J. Mark Grundy
Jeffrey A. McKenzie
Bingham Greenebaum Doll LLC
3500 National City Tower
101 South Fifth Street
Louisville, Kentucky 40202
Phone: 502/587-3628 and 502/587-3594
Other than contract provisions, statutory lien provisions provide Contractors, Subcontractors and Material Suppliers with their best assurance of an Owner’s compliance with payment terms. As discussed in our last article on private project liens, Kentucky applies different lien rules depending upon whether the project is private or public. As with private project liens, the courts of Kentucky strictly construe the public project lien requirements and will disallow a lien if it is not filed in strict compliance with those requirements. Kentucky has separate lien statutes with respect to lien rights of others, including engineers, architects, landscape artists, real estate brokers, and land surveyors who provide professional services. This article will describe the rules governing liens filed on public projects.
Generally, the applicable construction lien statute in Kentucky is KRS 376.010 et seq. Contrary to the effect of the private lien law, the public lien statute, KRS 376.210, provides that a mechanics’ lien on public projects will attach to project funds, not to the real property itself or the improvements thereon.
Because a lien cannot attach to the real property itself in a public project, rather it only attaches to the funds owed by the public authority to the general contractor, there is no advantage for a general contractor to try to attach the funds, since those funds are already owed to the general contractor. However, a subcontractor in a public lien project must file its lien statement within sixty days after the last day of the month in which the services were performed or material was delivered. In addition, the Kentucky Fairness In Construction Act allows a subcontractor or materialman to also file a lien statement up to the date of substantial completion as defined in that Act, in the event the substantial completion date falls outside the statutory sixty day period. The common practice is to file the lien statement in both the county in which the project is located and the county in which the seat of government where the public facility is located. In addition, the lien claimant must send a copy of the lien statement to the public authority as well as proof of delivery of the lien statement of the general contractor. Once all requirements are met, the mechanics’ lien is perfected.
If a subcontractor materialman has perfected a mechanics’ lien on a public project, the general contractor must take certain steps. Once the lien is perfected, the public authority must withhold the amount claimed in the lien statement from any amount then due to the general contractor. If the amount due to the general contractor is not sufficient to cover the lien, the public authority will withhold the difference from future payments once the general contractor earns those payments. Significantly, the general contractor must file a protest with the public authority within thirty days from the date it receives the lien statement from the public authority. Failure of the general contractor to file such a protest will result in the public authority paying the held funds to the lien claimant. If the general contractor, however, timely files its protest, then the public authority will notify the lien claimant and retain the withheld funds. It is then incumbent upon the lien claimant to file a suit to enforce the lien to seek disbursement of said funds upon adjudication or court order.
Private projects – the filing deadlines apply to general contractors as well as to subcontractors materialmen. However, notice requirements are not the same. Because general contractors have contracted directly with the owner and work directly with the owner, general contractors do not provide notice to the owner of its attempt to file a lien. General contractors must file a lien statement within six months of the last date it provided labor or delivered materials on 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 at his last known address within seven days of filing with the county clerk. Kentucky generally strictly adheres to the perfection of the requirements of the statute. The lien claimant must file a lawsuit to enforce the lien within twelve months after the date the lien statement was filed or otherwise the lien will be statutorily dissolved. See KRS 376.090.
In contrast, subcontractors materialmen who have not directly contracted with the owner must provide notice to the owner of the project. Pursuant to KRS 376.010(2), such entities may have filed 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 lien rights. A mandatory notice of intent to file a cash lien must be sent to the owner of the property or the owner’s authorized agent. If it is a non-owner occupied project, then notice must be received by the owner within 75 days of the last date labor or services were provided. If the lien is for less than $1,000 or 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.
The lien claimant then has six months from the last day of labor or services provided to file its lien statement. Upon filing of the lien statement, the requirements for the perfection of the lien are satisfied. The lien claimant then has twelve months from the date of the filed lien to initiate a lawsuit in order to avoid dissolution of the lien.