The importance of liens in securing payment on construction projects cannot be overstated. Washington’s lien law was enacted primarily to safeguard contractors’, material suppliers’, and laborers’ rights to payment on construction projects. Failing or refusing to utilize Washington’s lien procedures could turn out to be a catastrophic mistake. At times, having a valid lien in place is the only difference between getting paid in full and not getting paid at all.
To demonstrate the power and importance of liens, consider the following hypothetical:
You are a material supplier or contractor on a large, private commercial project. You have contracted directly with the project’s general contractor and have already performed or supplied $50,000 worth of work or materials to the project. However, you have not yet received payment for any of this work or these materials. The general contractor keeps promising you that it will pay you in the next few weeks as soon as it receives more money from the project owner. However, to your surprise, the general contractor files for bankruptcy the following week without paying you a dime. As the bankruptcy proceeds, it becomes clear that the general contractor does not have enough assets to pay your claim. Ultimately, the bankruptcy discharges your claims against the general contractor and you end up receiving nothing for your claims.
The above example is a nightmare scenario for a lot of contractors, material suppliers, laborers, and others involved in construction projects. But, this scenario occurs much more often than you might think. In this scenario, if you did not follow the proper lien procedures, you would likely be stuck with whatever you could recover from the general contractor’s bankruptcy, which would often be nothing. However, if you followed the lien procedures and filed your lien, your lien would have survived the general contractor’s bankruptcy and it would have provided you with claims against the property. Having a lien in place in situations like this would help to ensure that you get paid, instead of suffering a potentially business-ending loss.
Contact senior associate Seth Chastain for more information.