Jeffrey A. McKenzie and J. Mark Grundy
Bingham Greenebaum Doll LLP
3500 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
Phone: 502/587-3594 and 502/587-3628
Liens are among the most important legal issues in construction, and contractors, subcontractors, material suppliers and owners all need to know the law governing their creation and enforcement. Two threshold issues are the type of project and the party seeking the lien. Kentucky applies different lien rules depending upon the filing party and whether the project is private or public. This article will describe the rules governing the most common liens, those filed on private projects by contractors, subcontractors and material suppliers. Later articles in this series will cover public projects and the lien rights of engineers, architects, landscape artists, real estate brokers, and land surveyors.
Kentucky’s private lien statute provides lien rights to any person who performs labor or furnishes material to the project owned by a private entity. When filed properly within the time periods provided by the statute, private project mechanics’ liens create a security interest in the improved property and help to establish priority of payment.
First of all, be aware that the rules governing private project liens are strict and unforgiving. Generally, the applicable construction lien statute in Kentucky provides very detailed notice and content requirements for lien statements. Kentucky courts will strictly construe those requirements and will disallow a lien if it is not strictly filed in compliance with the precise statutory requirements.
The filing deadlines apply to general contractors as well as to subcontractors and material suppliers. However, the notice requirements vary. Because general contractors have contracted directly with the owner, general contractors are not required to provide prior notice to the owner of the intent to file a lien. General contractors must file a lien statement within six months of the last date that the contractor provided labor or delivered materials to the project. The lien statement must be filed in the county clerk’s office where the building or improvement is located. The lien claimant must file notice of the lien statement and mail it by regular mail to the owner’s last known address within seven days of filing with the county clerk. Kentucky generally strictly enforces the perfection requirements of the statute. The lien claimant must file a lawsuit to enforce the lien within twelve months after the date that the lien statement was filed or otherwise the lien will be statutorily dissolved.
In contrast to contractors’ liens, subcontractors and material suppliers who intend to file a lien typically have not directly contracted or dealt with the owner of the project, and these parties are required to provide prior notice to the owner. Kentucky law permits subcontractors and material suppliers to file an optional preliminary filing in order to receive certain protections in priority versus other creditors; however, this optional or preliminary filing is not necessary to perfect such party’s lien rights. However, a mandatory notice of intent to file a lien must be sent to the owner of the property or the owner’s authorized agent. If the project is not owner occupied, then notice must be received by the owner within (i) 75 days of the last date that the labor or services were provided if the lien is for less than $1,000 or (ii) 120 days if the lien is for more than $1,000. If the project is owner occupied, the notice must be received by the owner within 75 days of the last date of labor or services provided by the claimant.
Providing the notice alone is just the first step. After providing the notice, the lien claimant then has six months from the last day of providing labor or services to file its lien statement. Upon filing of the lien statement, the requirements for the perfection of the lien are satisfied, so the creation of most interests in the property arising after the filing of the lien will be subject to the lien.
The final step is enforcement of the lien. The lien claimant has twelve months from the date of the filed lien to initiate a lawsuit in order to avoid dissolution of the lien. If the lawsuit to enforce the lien is not properly filed within the year following the lien, all rights created by the lien are lost. Although the rules are strict, and the assistance of counsel is often necessary to provide guidance, the power that can be created by a properly filed lien can be a potent weapon in the collection of amounts due contractors, subcontractors and material suppliers.
Jeff McKenzie and Mark Grundy