Mechanic’s Lien Basics

Requirements

Utah law requires that several documents be filed in order for a mechanics’ lien to be created. Each of these filings is to be made with the State Construction Registry, which accepts filings online at https://secure.utah.gov/scr/guide/contractors.html.

Notice of Preconstruction Service.

A person performing preconstruction services must file a notice of preconstruction service within 20 days of commencing providing the services; failure to do so will prevent claim of a valid lien.[1] One notice must be filed for each anticipated improvement and for each original contract under which services are rendered.[2]

Preliminary Notice.

A person providing construction services must file a preliminary notice within 20 days of commencing providing those services.[3] If no preliminary notice is filed, no lien may be created.[4] A late notice may be filed if it is not filed more than 10 days after filing the notice of completion.[5] Only one notice must be filed for each project, unless construction is being performed under multiple contracts; in that case, one notice must be filed for each contract.[6]

Notice of Construction Loan and Notice of Default.

A notice of construction loan must be filed “promptly, in conjunction with the closing of the construction loan,” after the mortgage or trust deed is recorded.[7] A construction lender must file a notice of construction loan default within five business days after a notice of default is filed in the county recorder’s office.[8]

Notice of Intent to Obtain Final Completion.

An owner or original contractor of a nonresidential construction project that is registered with the registry must file a notice of intent to obtain final completion under certain conditions: namely, if the original contract specifies a performance time longer than 120 days, if the total price under the contract exceeds $500,000, and if no payment bond has been obtained.[9] This notice must be filed at least 45 days before final construction is completed or when the notice of completion could have been filed.[10] Anyone providing construction work to the owner or original contractor must then file an amended preliminary notice within 20 days of the filing of the notice of intent.[11] 

Notice of Completion.

Notice of completion should be filed with the registry once a project is completed.[12] An owner, original contractor, lender, surety, or title company involved with the project may file the notice, which must include the name, address, telephone number, and e-mail of the person filing; the county name in which it was filed; the date of completion; and the method used to determine final completion.[13] Additionally, for private projects, the notice must also include the tax parcel ID number of each parcel included, the entry number of a preliminary notice including the tax parcel ID number of each parcel, or the entry of the building permit for the project.[14]

Enforcement and Foreclosure

Notice of Claim.

A notice of claim based on nonpayment for preconstruction services must be filed with the applicable county recorder within 90 days after the services are completed.[15] A copy of this notice must be sent to the owner of the real property within 30 days by certified mail or to the last known address if the owner’s current address is unknown; failure to do so precludes the lienholder from recovering attorney’s fees in any action to enforce the lien.[16] Similarly, a person claiming a construction service lien must file a notice of claim with the county recorder within 90 days after a notice of completion is filed, or, if no notice of completion is filed, within 180 days of completion.[17] Again, notice must be sent by certified mail or to the owner’s last known address within 30 days or the lienholder may not recover attorney’s fees.[18] If a subcontractor performs substantial work after a certificate of occupancy is issued or a required final inspection is completed then that subcontractor must submit a notice of construction lien within 180 days after the subcontractor’s work is finished.[19]

Bringing an Action.

An action to enforce a lien must be filed within 180 days of the filing of a notice of claim unless the owner files for bankruptcy within the 180-day period; in that case, the action must be filed within 90 days after the bankruptcy court’s automatic stay is lifted or expires.[20] The lien is voided if an action is not filed within this time period.[21] A notice of pendency of the action must be filed with the applicable county recorder within the same time period; if this is not filed, the lien becomes void except as to parties to the action and persons with actual knowledge of the action.[22] When serving a complaint on the residence’s owner, the lienholder must include with the complaint a statement of the owner’s rights to avoid a lien; failure to do so will void the lien.[23]

Residence Lien Restriction and Lien Recovery Fund Act.

