Chapter 10 Arkansas Mechanics’ and Materialmen’s Liens
| Library | Arkansas Construction Law Manual (2016 Ed.) |
Arkansas Mechanics’ and Materialmen’s Liens
Junius Bracy Cross, Jr.* © 2016
10.1 Scope of Chapter........................................ 10-2
10.2 General and Background Information......... 10-3
10.3 What Industries, Entitles, and People May
Claim a Lien?............................................. 10-5
A. Contractors, Subcontractors, Suppliers,
and Others................................................. 10-6
B. Contracts Dealing with Improvements to
Leased Land.............................................. 10-9
C. Assignees of Lien Rights........................... 10-10
10.4 Priority of Mechanics’ and Materialmen’s
Liens........................................................ 10-11
A. Priority and the Commencement of the
Work....................................................... 10-13
B. Issues Concerning Construction Money
Mortgages................................................ 10-14
C. Issues Concerning Pre-existing Mortgages.. 10-15
D. Demand for Information........................... 10-17
10.5 Perfection of Liens................................... 10-18
A. Pre-construction Notice: Important Notice. 10-19
B. 75-Day Notice.......................................... 10-23
C. 10-Day Notice of Intent of File Lien........... 10-27
10.6 Statement of Account............................... 10-29
10.7 Calculating the 120-Day Period Allowed..... 10-32
10.8 Attorney Fees........................................... 10-33
10.9 Filing a Lien Foreclosure Complaint.......... 10-33
A. Venue...................................................... 10-39
B. Enforcement of the Foreclosure Decree...... 10-39
10.10 Owner Defenses and Considerations.......... 10-40
A. Contractual Provisions............................. 10-40
B. Observation of Construction Project.......... 10-41
C. Surety Bonds........................................... 10-42
D. Removing Liens....................................... 10-43
E. Use of Joint Checks.................................. 10-46
F. Use of Construction Contract Proceeds...... 10-48
G. Slander of Title........................................ 10-48
H. Releases and Accord and Satisfaction........ 10-50
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10.1 Scope of Chapter
This chapter deals with the liens established under Ark. Code Ann. §§ 18-44-101 through 135. There are other subchapters in Title 18, Chapter 44 dealing with other liens that are not specifically addressed in these materials. The general provisions, however, deal with the type of lien most commonly encountered. This chapter will provide an overview that should help in maneuvering through the various deadlines and obstacles. Where possible, theory will be replaced with practical pointers and basic information. On a final note, this chapter deals with improvements to real property and does not deal with improvements or repairs to boats or vessels of any kind as covered by a recent federal case.1
Initially the chapter will cover who is entitled to a lien and the types of real estate interests that may be subject to a lien. The priority of the lien will be addressed. Later sections address how the lien is perfected and enforced. Defenses and additional protection available to the owner and bonding around the lien will be the final topics covered. One fact that will aid in understanding these statutes is that they have been amended numerous times, which has affected the logical sequence.
10.2 General and Background Information
The topic of construction liens is divided into two broad categories, residential and commercial. The initial notices for commercial and residential are different. Residential construction is defined as improvements related to four or fewer dwelling units. Commercial construction is all other construction, including residential that concerns more than four dwelling units.2 This same distinction was ruled unconstitutional in the past but was reinvented with the passage of the 1995 amendments.3 These liens are creatures of statute, and this chapter will concentrate on the statutes and caselaw that interpret them.
The basic lien statute states:
18-44-101 Liens on buildings, land, or boats.
(a) Every contractor, subcontractor, or material supplier as defined in § 18-44-107 who supplies labor, services, material, fixtures, engines, boilers, or machinery in the construction or repair of an improvement to real estate, or any boat or vessel of any kind, by virtue of a contract with the owner, proprietor, contractor, or subcontractor, or agent thereof, upon complying with the provisions of this subchapter, shall have, to secure payment, a lien upon the improvement and on up to one (1) acre of land upon which the improvement is situated, or to the extent of any number of acres of land upon which work has been done or improvements erected or repaired.
