Making Maintenance and

Construction Law Your Ally


by Thomas J. Westgard, Attorney at Law
http://www.ILMechLiens.com

(This article was originally written for a publication directed at small Illinois businesses)

Every building needs maintenance occasionally, sometimes on an emergency basis. Other times, renovation and remodeling can be the motivation for the work. Thus every person or business in Illinois which occupies a building - and that's nearly everyone - is affected by the Illinois Mechanics Lien Act. Because the title to the property or the tenant's rights under a lease can be taken by a contractor or subcontractor to pay for work on real estate in Illinois, one needs a fundamental understanding of what this part of the law covers to protect those rights. The Illinois Mechanics Lien Act automatically inserts and removes terms from every agreement (both written and oral) for work on real property in Illinois. These automatic terms create rights and obligations for all parties to the agreement. Failure to comply with these obligations can result in the loss of title to the property, a lease, or loss of the contractor's right to payment. However, knowledge of the law can turn it into a powerful ally in avoiding conflict and guiding the building project to its intended result.

Whatever your role in the construction process, a fundamental understanding of the Illinois Mechanics Lien Act can help you control the project to get the results you want. The statute creates a system of required notices and disclosures which, if properly completed, prevent many of the most common payment problems in construction. Any participant in the building process who has a better understanding of the mechanics lien requirements has the upper hand in controlling who will be legally required to do what and when. This opportunity to ensure that the work is done properly, that all payments are proper, and to avoid or minimize litigation should not be overlooked.

The information about mechanics liens available from most sources starts with litigation, which usually starts only after the damage is already done. In contrast, litigation can usually be avoided, and most other times minimized, through careful attention to the defenses available even before any disputes arise.

Therefore, take a few minutes to learn the names and uses of the most common legal documents described by the Illinois Mechanics Lien Act, as a way to monitor and control the project. These documents are (1) the contract, (2) the subcontractors' notices, (3) the sworn statement(s), and (4) the waivers.

I. The Contract.
A. The agreement for the work should be in writing so that there can be no question about what work is to be done, when, where, and by whom. This should be drafted by an attorney familiar with construction and mechanics lien work, to ensure that it is legally enforceable and properly describes the work to be done.
B. A procedure for the parties to follow for making changes and additions to the work should be included, along with some guidelines on determining the costs for the changes and additions. This is the single greatest source of conflict in construction.
C. Title to the property should be determined through a title search (by the contractor), and the owner(s) of record and any tenants should all be included in the contract. At bare minimum, the owner(s) should be notified of the contract through certified mail.
D. To avoid confusion or unpleasant surprise, the contract should specify that all requirements of the Mechanics Lien Act will be completed by the parties to the contract. (However, even if the contract does not include this statement, the requirements still apply, and cannot be avoided, even by agreement.)

II. Subcontractors' Notices.
A. The Mechanics Lien Act provides that all subcontractors (including subsubs and materials dealers) on jobs at owner-occupied, single-family residences (including condo units) must provide a certain notice form described in the statute to the homeowner within 60 days of the start of work, in order to have an enforceable mechanics lien claim. This notice protects the subcontractor, but also provides the owner the opportunity to ensure that all participants are properly paid (see Part IV, Waivers and Payment, below).
B. Even when a subcontractor's notice is not required, or when the time for serving it has already passed, providing such notice to the owner may be advisable anyway. First, a fair-minded owner will want to ensure that all workers are properly paid, and an owner who actually receives notice of a particular subcontractor cannot reasonably rely on a contractor's sworn statement which fails to include the subcontractor who provided the notice.
C. A subcontractor's notice must include the matters required by the Mechanics Lien Act, but can also be drafted to work as a marketing tool for the subcontractor. In this manner, the notice can function as a service to the owner and the subcontractor, and avoid the perception of hostility that an unpolished "legal notice" might bring. The subcontractor should work with the attorney to develop such material.

III. The Sworn Statement(s).
A. The owner (or tenant, if the tenant is contracting the work) is required to demand, and the contractor is required to provide, a "sworn statement" which identifies all subcontractors and materials dealers to the project. Failure to comply with this requirement causes severe consequences. No money is owed to the contractor until the sworn statement is provided. On the other hand, if the owner does pay money to the contractor without getting a sworn statement, and the contractor fails to pay a subcontractor in full, then the owner still owes that amount to the subcontractor as if no payment had already been made.
B. The owner is also entitled (but not required) to demand a sworn statement from subcontractors, to identify any subcontractors or additional materials dealers. Particularly in large projects, these additional sworn statements should be demanded, since the same obligation for the owner to complete all payments applies to these lower-tier companies as it does for other subcontractors.
C. Provided that the sworn statement(s) include all of the information required by the law and the facts of the particular project, the owner is entitled to rely on it for purposes of making payment, and will not be required to pay any amounts beyond the amount stated on the form. However, if this form is deficient in any manner, the owner runs a significant risk of being obligated to pay amounts beyond the contract amount. Therefore, this form should be carefully examined by the owner, in consultation with an attorney familiar with mechanics liens, to ensure that it includes all of the required information, before any payments are made.

IV. The Waivers and Payment.
An additional and powerful protection for the owner is to receive a waiver from the contractor or sub. A waiver releases some or all of the rights to a mechanics lien. Owners are (or should be) understandably hesitant to make payments without receiving a waiver for the amount paid, just as contractors are (or should be) hesitant to sign a waiver before getting paid. This can result in a standoff in which each side demands that the other go first, or more commonly, the contractor and subs cave in, because they need the money more than the owner "needs" to release it.
Still, this piecemeal "waiver-for-payment" process is a poor way to avoid payment problems. The waivers are rarely examined to determine whether all required waivers are present and waive the proper amount, and against the proper interest. A contractor has a lien against the property in two ways, and a subcontractor has such a lien in four. Sometimes the waivers should be compared to one another to determine whether the proper amounts are stated. Thus, the owner may not get the assurance that potential lien claimants are eliminated. Likewise, a contractor or sub who signs a waiver can only be sure that the waiver will be upheld, whether or not payment is made.
The simple and effective solution is to hold a closing, in which the owner, contractor, and subs meet to exchange waivers and checks. The Mechanics Lien Act permits the owner to pay the subcontractors directly and to credit this amount against the contract amount owed to the general contractor. This is a powerful protection which the owner should exercise. The waivers should be examined by an attorney familiar with the requirements of the statute and the building project to determine whether they comply with the legal technicalities and state the precise intent of the parties. Additionally, a closing provides an opportunity for any undisclosed subcontractors to appear and request payment. The closing process provides additional assurance that all persons owed money are paid the proper amount, and that the owner receives the security of a full and valid waiver for all amounts paid.

V. Liens and Litigation.
In the event of a payment dispute, the next step would be the completion of the lien documents and commencement of litigation. The information about mechanics liens is available on most web sites describes this later part of the process, and is thus not included here. However, it must be noted that all parties to the construction process are subject to very short time constraints described by the Illinois Mechanics Lien Act, and thus a payment dispute with regard to construction requires prompt defensive action.

Thomas J. Westgard is an attorney based in Chicago, Illinois, whose practice focuses on Illinois mechanics liens, and particularly in preventing and avoiding conflict in construction projects. For more information, visit his informational website at http://www.ILMechLiens.com, or email him at tom@ilmechliens.com.

The Illinois Mechanics Lien Act. Learning about this part of Illinois law can help you to guide your construction project to the results you want.

Learn More about Mechanics Liens

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Copyright 2002, Thomas J. Westgard