Karl Oles | Ahead of Schedule
Washington’s construction lien statute, RCW 60.04, balances the interests of persons performing work to improve real property with the interests of property owners in avoiding the necessity of paying for the same work twice. An unpaid contractor can assert a lien against property it has improved, but the owner has a right to notice that the work is taking place. On commercial projects, a contractor that is not under contract with the owner or prime contractor (a “lower-tier” subcontractor) usually must give a pre-claim notice to the owner to preserve its lien right. A contractor supplying only labor is expressly exempt from this requirement, though there has been some question regarding whether a lower-tier subcontractor providing both labor and materials is subject to the notice requirement.
This question was raised in Velazquez Framing, LLC v. Cascadia Homes, Inc. The owner, Cascadia Homes, hired a contractor, High End, to construct a home. High End subcontracted some of the work to Velazquez Framing. Velazquez gave no pre-claim notice, and it later asserted a lien against Cascadia’s property for unpaid labor and materials. The trial court and Court of Appeals both ruled that Velazquez’s lien was invalid for lack of pre-claim notice. The Washington Supreme Court reversed in a unanimous opinion.
The Supreme Court noted that RCW 60.04.021 allows all persons furnishing labor, professional services, materials, or equipment for the improvement of real property to pursue lien claims against that property, except as provided in RCW 60.04.031, the pre-claim notice statute. Section .031 requires “every person furnishing professional services, materials, or equipment” to give a pre-claim notice. By contrast with section .021, labor is not mentioned. Section .031 excepts prime and first-tier subcontractors and “laborers whose claim of lien is based solely on performing labor” from the pre-claim notice requirement. Velazquez did not fit into any of those statutory exceptions.
In ruling against Velazquez, the Court of Appeals concluded that a “plain language” reading of the lien statute appeared to lead to one of two unreasonable results. Velazquez Framing, LLC v. Cascadia Homes, Inc., 24 Wash. App.2d 780, 790, 521 P.3d 257 (2022). If labor claims are exempt from the pre-claim notice requirement (because “labor” is not mentioned in the lead-in sentence), then the express exception for labor claims is superfluous. On the other hand, if lower-tier subcontractors providing labor are subject to the pre-claim notice requirement, this seems inconsistent with the omission of the word “labor” in the lead-in sentence. The Court of Appeals, after reviewing the legislative history, concluded that individual laborers are not subject to the pre-claim notice requirement, but lower-tier contractors providing labor are subject to it. Id., 24 Wash. App.2d at 792-793.
The Washington Supreme Court disagreed, holding that section .031 “unambiguously” did not require Velazquez to give a pre-claim notice for its labor lien, though it did require Velazquez to give notice for its material lien. The result was that Velazquez could proceed with its claim for labor if its labor claim could be segregated from the (barred) claim for materials. The case was remanded to give Velazquez an opportunity to do this.
Many lower-tier contractors provide a combination of labor, materials, and equipment. The Velazquez decision gives such contractors an opportunity to pursue a labor lien claim despite a lack of pre-claim notice. The claim will be limited to unpaid labor, and the claimant will need to be able to show what portion of its unpaid contract price pertains to labor as opposed to materials or equipment. Lower-tier contractors can avoid the risk faced by Velazquez and preserve their right to a lien for labor, materials, and equipment by giving a timely pre-claim notice.
One interesting aspect of the Velazquez decision is the court’s willingness to divide a lien claim into labor and other components. This division may have consequences beyond the pre-claim notice issue. For example, liens for labor have priority over other construction liens pursuant to RCW 60.04.181. In a priority contest, a contractor may find it useful to divide its lien so that the labor portion can have priority over other claims on the property.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.