Liens vs. Contracts in Connecticut

Thirty-one states and the District of Columbia require a written contract for residential work. See my blog post Contracting on a Handshake for the list of states. But the obvious question is, “What happens if my job in one of those states doesn’t have a legal contract? Can I still collect?”

Last month, a Connecticut court answered that question – at least for Connecticut contractors. Here are the details.

Linda Tanuis needed new shingles on her house and garage in Bethlehem CT. Villwell Builders of Waterbury agreed to do the work for $19,152. Linda signed Villwell’s contract and work started. Everything went as expected until Villwell discovered a problem. An extra 35 sheets of plywood would be needed. Villwell noted on the contract “adding 35 sheets of plywood $3,000.” Linda initialed the change.

Villwell did good work – keeping Linda informed as the job progressed. When done, Linda paid Villwell the full $19,152. But then Linda got the bill for an extra 35 sheets of plywood. She refused to pay – not even the $3,000 noted on the contract. With no other choice, Villwell filed a mechanics lien for $8,126.

Notice the words mechanics lien in that last sentence. Why didn’t counsel for Villwell sue for the extra $3,000 as an approved change order? I don’t know. But I can guess. Connecticut is one of the 31 states that require a written contract for residential work. To be legal, the written contract for home improvement jobs in Connecticut has to:

• Be dated and signed by both owner and contractor.
• Include the contractor’s address and registration number.
• Describe (in bold type) the owner's cancellation rights.
• Show a start and completion date.
• Require that any change in contract terms be in writing, dated and signed.
• Disclose the name of every similar company the owner has had an interest in for in the last five years.

Counsel for Villwell must have known the contract with Linda wasn’t that good. Filing for a mechanics lien was a safer bet. Courts routinely enforce lien rights, even if there is no written contract.

Some background: Every state gives contractors a mechanics lien for the value of labor and materials used to improve property. No written contract is required. It’s enough if improvements were made with consent of the owner. Once filed, a mechanics lien is like a mortgage. Until discharged (paid), the lien holder has a secured interest in the property. Lien rights don’t allow recovery of the full contract price (including OH&P). But by filing for a mechanics lien, counsel for Villwell hoped to recover the value of extra labor and materials.

Can the Contractor Collect?

The court in Tanius v. Villwell Builders had to decide: If the contract is bad, does that also void mechanics lien rights? Connecticut General Statutes § 20-429(f) helps answer the question.

Nothing in this section shall preclude a contractor who has complied with subparagraphs (A)(i), (ii), (vi), (vii) and (viii) . . . from the recovery of payment for work performed based on the reasonable value of services which were requested by the owner . . .

To summarize: A Connecticut home improvement contractor still has lien rights if the contract:

(i) is in writing,

(ii) is signed by the owner and the contractor,

(vi) contains (in bold) a notice of the owner's cancellation rights,

(vii) contains a starting date and completion date, and

(viii) is entered into by a registered salesman or registered contractor.

In the Villwell contract, (1) the contractor's registration number was missing, (2) the cancellation notice wasn’t in bold, and (3) there was no start date or completion date. So the court cancelled the contractor’s lien for $8,126. Villwell collected nothing. Too bad. Villwell did good work. Only their contract was bad.

The Bottom Line

To be candid, not all of the 31 states and DC follow the Connecticut rule. But all 31 states have some penalty for contractors who ignore the law. Don’t gamble on lame contracts. Construction Contract Writer drafts letter-perfect agreements every time, no matter the state and no matter the type of job. The trial version is free.

“You’re Fired. Get Off My Property”

Have you heard those words from an owner? Last week I got a call from a contractor who had been told exactly that. He still had tools and equipment on the job. He was owed money. His crew and subs expected to be paid. Now what?

A contractor terminated for good cause could be liable for both the extra cost of finishing the job and the cost of fixing everything the owner didn’t like about the original work.

What would you do?

First, understand there is only one cheap, quick solution in a case like this: a heavy dose of common sense. An owner who orders a contractor off the job has grievances, either real or imagined. Offer to resolve every one of those issues. Then make that offer in writing. Save a copy for your file. An owner who refuses your offer to continue work on the owner’s terms has breached the contract. If the case ends up in court, you’re the one who acted reasonably. Documents in your file will prove that.

If common sense doesn’t help, the law has answers. An owner who orders a contractor off the job without good cause has committed a breach of contract. The contractor is entitled to payment for work completed plus lost profit. But an owner's breach of contract is excused if the contractor was the first to commit a material breach of the agreement. A material breach is a question of fact, usually decided by a jury.

The courts could take years to decide who committed the first material breach. Legal fees in a case like that will be many thousands.

Better Choices

Arbitrate. If your contract requires arbitration, do exactly what your contract requires. If you have agreed to arbitrate, no court will hear the dispute. Mobile mediators and arbitrators are available in nearly every major city. Some will meet on the job site and provide a written decision in a matter of days. That decision is fully enforceable, just like a judgment in court.

Record a lien on the property. Lien rights are entirely separate from contract rights. A recorded lien gives you the right to foreclose. But watch four points: (1) Where a license is required, unlicensed contractors don’t have lien rights. (2) If the construction site is the primary residence of the owner, there are no lien rights if the owner didn’t get the Federal 3-day right to cancel form. (3) Your lien must be recorded promptly after work stops. (4) You have a limited time to bring a foreclosure suit after recording a lien. Wait too long and your lien rights are gone.

Look to your contract. Many construction contracts give either the owner or the contractor or both the right to terminate – either for cause or without cause. If your contract has a termination clause, contract terms will explain who has to do what after termination.

A good contract is your best protection against an unreasonable owner. The best contract drafting tool I know is Construction Contract Writer. The trial version is free.