“Payment Defense” to Washington DC Mechanic’s Lien Claims
By Nicholas Cowie, Esq. – Washington, D.C. Mechanic’s Lien Attorney
This article discusses the so-called mechanics’ lien “payment defense” and the circumstances under which the defense can defeat a Washington DC mechanic’s lien claims asserted by an unpaid subcontractor.
Background: The Mechanic’s Lien “Payment Defense” in Washington DC
Property owners engaged in construction projects (“owners”) are subject to Washington DC mechanic’s lien claims whenever the owner’s general contractor fails to pay its subcontractors or material suppliers (“subcontractors”). Unpaid subcontractors, barring a valid defense, have a right to enforce a lien on the owner’s property where the construction project is located. See, Washington DC Mechanic’s Lien Claims – by Cowie Law Group, a Washington, D.C. mechanic’s lien attorney law firm. The subcontractor’s lien can be used to force a sale of the owner’s real property as a source of funds to satisfy the amount the general contractor owes the subcontractor. All private construction projects are potentially subject to Washington DC mechanic’s lien claims.
However, before a subcontractor can enforce a Washington DC mechanic’s lien claims it must first provide the owner with written notice of its intent to enforce a mechanic’s lien claim. This notice must include the unpaid amount owed the subcontractor for work performed at the owner’s property. Thereafter, the owner has an opportunity to dispute the subcontractor’s lien claim and prevent it from being enforced or attaching to the property.
One defense an owner may seek to assert against a subcontractor’s mechanic’s lien claim is the so-called “payment defense” – a legal doctrine that may protect an owner who has already paid the general contractor in full before receiving the subcontractor’s notice of intent to enforce a lien claim.
Washington DC Mechanic’s Lien Claims and the Payment Defense
Washington DC mechanic’s lien law recognizes a payment defense against all subcontractor mechanic’s lien claims. The defense is only applicable to “good faith” owner payments made to the general contractor before receipt of the subcontractor’s notice of intent to enforce mechanic’s lien. Specifically, a subcontractor’s Washington DC mechanic’s lien claim against the owner’s property is capped (i.e., cannot exceed) the amount of the unpaid balance owed by the owner to the general contractor at the time the owner receives the subcontractor’s notice of intent to enforce its Washinton DC mechanic’s lien claim. D.C. Code § 40-303.02(a). This “unpaid balance cap” on liens creates a valid and frequently successful payment defense for property owners against a subcontractor’s Washington DC mechanic’s lien claim.
Until the property owner receives the required written notice from a subcontractor that it has not been paid (i.e., notice of intent to enforce mechanic’s lien), the owner can make payments to its general contractor and rely upon the “payment defense” to defeat or reduce a subcontractor’s mechanic’s lien claim. DC Code §40-303.02. For example, if prior to receiving a subcontractor’s notice of intent, the owner has, in “good faith,” already paid the contractor in full (and the amount of payment is not in dispute), then the subcontractor is not entitled to enforce a Washington DC mechanic’s lien claim against the property. DC Code §40-303.02(b).
Restrictions and Protections for Subcontractors with Washington DC Mechanic’s Lien Claims.
Owner’s Duty to Withhold Payment After Receipt of Subcontractor’s Notice
Once a subcontractor’s notice of intent to enforce a Washington DC mechanic’s lien claim is received, the owner can no longer rely on the payment defense for payments made after receipt of notice. At that point, the owner has a duty to withhold any payments it owes the general contractor in an amount sufficient to satisfy the general contractor’s debts to the subcontractor. DC Code §40-303.04. Thereafter, the property will be subject to a subcontractor’s Washinton DC mechanic’s lien claim, but not to exceed the amount the owner still owes its general contractor at the time the owner received the subcontractor’s notice. DC Code §40-303.04. An owner will not be able to use the payment defense regarding any general contractor payments it makes after receipt of the subcontractor’s notice of intent. DC Code §40-303.03(b).
Subcontractor’s Right to Know Contract Terms
The Washington, D.C. mechanic’s lien statute affords subcontractors the right to information regarding the agreement between the owner and the general contractor. Specifically, Subcontractors have a right to demand that an owner provide a statement of the terms of the contract between the owner and the contractor and the amount due thereunder. DC Code §40-303.05. Failure of the owner to respond to such a demand can result in liability to the owner for payments made to the contractor after receipt of the demand. DC Code §40-303.05. This ability to demand information from the owner better enables a subcontractor to protect its lien rights against the payment defense when asserting a Washington DC mechanic’s lien claim.
Washington DC Mechanic’s Lien Attorneys Recommendations Regarding Payment Defense in Washington DC
Owners can rely on the payment defense only to the extent of full payment to the general contractor prior to receipt of the subcontractor’s notice of intent to enforce a Washington DC mechanic’s lien claim. So long as there is an unpaid balance, the owner’s property remains subject to a subcontractor’s mechanic’s lien. Therefore, property owners should work with an experienced Washington, D.C. mechanic’s lien attorney to implement lien risk management strategies, such as general contractor payment retainage connected to receipt of subcontractor lien releases for work performed and materials provided, with subcontractor’s acknowledging in writing that they have been paid in full or in part for specified work.
Likewise, subcontractors should work with an experienced Washington, D.C. mechanic’s lien attorney to protect their right to assert a Washington DC mechanic’s lien claim, such as by serving early notice of intent to enforce a mechanic’s lien against an owner’s property while the owner still owes monies to the general contractor, and, when necessary, by demanding information from the owner regarding its agreement with the general contractor so as to anticipate when general contractor payments are to be made.
WASHINGTON DC MECHANIC’S LIEN ATTORNEYS
&
COSTRUCTION LAWYERS
Washington, D.C. and Maryland
410-327-3800 | 202-670-6289 | 301-830-8315
Cowie Law Group, P.C. Law is a construction law firm, practicing construction and real estate law throughout the State of Maryland and Washington, D.C. We handle construction industry performance and payment disputes, including Maryland mechanics’ lien claims and Washington, D.C. mechanic’s lien claims for owners, general contractors, design, professionals, subcontractors, and material suppliers. Law Partner George A. Bealefeld III is the Author of the Lexis Maryland Mechanics’ Lien Law Practical Guidance® Practice Note.