The important thing here is that there is no common law or equitable basis for a lien,4 and only those who comply with the statute will have a lien. For years, the provisions concerning boats or vessels seemed an archaic throw back. However, there has been a recorded decision regarding the lien law and a vessel.5 These statutes, which outline the requirements to be followed by a lien claimant, have been amended often and have been the subject of a great deal of litigation and many reported opinions over the years.
10.3 What Industries, Entities, and People May Claim a Lien?
The first thing that a lien claimant must have is a contract or agreement to perform work that is with the owner or proprietor of real property. The statute does not require an elaborate contract,6 and these contract requirements are apparently more lax than usual.7 However, without a contract with the current property owner, no lien may exist.8
The next item of concern is of course, who is entitled to file a lien in the first instance. The list of persons, entities, and industries with lien rights is, to say the least, illogical. The legislature amended the law in 2009 to make it easier to find the list. The same subchapter provisions were combined and are mentioned here only because cases prior to 2009 were decided under these prior statutes.
A. Contractors, Subcontractors, Suppliers, and Others
The potential claimants are found in Ark. Code Ann. § 18-44-104 concerning contractors, subcontractors, and suppliers that furnish any “soil or drain pipe or tile” and Ark. Code Ann. § 18-44-105, which lists architects, engineers, surveyors, appraisers, landscapers, abstractors, or title insurance agents. The key groups are, in addition to the traditional contractor (sometimes known as the prime contractor or general contractor), subcontractors and suppliers. All lien claimants are required to meet the applicable notice requirements in the statutes.
A lien may be claimed for labor, goods, and services that can be shown to have been delivered and incorporated into an improvement to real property.9 Materials delivered to the job site but not used might not be covered by the lien,10 perhaps because those materials could be returned. The burden is placed on the person claiming the lien to show the actual use of the goods or work.11 In the event that the contractor has purchased the goods for a particular job, but used them on some other job, there is no lien. However, the diversion of any goods would form the basis for a criminal charge defined as a “violation” and subject to a $2,500.00 fine under Ark. Code Ann. § 18-44-109. The claimant would have a right to claim a lien on the other property, assuming all other criteria are met. The opposite problem can and does occur when a supplier applies payments from a contractor collected from one project to debts from other projects, usually when the lien time has run for one project but not for the other. Under the general law of sales, a creditor may credit payments however it wishes when a payment is received from a debtor, without a specific disposition indicated. However, this is not permitted for the purpose of a lien claim, even when the contractor has agreed to this disposition of the monies paid. The only permissible way to credit a payment from one project to a debt from a prior project is with the owner’s permission,12 which an owner is unlikely to give for obvious reasons.
In the past, attempts were made to seek liens by persons that had advanced money that was then used to pay for labor or materials incorporated into a project.13 These attempts were rejected by the courts both for liens and payment bond claims.
B. Contracts Dealing with Improvements to Leased Land
Those supplying labor and services for projects on leased land are also entitled to a lien but with limited rights. Under Ark. Code Ann. § 18-44-103, a limited lien extends to the improvements on the land and the leasehold interest or right to possession. In the event that the leasehold has been lost, then the lien claimant has the right to remove the improvements within 60 days. The owner is then entitled to rental value for the 60-day period, to be paid out of the proceeds of the sale. This might give the lien claimant some negotiating points in dealing with the owner of the improvement; however, this particular provision is not often used. A direct lien against the real property may be obtained if it can be shown that the lessee was an “agent” of the owner for the purpose of the improvement. This can be shown if the claimant can establish that the owner paid for the improvements by allowing a deduction or offset from the rental payments.14
One must take special care in the case of land owned by a governmental entity. It is not uncommon, for example in an industrial park, that businesses will construct facilities on land leased from a city or governmental agency. Under this arrangement no lien will attach to either the property or the leasehold.15
C. Assignees of Lien Rights
Finally, an assignee is another category that may have an interest in a materialmen’s lien. This is an important concept when dealing with...
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