In Massachusetts, mechanic’s liens play a crucial role in commercial real estate transactions. For lenders, property owners, and agents, understanding the basics of mechanic’s liens and their potential impact on a transaction is essential to ensuring a smooth property transfer. In this article, we’ll cover the mechanics of a mechanic’s lien, relevant Massachusetts statutes, and best practices for handling these liens in commercial real estate.
What is a Mechanic’s Lien?
A mechanic’s lien is a legal claim against a property that ensures payment to contractors, subcontractors, or suppliers who have provided labor or materials for property improvements. In Massachusetts, mechanic’s liens can arise from work on both private and public property, with a specific statutory framework governing their creation and enforcement.
Mechanic’s liens are governed by Massachusetts General Laws Chapter 254. This law outlines the procedures and requirements for filing, enforcing, and discharging mechanic’s liens on both residential and commercial properties. In a commercial setting, these liens can create significant obstacles for property owners, lenders, and buyers by clouding the title until resolved.
Why Mechanic’s Liens Matter in Commercial Transactions
Mechanic’s liens are particularly significant in commercial transactions due to the size and scale of these projects. A mechanic’s lien attaches to the property itself, meaning that any unresolved liens can complicate or prevent the sale or refinancing of the property. For lenders, this can be problematic, as it potentially jeopardizes their position as a primary lienholder.
If a lien is not cleared before closing, lenders may be at risk of having their mortgage lien subordinated to a mechanic’s lien. For property owners and agents, resolving these liens early in the transaction process is key to avoiding costly delays and protecting the title.
Key Statutory Requirements for Mechanic’s Liens in Massachusetts
To establish a mechanic’s lien in Massachusetts, claimants must strictly adhere to the provisions of M.G.L. c. 254. Here’s a quick breakdown of the process:
- Notice of Contract: Under M.G.L. c. 254, § 2, a contractor or subcontractor must file a Notice of Contract with the Registry of Deeds within 90 days of the last date they performed work or supplied materials.
- Statement of Account: According to M.G.L. c. 254, § 8, a Statement of Account detailing the amount due must be filed within the same 90-day period. This statement specifies the unpaid amount that is claimed as part of the lien.
- Enforcing the Lien: To enforce a lien, the claimant must file a lawsuit within 90 days after recording the Statement of Account. This is specified under M.G.L. c. 254, § 5. Failure to file this lawsuit within the statutory timeframe results in the lien being dissolved.
- Lien Waivers: In commercial transactions, it’s common for lenders to require lien waivers from contractors before disbursing funds. These waivers, under M.G.L. c. 254, § 14, help ensure that contractors will not pursue a lien claim after receiving payment.
By following these steps, contractors can establish a mechanic’s lien on a commercial property, which can then remain in place until the claim is satisfied or legally resolved.
Steps for Agents, Lenders, and Property Owners to Manage Mechanic’s Liens
Mechanic’s liens can add significant risk to a transaction, but there are steps that agents, lenders, and property owners can take to mitigate this risk.
- Conduct a Title Search Early: Performing a title search at the beginning of the transaction can help identify any existing mechanic’s liens on the property. This search provides critical information on outstanding claims that could affect the property’s title.
- Use Lien Waivers: As outlined in M.G.L. c. 254, § 14, lien waivers are essential in Massachusetts commercial real estate transactions. They allow property owners and lenders to secure protection against future lien claims once payment is made. Lien waivers should be obtained for each payment to ensure that contractors and subcontractors have been compensated in full.
- Addressing Liens Before Closing: If a mechanic’s lien is discovered, it’s crucial to resolve it before closing. Often, the contractor can be paid from the closing proceeds, or a settlement can be negotiated to release the lien.
- Verify Contractor Payments: For agents representing sellers, it can be helpful to confirm that all contractors involved in property improvements have been paid. If any payments are outstanding, flagging this early can prevent complications down the line.
Why Mechanic’s Liens Are Critical for Lenders
Mechanic’s liens have significant implications for lenders involved in financing Massachusetts commercial properties. If a mechanic’s lien is filed and not cleared, it can take priority over other liens, including a mortgage. According to M.G.L. c. 254, § 5, mechanic’s liens in Massachusetts have a unique “relation-back” feature, meaning they may take priority as of the date when work started, rather than the date the lien was filed. This provision underscores the importance for lenders to ensure that all potential mechanic’s liens are addressed before closing.
Lenders should also encourage the use of lien waivers and require a title search to verify that the property title is free of any mechanic’s liens.
Conclusion
In Massachusetts commercial real estate transactions, mechanic’s liens are an essential consideration. Governed by M.G.L. c. 254, these liens protect contractors’ rights to payment but can introduce complex challenges in property sales and financing. For agents, property owners, and lenders, proactive management of mechanic’s liens—through early title searches, lien waivers, and thorough payment verification—can help avoid delays and secure a smooth transaction.
Understanding and addressing mechanic’s liens in advance ensures that all parties are protected and that the transaction proceeds smoothly. By keeping these best practices in mind, Massachusetts real estate professionals can navigate the complexities of mechanic’s liens with confidence and minimize potential risks.
