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BLOG / 06.22.20 /

Remember Lien Law 3A Payment Obligations with the Shutdown Fading and Construction Projects Resuming

With the nearly three-month construction work stoppage now in the rear view mirror, owners and contractors need to refocus on funding and payment issues under suspended contracts. A recent article in Construction Dive, a trade publication, noted a 40% increase nationwide in the number of mechanic’s lien filings, suggesting that some parties are resorting to legal enforcement measures to address payment shortfalls during the shutdown.

In New York State, Lien Law 3A requires owners and contractors to use construction “trust funds” only for specific purposes related to the improvement of real property. “Trustees” who violate Lien Law 3A face serious consequences, including personal liability. Understanding the framework of Lien Law 3A and what it requires is critical to any construction project. So is knowing how to bring a Lien Law 3A claim, if necessary, and how to defend against such a claim.

Lien Law 3A impacts large and small construction projects. In one recent case in New York City[1] involving a $400,000,000 commercial project, a contractor filed a claim against the property owner and others, in part alleging that the owners were “contractors” subject to Lien Law 3A, and that loan proceeds were “trust funds” which was diverted in violation of the statute. The Court denied the owner’s motion to dismiss when it held that the claim sufficiently alleged the owner was effectively a contractor when it took on certain construction management duties, and that the loan proceeds received by the owner which were deposited into various accounts were assets subject to Lien Law 3A.

In another recent case, the contractor alleged diversion of a $50,000 payment made on a single-family home.[2] The statute applied equally, reminding us that owners and contractors of all volumes and project sizes should appreciate the importance of Lien Law 3A.

[1] Gilbane Building Company v. New York Wheel, LLC., 66 Misc.3d 1214 (Sup. Ct. Richmond Cty. 2020)
[2] Roos v. King Construction, 179 A.D.3d 857 (2d Dept’ 2020).

For more information, contact:
Jacob Amir