An Architect provided millions of dollars worth of design services for condominium project and was not paid by the developer with whom it was under contract. The developer didn’t own the property, but it had a contract to purchase it from the owner. Financing for the project fell through, and the purchase was never closed. The Architect filed a mechanic’s lien on the property. The owner successfully had the lien removed and all rights of the Architect extinguished because the Architect had failed to file a notice with the landowner when first beginning its off-site design services.
The owner successfully argued that failure to provide written notice was fatal to the lien rights, and that actual notice exception to the legal requirement was not applicable. The court held “the actual notice exception does not extend to offsite architectural work performed pursuant to an agreement with a prospective buyer when no onsite work of improvement has been performed on the property.” Iliescu v. Steppan, 394 P. 3d 930 (Nevada 2017).
The state statute requires mechanic’s and materialmen’s lien claimants to deliver written notice of right to lien the owner of the property after they first perform on or provide material to a project. Substantial compliance with the technical requirement for written notice has been held by the Nevada courts to be sufficient to create a lien where the owner of the property receives actual notice of the potential lien claim and is not prejudiced.
In this case the court had to determine whether the actual notice exception should be extended to offsite work and services performed by an architect for the prospective buyer of the property. The architect entered into an initial stop-gap agreement in 2005 under which it would bill hourly until an American Institute of Architects (AIA) Agreement was signed in 2006. Design work began in October 2005. Schematic design phase services were completed but the architect’s client didn’t pay for the services because it never obtained financing for the project.
The architect recorded a mechanic’s lien against the owner’s property in November 2006 but it didn’t provide the owner with a pre-lien notice as required by the statute.
In reviewing whether the Architect could be excused from filing the pre-lien notice in 2005, by virtue of the owner having actual knowledge that the work was performed by the Architect, the court had to address whether the actual notice exception applies to offsite work when no work has been performed on the property itself.
Regular inspection of the property would not have revealed that this Architect was preparing schematic plans – working offsite. Even though the owner acknowledged that it had seen some of the schematic plans as they were being developed, he stated that he didn’t know what specific Architect the buyer was using to create those plans, and didn’t know when the services were performed.
Here the court found that no onsite work had begun on the owner’s property at the time the lien was recorded and there was no evidence of any improvement to the owner’s property as a result of the designs that were performed for the prospective buyer.
“We thus conclude that the actual notice exception does not extend to offsite architectural work performed pursuant to an agreement with a prospective buyer when no onsite work or improvement has been performed on the property.”
Comment: This decision once again demonstrates the grave importance for design professionals to meet the written pre-lien notice requirements to protect their rights to eventually record a lien against a property. Another lesson from this case is that it is dangerous to jump out ahead and start performing services before all the ducks are lined up so that the architect knows it will be paid, and even more dangerous to perform professional services for several months without being paid.
About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners. He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects. He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932. This article is published in ConstructionRisk.com Report, Vol. 19, No. 10 (Nov 2017).
Copyright 2017, ConstructionRisk, LLC