For a lien to be enforced on a residence, the owner of the residence must be served with (1) instructions under Title 38, Chapter 11, Residence Lien Restriction and Lien Recovery Fund Act (Act) and (2) a form for the owner to list the grounds for enforcement of rights under Title 38, Chapter 11.[24] The court is required to give the owner reasonable time to establish compliance with the Act and obtain a certificate or denial of compliance.[25]

Ability to Waive and Limitations on Lien Rights

1. A lien claimant can only waive rights via a signed express agreement to that effect or via a signed restrictive endorsement on a check.[26] Utah Code Ann. § 38-1a-802 contains waiver forms.[27] Unless this section is followed, a “right or privilege under this chapter may not be waived or limited by contract,” and any contractual provision that purports to do so is void.[28]
2. In Utah, mechanics’ liens may not be obtained on certain types of construction. In addition, a mechanics’ lien may not be obtained against an owner-occupied residence if the owner meets the conditions of § 38-11-204(4)(a) and (b), or the owner has subsequently sold the property.[29] Similarly, a subcontractor may not place a lien on an owner-occupied residence if the general contract under which the subcontractor was working was for $5,000 or less.[30] Owners must be informed of these rights via written contract with the original contractor or real estate developer.[31]

If a subcontractor has already begun to perform services that could give rise to a lien, the subcontractor’s lien is not affected by a payment from the owner to the general contractor.[32] Raw materials furnished for use in construction and about to be applied to that construction cannot be attached or executed to satisfy a debt unless the debt was for the purchase money of those materials.[33]

PUBLIC PROJECT CLAIMS

First, government projects are governed by § 38-1b-102, and not by the general Preconstruction and Construction Liens rules.[34] As such, government projects require a special set of additional filings.

State and Local Public Work

Notices and Enforcement.

If the construction work at issue is being done at a government construction site, a notice of commencement must be filed within 15 days of the commencement of construction.[35] This notice applies only to goods and services provided after it is filed.[36]

A subcontractor on a government project must then file a preliminary notice within either 20 days of commencing work or 20 days of the filing of a notice of commencement, whichever is later.[37] Late filings take effect five days after they are filed and apply only to work done after they take effect; failure to file on time precludes any claim for compensation for work done before the effect date.[38] The preliminary notice requirements described above, supra section I.A.2., apply to government projects also.[39]

Government contracts require a notice of completion as well.[40] This notice must contain the name, address, telephone number, and e-mail of the person filing; the county name in which it was filed; the government project-identifying information; the date of completion; and the method used to determine final completion.[41]

Claims to Public Funds

The Residence Lien Restriction and Lien Recovery Fund Act allows unpaid subcontractors to make a claim against the Lien Recovery Fund for their owed payment, while protecting homeowners from double payment. While providing relief for unpaid subcontractors, the Act does not hold the state liable for claims against the fund.[42]

Notices and Enforcement.

To have a claim against the fund, a qualified beneficiary must file an action against the nonpaying party within either 180 days from filing the notice of claim or 270 days from the contact’s completion, whichever is earlier.[43] Additionally, the qualified beneficiary must have obtained a judgment against the contractor who failed to pay the beneficiary (including an order requiring them to pay) and, through reasonable efforts (including an attempt to serve the order), was still not able to secure payment.[44] If the nonpaying party is engaged in bankruptcy proceedings, the qualified beneficiary must also have timely filed a proof of claim.[45]

STATUES OF LIMITATION AND REPOSE

Where an action is based on improvements to real property, Utah law allows parties to lengthen or shorten the statutory limitations period via contract.[46] In addition, none of the provisions discussed below applies to an action for the death of or bodily injury to an individual while working on a project,[47] nor to an action against an owner, tenant, or other person in control at the time of the defective or unsafe condition.[48]

Statutes of Limitation and Limitations on Application of Statutes.

Actions based in contract or warranty must be commenced within six years of the date of completion.[49] However, in these cases a different time limit may be selected by the parties via express contract or warranty.[50] All other actions must be brought within two years of the date that the cause of action was or should have been discovered, unless the cause of action was discovered prior to completion, in which case the action must be brought within two years of completion or abandonment.[51] A person unable to bring an action during the limitations period due to minority or incompetency may bring an action within two years of the date that disability is removed.[52]

Statutes of Repose and Limitations on Application of Statutes.

Generally, no action may be brought more than nine years after a project’s completion.[53] However, if the cause of action is discovered or should reasonably be discovered within the eighth or ninth year of the nine-year period, the person possessing the cause of action has two years from the date of discovery to bring the action.[54] In addition, the nine-year limit does not apply where the provider has engaged in fraudulent, willful, or intentional wrongdoing.[55] Finally, as with the statute of limitations, the statute of repose makes a two-year exception for persons unable to bring an action during the applicable time period due to minority or incompetency.[56]

PRE-SUIT NOTICE OF CLAIM AND OPPORTUNITY TO CURE

Unless parties agree otherwise through contract, there is no pre-suit notice requirement specific to Utah construction law. For example, a homeowner is not required to give a vendor pre-suit notification or an opportunity to cure in any action, including actions for breach of warranty, unless the homeowner has contracted to do so. Of course, the Uniform Commercial Code, which Utah has adopted, requires that an opportunity to cure be given where goods are concerned.[57] However, this requirement does not apply to services such as the construction itself. The UCC has limited application in the construction arena—for example, where raw materials to be used in construction are being purchased or sold.[58]

A general pre-suit notice of claim requirement does exist where a vendor wishes to sue a governmental entity.[59] In such cases, notice of claim must be filed within one year of the event giving rise to the claim.[60]

INSURANCE COVERAGE AND ALLOCATION ISSUES 

General Coverage Issues.

