The new Massachusetts retainage law is now in effect

A reminder to all of you with construction projects in progress or planned in the short term.
Note: This article is for your information only. It is not legal advice. This information applies only to projects in Massachusetts. If you have specific questions, please send me a message at Andrew@AndrewLynnLaw.com or call 617-702-4045.

The new Massachusetts law on subcontractor retainage the I wrote about earlier is in effect, as of November 6th. Some of the key points:

Caps on retainage: Total retainage is now capped at 5% of the payment due. There are also specific caps for specific deficiencies, of example 2.5% of the contract value for incomplete document deliverables.

Payment timing: There are new timing requirements. For example, retainage most now be invoiced within 60 days following substantial completion, payable within 30 days of invoice receipt, with an allowance of 7 days per level of subcontract.

Substantial completion timing: The prime contractor must give notice of substantial completion within 14 days of actually achieving the substantial completion milestones.

Punchiest timing: The owner must submit the punchiest to the prime contractor(s) within 14 days of acceptance of substantial completion. The prime must provide the punchiest to its subcontractors within 21 days of acceptance of substantial completion.

Remember that these new requirements are statutory, so update your contracts.

Mechanic's Liens for Architects: A Way to Enforce Payment

Today’s post is on the mechanic’s lien, which is a valuable tool that contractors and material suppliers have relied on for years in forcing payments from delinquent property owners. What is not well known is that in some jurisdictions, including Massachusetts (since a 2010 revision to a state law) architects and other designers may also use mechanic’s liens.

Please contact the author at Andrew@AndrewLynnLaw.com if you have any questions on this subject.

As always, these are just introductions and overviews, not legal advice. If you have specific questions, or need a new contract, talk with a lawyer. I am a Massachusetts attorney and I default to Massachusetts law; some of the information in my blog posts will inevitably be incorrect in other places. Due to the requirements under the various state statutes that set the rules for mechanic’s liens, it is possible to lose the right to file one by failing to take timely actions and missing a deadline, therefore if you believe that you will need to use this process, please consult a lawyer in your state without delay.

What is a Mechanic’s Lien?

A mechanic’s lien is a lien against a property (a building or land) that secures payment for work done on that property. In extreme cases, the party to whom payment is owed may foreclose on the property and force a sale to recover payments.

Traditionally, these liens have been used by contractors against nonpaying owners. However, in Massachusetts a failure of payment is not a prerequisite to a mechanic’s lien filing. Instead, a party that is eligible to file a mechanic’s lien may do so at any time prior to certain deadlines that relate to the dates when the work was performed and the substantial completion date.

How Does This Apply to Architects?

For simplicity, I’m going to refer to the “architect” here, but this applies to whatever design professional has the prime contract with the owner - so an interior designer, engineer, etc., who contracts directly with an owner has similar rights (but check with your lawyer if you are unsure whether this applies to you!)

An architect may unilaterally file a mechanic’s lien when the following requirements are met:

1. The architect and the owner have a written contract for design services. This is one of many reasons why I advise architects to always use written contracts.
2. The architect files a notice (more on that below) before (i) 60 days after substantial completion or (ii) 90 days after the architect or any of the architect’s employees, consultants or other parties under the architect’s direction last performed services on the project - whichever comes first.
3. The architect notifies the owner directly that the lien has been filed.

The notice states that the owner of the property and the architect have entered into a contract for professional services. It must be filed at the local registry of deeds, and must use language similar to that provided in the statute and include the parties to the contract, date of the contract and a description of the work.

Then What?

The lien, on its own, doesn’t do much. Notice that the filing in the registry does not have to include a statement that payments are owed, and may be filed as a matter of formality even before any design services are performed, so long as there is a written contract between the architect and the owner.
If the architect wishes to make the lien enforceable against the owner, the architect must make a second filing at the registry of deeds. This second filing identifies the owner and property, and contains a statement of the amount due and any credits. The deadline to file is (i) 90 days after substantial completion or (ii) 120 days after the architect or any of the architect’s employees, consultants or other parties under the architect’s direction last performed services on the project - whichever comes first.

