SC Lawyer, January 2009, #4. Should I Let Him Come Back? The Effect of Warranty and Repair Work on Mechanic's Lien Rights.

• Author: By Joshua D. Spencer

South Carolina Lawyer

2009.

SC Lawyer, January 2009, #4.

Should I Let Him Come Back? The Effect of Warranty and Repair Work on Mechanic's Lien Rights

South Carolina LawyerJanuary 2009Should I Let Him Come Back? The Effect of Warranty and Repair Work on Mechanic's Lien RightsBy Joshua D. SpencerJane Smith(fn1) purchases an abandoned single family home at a foreclosure sale and contracts with Ready Renovators(fn2) to restore the home. Being the savvy businesswoman that she is, Smith negotiates a one-year warranty on all workmanship in the contract. Ready Renovators completes all work in apparent accordance with the contract.

After the renovation is complete, Ready Renovators gives Smith a final bill, cleans up the worksite and vacates the premises. In order to preserve its mechanic's lien under S.C. Code Ann. § 29-5-90, Ready Renovators must serve and file its mechanic's lien within 90 days after the completion of the work. However, in this case, Ready Renovators fails to do so after Smith promises payment and urges Ready Renovators not to serve and file a mechanic's lien.

Smith is relieved because she is short on cash and her ability to make future payments to Ready Renovators is questionable. Smith now believes Ready Renovators is time-barred from filing its mechanic's lien. Fast-forward five months when Smith notices water stains on her ceiling. An inspection of the roof reveals Ready Renovators failed to properly install the flashing. Under the terms of the contract, Ready Renovators is required to return to Smith's home and provide the labor and materials necessary to repair the flashing. Despite not being paid, Ready Renovators returns to the house to make the repairs, hoping its return will encourage Smith to fully pay the balance she owes Ready Renovators.

Smith is pleased she will not be required to pay a hefty roof repair bill because the repair work is covered under the warranty provided for in the contract with Ready Renovators. What Smith does not know is that by allowing Ready Renovators to return to her home and perform the repairs, Ready Renovators' time period to serve and file the mechanic's lien has just been extended. A new time clock will start ticking which will give Ready Renovators 90 days from the last date of the roof repair work to serve and file its mechanic's lien. This extension of time will apply to all work performed by Ready Renovators at Smith's home, not just the repair work.

This time around, after one too many broken promises of payment from Smith, Ready Renovators serves and files its mechanic's lien within 90 days of the last date of the repair work-preserving its right to foreclose on the lien if it later becomes necessary. To the dismay of Smith, the South Carolina courts will likely consider this lien timely served and filed even though Ready Renovators initially failed to serve and file its first potential lien within ninety (90) days of the last date of work.

A creature of statute

Mechanic's liens are created automatically by statute in South Carolina. S.C. Code Ann. § 29-5-10 (2007). Any contractor, subcontractor or supplier automatically has a lien on any structure where work is performed or material is provided that is incorporated into the structure. S.C. Code Ann. § 29-5-20 (2007). Specifically, S.C. Code Ann. § 29-5-10 (2007) provides protection to anyone who performs labor or furnishes materials "in the erection, alteration, or repair of a building or structure upon real estate à [granting] a lien upon the building or structure and upon the interest of the owner of the building or structure in the lot of land on which the structure is located to secure payment due à for labor performed or materials furnished." S.C. Code Ann. § 29-5-10 (2007). However, it is imperative that the work performed be connected with the erection, alteration or repair of a building or structure in order to garner full protection from the law. If work is performed and a court determines that the work was not connected to the erection, alteration or repair of a building or structure, the work is not "lienable" under South Carolina mechanic's lien law and a contractor may not seek to enforce the lien. For purposes of this article, the term "contractor" is used throughout. The statute, however, automatically extends the right to file mechanic's liens to contractors, subcontractors or materialmen (i.e., suppliers). In the recent case of Skiba v. Gessner, 374 S.C. 208, 648 S.E.2d 605 (2007), the lien of a contractor that performed clearing work to prepare the property for landscaping was held invalid because the clearing work did not constitute the erection, alteration or repair of a building or structure. The court held "a mechanic's lien cannot attach to land or to an owner's interest in land where the work done is unconnected with and forms no integral part of the erection, alteration, or repair of either a building or a structure of some description." Skiba at 212, 607.

Contractors who provide labor or materials to real property have the right to foreclose on a mechanic's lien as long as the lien has been properly served and filed. S.C. Code Ann. §§ 29-5-10, 90 (2007). The foreclosure action must commence after the property owner, or the owner's contractor, fails to pay for the services and materials provided by the contractor for the benefit of the property owner. S.C. Code Ann. § 29-5-90 (2007). The South Carolina statute rests on equitable principles and seeks to ensure that property owners are not unjustly enriched at the expense of contractors.

Perfection equals protection

To be fully protected under the South Carolina mechanic's lien statutes, contractors must "perfect" their liens. Amongst other procedural hurdles, the first step in perfection requires the contractor to file a mechanic's lien in the county where the work was performed within 90 days of the completion of the work. S.C. Code Ann. § 29-5-90 (2007). The contractor must serve the owner with a copy of the lien and must file with the register of deeds or the clerk of the court in the county where the building is situated a statement accounting for the amount owed to the contactor. Id. The real property affected must be adequately described to facilitate easy identification of the lien, and the name of the property owner must appear. Id.