The policy most usually applicable in the construction context is a standard commercial general liability (CGL) policy. A duty to defend under a CGL policy arises “when the insurer ascertains facts giving rise to potential liability under the insurance policy.”[61]

Trigger of Coverage.

Under Utah law, an “occurrence” triggering coverage under a CGL policy happens when “the occurrence causing the injury or death is not a natural and probable result of the victim’s own acts.”[62] Utah courts have interpreted this rule to hold that a breach of warranty is not an “occurrence” and is not covered by a CGL policy.[63] Similarly, negligent misrepresentations made by a developer or contractor do not give rise to coverage.[64] In addition, Utah’s federal district court has held that Utah law precludes coverage under a CGL policy for claims arising out of an insured’s negligent construction.[65] However, Utah’s federal district court has also held that faulty work by a subcontractor constitutes an “occurrence” under a CGL policy from the standpoint of an insured general contractor.[66]

Allocation Among Insurers.

Where a continuing injury is alleged, Utah uses a modified “time on the risk” method to determine allocation between multiple CGL insurers. Allocation is determined by multiplying the affected policy limits by the years of coverage, taking into account periods during which the insured was uninsured or self-insured.[67] When two insurers are involved, defense costs are apportioned by the modified time on the risk method and not based on “other insurance” clauses.[68]

CONTRACTUAL INDEMNIFICATION 

Under Utah law, contractual indemnification agreements in construction contracts which force a person (such as a subcontractor) to indemnify another (such as a general contractor) for the other’s own negligence are void and unenforceable if the damages arise out of bodily injury, damage to property, or economic loss.[69] If an indemnification provision was contracted for between an owner and a vendor, the fault of the owner will be apportioned among all the vendors involved in the construction if the damages were caused in part by the owner and the damage did not occur while the owner was acting in the capacity of a vendor.[70]

Utah courts have held that a contractual requirement that a vendor (such as a subcontractor) procure liability insurance and name another (such as a general contractor) as an additional insured is lawful and enforceable so long as the contract does not require the vendor to personally insure or indemnify the other for liability arising out of the other’s own negligence.[71]

CONTINGENT PAYMENT AGREEMENTS

Utah law provides that “[a] party to a construction contract shall make all scheduled payments under the terms of the construction contract.”[72] However, this provision does not prevent the creation of a contingent payment contract, since “scheduled payments” under such contracts may be structured on a contingent basis.

Enforceability.

Utah law treats contingent payment contracts differently based on the type of construction being undertaken. Generally, a contingent payment contract is not a defense to enforcement of a mechanics’ lien.[73] However, an exception is made for private residential construction work where the property at issue has four units or fewer.[74]

Requirements.

A subcontractor entering into a contingent payment contract has the right to request and receive from the contractor any financial information the contractor has been given regarding the project’s financing or the party paying the contractor.[75] This information, if requested, must be given to the subcontractor prior to the time the construction contract is signed.[76]

SCOPE OF DAMAGE RECOVERY

Personal Injury Damages vs. Construction Defect Damages.

Damages in tort are measured by the amount necessary to “place the plaintiff in the same position he would have occupied had the tort not been committed.”[77] Damages for breach of a construction contract, on the other hand, are determined by either “the reasonable cost of construction and completion in accordance with the contract” or, if completion of the contract would be wasteful, the diminution in value of the property.[78]

Attorney’s Fees Shifting and Limitations on Recovery

Awards of Attorney’s Fees.

