 120 days on single family dwellings and 8 months on other projects.  For example, if Contractor X is owed $150,000.00, and $15,000.00 of that is retainage, Contractor X must still file its mechanic's lien for the $135,000.00 within the normal time frames.  However, the $15,000.00 in retainage can be the subject of a second mechanic's lien that may be filed up to 90 days after the time retainage was due to be released.  There are two interesting issues that I see here.  First, the amendment will likely be useless to any contractor that is owed more than retainage.  Odds are if you are owed retainage and more you are going to chose to file a mechanic's lien for the entire amount due when you file your mechanic's lien.  Second, the amendment will be most useful to contractors that have been paid in full for everything except retainage.  Rather than being forced to lien the project early and risk causing funding issues, the potential lienor can simply wait to see if the retainage payment will be released on time before pursuing the mechanic's lien. 

It will be interesting to see the first cases that come out on this issue to find out how courts will interpret the new statute and how potential lienors will misapply it and lose their lien rights (as they inevitably will). 

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com

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