When a contractor properly perfects and later discovers that he must sue to enforce the lien by foreclosure, suit must be brought within six months after the last day labor has been furnished and the materials have been provided, or within six months of the filing of the mechanic's lien, whichever is earlier. S.C. Code Ann. § 29-5-120 (2007), Preferred Sav. & Loan v. Royal Garden Resort, Inc., 301 S.C. 1, 4-5 389 S.E.2d 853, 855 (1990) (holding "the six month limitations period for enforcing the lien necessarily commences no later than the date the certificate of lien is filed."). Failure to file suit within six months negates the effect of the lien and the suit may be subject to dismissal. Id., see also, S.C. Code Ann. § 29-5-40 (2007), and Lowndes Hill Realty Co. v. Greenville Concrete Co., 229 S.C. 619, 93 S.E.2d 855 (1956). It should also be noted that if the amount of the lien does not exceed $100, the lien may be enforced by petition to a magistrate. S.C. Code Ann. § 29-5-130 (2007).

Because all enforcement actions relate back to the contractor properly filing the lien within 90 days of the completion the work or providing materials, the question arises: Can mechanic's liens rights be revived once the 90 days expires?

Resetting the clock

In 1959, the Supreme Court of South Carolina addressed the effect of repair work on mechanic's lien rights in Wood v. Hardy. See Wood v. Hardy, 235 S.C. 131, 135-136, 110 S.E.2d 157, 159-61 (1959). In that case, a contractor abandoned the work after only partially completing the job. Id. at 134, 110 S.E.2d at 158. An unpaid supplier to the absconding contractor agreed to furnish the remainder of the materials required to finish the work; the owner and supplier also agreed to complete the house together. Id. at 134-35, 110 S.E.2d at 158. Thereafter, the owner began occupying the property. Id. at 134-35, 110 S.E.2d at 158-59. The owner then complained to the supplier about an incomplete drain line in the kitchen and the supplier returned to perform approximately $4 worth of repairs on the drain line. Id. at 135, 110 S.E.2d at 159. The supplier then served and filed a mechanic's lien within 90 days of the repair work, but not within 90 days of any other work on the project. Id. at 135-36, 110 S.E.2d at 159.

The owner argued the supplier's provision of the minor repair work to the drain line was so "trivial and inconsequential" that it could not keep the supplier's mechanic's lien alive. Wood v. Hardy at 136, 110 S.E.2d at 159. The court sided with the supplier, finding an extension of mechanic's lien rights when a contractor in good faith performs work or supplies additional materials necessary for the proper performance of the contract either at the request of the owner or in order to fully complete the contract. Wood v. Hardy at 136, 110 S.E.2d at 159. Thus, in Wood v. Hardy, a South Carolina court first recognized the ability of repair work to reset the time clock for the perfection of mechanic's lien rights.

In Crystal Pools v. Old Claussen's Bakery Partners, the Court of Appeals of South Carolina extended the Wood v. Hardy court's reasoning on repair work to warranty work. Crystal Pools, Inc. v. Old Claussen's Bakery Partners, 303 S.C. 68, 69-70, 399 S.E.2d 5, 6 (Ct. App. 1990), cert. denied. In Crystal Pools, a carpeting subcontractor that completed the installation of carpet and then returned to re-stretch the carpet at no charge five months later was found to have supplied "labor or materials" under the mechanic's lien statutes. Id. at 70, 399 S.E.2d at 6. The carpet installer's lien was held to valid even though "[c]ounting from the date the carpet was installed, [the subcontractor] filed its mechanic's lien and commenced suit beyond the time provided by statute." Id. at 69-70, 399 S.E.2d at 5-6. The court importantly noted that "the additional warranty work à was necessary to complete performance under the contract." Id. at 70, 399 S.E.2d at 6.

More recently in Butler Constr., Inc. v. Court St., LLC, 369 S.C. 121, 130-131, 631 S.E.2d 252, 257 (2006), a contractor failed to pay one of its subcontractors in full based upon the contractor's allegations that the subcontractor failed to perform certain work required on the project. See Court Street at 125, 631 S.E.2d at 254. Nonetheless, the subcontractor later delivered some tiles to replace water-damaged ones. Id. at 126, 631 S.E.2d at 255. The subcontractor then served and filed a mechanic's lien. Id. While the lien was served and filed within 90 days of the provision of the replacement ceiling tiles, the owner alleged it was not served and filed within 90 days of the completion of the majority of the work. Id. at 128, 631 S.E.2d at 256.

Arguing that the subcontractor's lien was not timely served and filed, the owner argued the subcontractor's "`unilateral, unsolicited delivery'" of the ceiling tiles "did not revive [the] [s]ubcontractor's expired right to file a mechanic's lien." Id. The owner further alleged that the ceiling tiles were provided "merely as a gratuity or an act of friendly accommodation," representing nothing more than a "contrived effort to revive lien rights." Id.