The second filing is critical, because if the architect does not make this second filing, the lien is automatically dissolved and the architect loses it entirely.

What You Get For All This

If the architect has made all of the appropriate filings and the owner has failed to make payments, the architect may go to court to request a judicial foreclosure on the property. Many architects would consider that a drastic action and would strongly prefer to stay out of court. Even so, the lien gives the architect some strategic or tactical advantages:

1. The fact that the architect has the right to sue is strong leverage against a delinquent owner.
2. If the owner sells the property before the architect is paid, the lien follows the property. The effect of this is that a purchaser of the property is likely to demand that the owner pay the architect as a condition to the sale.
3. If the owner declares bankruptcy, the lien gives the architect a stronger position than that of an ordinary creditor and makes it more likely that the architect will collect payment.

What About Consultants?

Design professionals working as consultants for architects may also file mechanic’s liens, provided that a few conditions are met:

1. The architect (or whichever design professional has the prime contract) must be eligible to file a mechanic’s lien. This means that the architect must have a written contract and the deadlines must not have passed.
2. The owner must have approved the use of the consultant in writing. Your lawyer will need a copy of the architect’s contract with the owner and any other written correspondence relating to consultants to ensure that the architect has the owner’s approval to hire consultants.
3. The consultant must include the contract price or an estimate of the cost of the consultant’s work, as well as payments already received, when filing the lien.
4. The consultant must notify the owner directly that the lien has been filed.

Why are the requirements different for consultants? Consider that the usual relationship of a consultant to a project is that of a subcontractor to the architect. The consultant has no contract with the owner and paying the consultant is not the owner’s responsibility - it’s the architect’s duty to pay the consultants. Requiring a written authorization from the owner to the architect to use consultants means that the owner has fair warning that there may be a consultant with a right to file a lien, which the owner might take into account when negotiating the contract with the architect.

New Massachusetts law limits subcontractor retainage to 5%

Andrew Lynn, Esq.
Massachusetts Attorney

Massachusetts passed a law this month limiting retainage of payments to subcontractors to 5% of the subcontractor’s price.

Retainage is the withholding of a portion of a subcontractor’s payment until completion of the overall project - or even months later - and is common practice even when the subcontractor’s work is finished at an early stage of construction. Currently, a normal operating procedure in the industry is to withhold 10% of the subcontractor’s fee. (In fact, on some projects controlled by federal regulations, 10% is required.) Developers and contractors say that this withholding is necessary leverage in case a problem is found after the subcontractor’s task is complete, and the subcontractor must be called back to repair or finish the work.

So, for example, if the subcontractor is involved in the foundation or steel framing, and finishes the work one year before completion of the project, that subcontractor must wait that year - while plumbers, electricians, finish framers, drywallers, lighting installers, masons, landscapers, etc., etc., finish their tasks, before receiving the final payment. Subcontractors argue that this withholding is unfair, because the subcontractors incur labor and materials costs at the time they perform the work and need those payments if they are to make any income. They also argue that retainage is not necessary, because good relations with contractors and developers are fundamental to their business and the need to keep their clients happy is enough incentive to bring them back to a job site.

The new law takes effect in November. It applies to projects costing $3 million or more, and sets a timetable for subcontractor payments. While the ripple effects have yet to be seen, the halving of retainage will have some effect on the cost of financing, as owners, contractors and developers will have to be in possession of a larger percentage of their funding at an earlier stage. Whether the decrease in retainage will cause a corresponding increase in the number of subcontractors who refuse to return to an old job is yet to be seen.

As always, these are just introductions and overviews, not legal advice. If you have specific questions, or need a new contract, talk with a lawyer. I am a Massachusetts attorney and I default to Massachusetts law; some of the information in my blog posts will inevitably be incorrect in other places.