Under Utah law, “attorney fees are awardable only if authorized by statute or by contract.”[79] In all cases, attorney’s fees may be awarded if the action or defense at issue “was without merit and not brought or asserted in good faith.”[80] In addition, numerous Utah statutes provide for awards of attorney’s fees in the construction context. For example, a contractor who fails to pay his subcontractors and suppliers within 30 days of being paid himself must pay “reasonable costs of any collection and attorney’s fees.”[81] Similarly, attorney’s fees are awarded to the successful party in any dispute over withholding of retention proceeds,[82] or a dispute over whether adequate funds exist to ensure the completion of a project.[83] Likewise, actions made upon payment bonds,[84] or based on the failure to obtain a payment bond,[85] may give rise to awards of attorney fees. Subcontractors are automatically awarded their costs and attorney’s fees relating to the preparation of a notice of claim.[86]

A successful party in an action to enforce a lien is entitled to attorney’s fees unless the lien was wrongful.[87] However, a party defending an action to enforce a lien may alter the application of this rule by making an offer of judgment pursuant to Rule 68 of the Utah Rules of Civil Procedure. If an offer is made and rejected, and the subsequent judgment obtained is less than the offer made, the party enforcing the lien must pay any attorney’s fees and costs incurred after the offer was made.[88]

A condemnee who prevails on a motion to set aside a condemnation is entitled to attorney’s fees if the condemnor is found not to have commenced or completed construction within a time specified by the court.[89] Attorney’s fees are also awarded in any enforcement action regarding violation of the Utah Construction Trades Licensing Act.[90]

Limitations on Fee Awards.

A lien claimant who has filed a mechanics’ lien or a foreclosure proceeding can avoid being required to pay the other party’s attorney’s fees if the claimant removes the lien within 15 days of the issuance of a certificate of compliance on behalf of the property owner.[91] In a foreclosure proceeding, a plaintiff’s attorney’s fee must be “fixed by the court” and must be limited to “the sum which shall appear by the evidence to be actually charged by and to be paid to the attorney for the plaintiff.”[92] The fee must also be limited to “the amount to be retained by the attorney or attorneys” if there is some sort of contingent or other agreement between the attorney and the plaintiff or another party to divide fees.[93] If a judgment results in a payment from the Residence Lien Recovery Fund, the amount of attorney’s fees paid may not exceed 15% of qualified services.[94]

Consequential Damages.

Consequential damages are available in breach of contract cases.[95] “To recover consequential damages, a nonbreaching party must prove (1) that consequential damages were caused by the contract breach; (2) that consequential damages ought to be allowed because they were foreseeable at the time the parties contracted; and (3) the amount of consequential damages within a reasonable certainty.”[96] “[T]he foreseeability of any such damages will always hinge upon the nature and language of the contract and the reasonable expectations of the parties.”[97]

Delay and Disruption Damages.

Damages for delay and disruption are generally recoverable,[98] although Utah courts have held that contractual provisions barring the pursuit of delay damages are enforceable.[99] However, even if there is a “no damages” provision in the contract, a party may recover delay damages if the other party’s “interference is direct, active, or willful . . . .”[100]

Economic Loss Doctrine.

The economic loss rule prevents plaintiffs from claiming economic damages in negligence actions unless there was physical property damage or bodily injury.[101] Examples of economic damages include “[d]amages for inadequate value, costs of repair and replacement, or consequent loss of profits . . . .”[102] However, the economic loss rule does not apply to claims that arise out of “a duty [that] exists independent of any contractual obligations between the parties.”[103]

Interest.

“Prejudgment interest may be awarded in a case where the loss is fixed as of a particular time and the amount of the loss can be calculated with mathematical accuracy.”[104] In personal injury cases, prejudgment interest is calculated from the date of the actual act giving rise to the cause of action.[105] In contract cases, prejudgment interest is calculated from the date of the breach.[106]

Punitive Damages.

“Punitive damages may be awarded only if compensatory or general damages are awarded and it is established by clear and convincing evidence that the acts or omissions of the tortfeasor are the result of willful and malicious or intentionally fraudulent conduct, or conduct that manifests a knowing and reckless indifference toward, and a disregard of, the rights of others.”[107]

Liquidated Damages.

Generally, Utah law allows for liquidated damages. Damages can be liquidated in cases ranging from small claims cases,[108] to government contracts for procurement,[109] to general breach of contract cases.[110] Liquidated damages must be set “at an amount or under a formula that is reasonable in light of the actual or anticipated harm caused by the breach or repudiation.”[111] The Uniform Commercial Code, which has been adopted by Utah, also allows liquidation of damages with the same requirement of being reasonable in light of the harm, but also considers “the difficulties of proof of loss, and the inconvenience or nonfeasibility of otherwise obtaining an adequate remedy.”[112]