Iowa Supreme Court Ruling Benefits Subcontractors
Posted on 06/17/2022 at 12:51 PM by William Reasoner
On June 17, 2022, the Iowa Supreme Court resolved an ambiguity in the mechanic’s lien statute which greatly benefits subcontractors.
As we have shared in prior blog posts, the law is clear that both general contractors and subcontractors must post timely notices to the MNLR website to secure mechanics’ liens on residential properties. But, now, there is much more leeway given to subcontractors.
A general contractor is required to post a commencement of work notice within ten days of starting work if it has or will hire subcontractors. According to § 572.13A, if the general contractor misses this deadline, it loses a right to obtain a lien. For a subcontractor to get a lien, it must post a preliminary notice. But, before a preliminary notice can be posted, there has to be a commencement of work notice on file.
So, what does a subcontractor do when it needs to post a preliminary notice if the general contractor has missed its deadline to post a commencement of work notice? Under § 572.13A(2), the subcontractor can post a commencement of work notice if the general contractor failed to do so within ten days of starting work.
The next question is what timeframe applies to the subcontractor’s deadline to post the commencement of work notice? § 572.13A(2) states:
If a general contractor or owner-builder fails to post the required notice of commencement of work to the mechanics’ notice and lien registry internet site pursuant to subsection 1, within ten days of commencement of the work on the property, a subcontractor may post the notice in conjunction with the posting of the required preliminary notice pursuant to section 572.13B.
So when does the subcontractor have to post the commencement of work notice? Until now, it was as clear as mud.
Until the Supreme Court filed its June 17, 2022 opinion in Borst Brothers Construction, Inc. v. Finance of America Commercial, LLC, __ N.W.2d ___, No. 20-0972 (Iowa 2022), I admittedly believed the subcontractor was required to post the commencement of work notice within ten days that the subcontractor started its work on the property. I was not alone in that belief: three of the seven Supreme Court justices agreed with me.
But, the majority of the Court disagreed. The Supreme Court ruled that the ten day requirement for posting the commencement of work notice applies only to general contractors. A subcontractor can post the commencement of work notice at any time after it starts work (but must still post in time after finishing work according to the other timelines for obtaining a lien).
The law is now clear and ambiguity is resolved. A subcontractor is no longer under a ten-day time limit to post a commencement of work notice. But, a smart subcontractor still must act quickly because there is no change in the law that the amount of a lien a subcontractor can obtain is based on the amounts due under the prime construction contract at the time of the posting of the preliminary notice which may only come after the posting of a commencement of work notice.
Subcontractors now have more wiggle-room to secure payment under the mechanic’s lien system in Iowa. But, this not a reason for subcontractors to delay exercising its rights. The subcontractor which acts quickly, properly files notices sooner rather than later, and which does not delay in seeking payment or rights to secure payment will almost always be better off.
Will Reasoner is an Attorney at Dickinson Law. In his practice, he represents individuals and business clients in a variety of commercial, corporate governance, construction disputes, and municipal and private land use disputes. For more information on his practice, click here.
Categories: Construction Law, William Reasoner
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