Special Alert:
Amendment of Lien Law §5
DATE: August 19, 2004
TO: Friends and Clients of the Firm
FROM: Joseph P. Asselta
RE: Amendment of Lien Law §5
On July 20, 2004, the New York Lien Law was amended to finally provide for the long-needed relief to unpaid contractors, subcontractors and materialmen working on privately funded projects situated on publicly owned land. The new language reads as follows:
Where no public fund has been established for the financing of a public improvement with an estimated cost in excess of two hundred fifty thousand dollars ($250,000.00), the chief financial officer or public owner shall require the private entity for whom the public improvement is being made to post, or cause to be posted, a bond or other form of undertaking guaranteeing prompt payment of moneys due to the contractor, his or her subcontractors and to all persons furnishing labor or materials to the contractor or his or her subcontractors in the prosecution of the work on the public improvement.
Under the current Lien Law, contractors, subcontractors and materialmen do not have the right to file a mechanic's lien in connection with a public improvement where no public fund has been established to finance the improvement. A typical situation is where a private entity leases property from the state, city or another public entity, and thereafter causes an improvement to be constructed thereon for the benefit of the private entity. Historically, these improvements have been immune from mechanic's liens because the real property is owned by the public entity, eliminating the possibility of a private lien, and there exists no public fund regarding the improvement, thereby eliminating the possibility of a public lien. This leaves the contractor without an effective remedy to ensure payment for its work or materials where a public improvement is financed with private funds.
The new amendment to Lien Law §5, which becomes effective November 18, 2004, provides some relief to contractors. While it still does not allow a contractor, subcontractor or materialman to file a mechanic's lien in connection with a public improvement where no public fund exists, it does require a payment bond or undertaking to be issued where the improvement has an estimated cost in excess of $250,000.00. Thus, an unpaid contractor, subcontractor or materialman working on such privately funded projects located on publicly owned land will now have legal recourse to seek payment from a bonding company.
However, it should be cautioned that the amendment to the Lien Law does not set forth any minimum requirements for the bonds required, and the bonds actually issued may contain very short notice provisions and/or limitations periods in which to assert a claim against the surety company. Therefore, it is strongly advised that a contractor obtain a copy of the bond as early as possible (i.e., prior to commencing work on the project) and review its terms carefully.