Siding with the subcontractor, the court cited with approval the Wood v. Hardy and Crystal Pools cases. Court Street at 128-31, 631 S.E.2d at 256-57. The court held the contractor requested that subcontractor provide the ceiling tiles and that providing the ceiling tiles constituted the furnishing of additional materials required for proper performance of the contract. Id. at 132, 631 S.E.2d at 258. Even though the court recognized the provision of the ceiling tiles was not "explicitly required by the contract . . . the parties implicitly considered the provision of such materials necessary to comply with the contract and fulfill the duty of good faith and fair dealing which is an implied term of every contract." Id.

The holding of the Court Street case is our Supreme Court's most recent affirmation that warranty and repair work count when calculating timelines for mechanic's lien rights. Certainly, however, Court Street gives ample ammunition for an owner to defeat an attempt by a contractor to revive mechanic's lien rights if the provision of purported warranty or repair work is provided in bad faith or merely for the purpose of resurrecting expired mechanic's lien rights.

A trap for the unwary

Property owners, prospective purchasers and title searchers must be aware that regardless of the monetary value of the services or materials provided by a contractor, if the terms of a contract obligate a contractor to return and make repairs, the property owner may be subjected to a revolving 90-day period in which a contractor may serve and file a mechanic's lien. This wariness is particularly applicable to property owners who seek to have warranty or repair work performed. Because South Carolina courts have held warranty and repair work "constitutes the furnishing of labor and materials" under Sections 29-5-90 and 29-5-120, property owners should be acutely aware that by allowing the contractor back to make minor repairs or deliver additional materials, even if seemingly insignificant, the contractor is afforded another 90 days on the mechanic's lien clock. This reset time clock gives the contractor the opportunity to serve and file a mechanic's lien within 90 days-even if the contractor previously failed to do so.

The resetting of the clock also affords relief to a contractor who previously served and filed a mechanic's lien, but did not file suit within six months from completion of the work. In such a scenario, the contractor has the opportunity to restart both the 90 days and six-month clocks commencing on the last date of the additional warranty or repair work. See Crystal Pools, Inc. v. Old Claussen's Bakery Partners, 303 S.C. 68, 69-70, 399 S.E.2d 5, 6 (S.C. App. 1990), cert. denied.

The South Carolina courts' view of the effect of warranty and repair work on mechanic's lien rights should be noted by more than just the parties to a contract. While the mechanic's lien statutes are set up to give rights to contractors in order to help ensure their payment, these rights are limited by strict time limitations often regarded as traps for the unwary. These strict time limitations may be seen as a balancing act between the rights of a contractor to payment and the rights of third parties to rely upon the land records to ensure they are purchasing property free and clear of liens, or potential liens.

Allowing warranty or repair work to reset the statutory 90-day and six-month mechanic's lien time clocks is clearly a nod toward the protection of contractors, arguably to the detriment of third parties considering purchase. As such, consider a purchaser who buys a home with a transferable warranty. If that purchaser then requests that warranty work be performed, she may open herself up to a mechanic's lien claim for the entire amount owed that contractor by a previous owner for work on the property served and filed well after the expiration of the original mechanic's lien time clocks.

Though the thought of a mechanic's lien for warranty or repair work coming out of the blue may seem somewhat dire and unfair to a bona fide, good faith purchaser, avenues of protection exist-obtain lien waivers at closing from the owner for all contractors and subcontractors and an affidavit from the owner that no work has been performed that could give rise to a mechanic's lien. A lien waiver is defined as "[a] written and signed waiver of a subcontractor's mechanic's lien rights à" Black's Law Dictionary, 1612 (8th ed. 2004). Though there is always a chance all such contractors may not be disclosed by the original owner or general contractor, obtaining lien waivers would go a long way toward gaining peace of mind for the purchaser. The purchaser must ensure, however, that the lien waivers are final and complete and not just interim lien waivers. Even then, a contractor may have an argument that if it returns to do warranty or repair work after execution of the lien waiver, it is entitled to serve and file a lien for that warranty and repair work. A properly drafted lien waiver, however, could likely limit the amount of such a lien to the value of the warranty work itself. The purchaser must be diligent to ensure no such work is being performed or else the risk of resetting the mechanic's lien time clocks may arise.

The mechanic's lien statutes represent a delicate balance between the rights of owners, contractors and third parties relying upon the public records. South Carolina courts have sided with the contractors on the effect of warranty and repair work by allowing such work to reset the time periods in which to serve and file a mechanic's lien and a lawsuit to foreclose that lien. Though this should be of some concern to owners, purchasers and others relying upon the public records, methods of protection exist for the wary.

Joshua D. Spencer is an attorney with the Greenville office of Haynsworth Sinkler Boyd, PA, where he practices construction and commercial litigation. The author would like to thank Marybeth Parrilla for her capable assistance in the research and drafting of this article.

_____________________ Footnotes:1. Jane Smith is a fictitious person used solely for the purpose of this article.

2. Ready Renovators is a fictitious company used solely for the purpose of this article and does not represent an actual entity.