In a recent post to our Utah Business Law Blog, we delved into an aspect of construction law known as a mechanic’s lien. It’s a legal claim against a property typically filed by a contractor, subcontractor or supplier who hasn’t been paid for their work or materials.
The lien on the property can stop the sale, refinancing or transfer of the property until the mechanic’s lien is settled.
What about an oral contract?
In this post, we’re going to dive a bit deeper into this powerful legal tool, starting with this question: must there be a written contract in order for a subcontractor, supplier, etc., to file a mechanic’s lien?
No. In Utah, a mechanic’s lien can be filed even if there’s only an oral contract – as long as sufficient evidence of the oral contract or the work performed or supplies delivered.
Rationale for mechanic’s liens
While a property owner might feel a mechanic’s lien is fundamentally unfair – especially when that owner has already paid the general contractor – the law doesn’t see it that way. On one side of the construction law dispute, you have a property owner who has received a benefit because they’ve had their property improved and on the other side is the person who worked on the project or who supplied materials for the project and who has not received their benefit (being paid).
Lawmakers also presume that the property owner can file a legal claim against the general contractor. Whether or not the property owner will be able to prevail is a separate matter. It can be difficult for a property owner to get money out of a contractor who hasn’t paid subcontractors or suppliers.
Final points to ponder
One way for property owners to avoid a mechanic’s lien is to have a lien waiver provision in the construction contract with the general contractor.
There are additional lien-related issues for property owners, general contractors, subcontractors and others to discuss with a business law attorney before entering into a construction contract.