The construction lien law is one of the most powerful payment collection tools available to construction contractors.
Yet, while most contractors know it exists, very few know enough about it to use it effectively. All too often, that lack of knowledge results in an unfortunate and unintended loss of valuable legal rights when too much time passes without exercising them. On troubled projects, a construction lien could make the difference between a contractor getting paid and not getting paid.
With the ongoing economic impact of the COVID-19 pandemic, construction contractors need to be more vigilant regarding their lien rights, and attorneys representing contractors need to be familiar with the construction lien law.
Wisconsin’s construction lien law creates a statutory remedy available only to contractors and suppliers engaged in the improvement of real property.1 Wisconsin’s construction lien law affords rights and remedies to contractors both on privately owned construction projects and on public works projects. This article focuses on non-bonded, privately owned construction projects.
Construction Liens on Private Projects
A construction lien arises by operation of law, rather than by consent or conveyance.2 No judicial action is required to create the lien. The lien claimant need only comply with the statutory lien perfection requirements.3
The existence of construction lien rights depends upon the owner of an interest in real property having entered into an express or implied agreement for the improvement of the land.4 The terms “improve” and “improvement” have been broadly defined to include, without limitation, “any building, structure, erection, fixture, demolition, alteration, excavation, filling, grading, tiling, planting, clearing, landscaping, repairing, or remodeling which is built, erected, made or done on or to land for its benefit.”5
Wisconsin’s construction lien law affords protection to virtually all persons engaged in the improvement of real property, including general contractors, construction managers, subcontractors, material suppliers, equipment suppliers, service providers, and design professionals. Protection is not limited strictly to upper tier claimants, but extends to all tiers of subcontractors and suppliers who improve the subject property.6
Once a construction lien has been perfected, it attaches to the legal interest of the “owner” of the land within the meaning of the lien law.7 The lien law defines “owner” as “the owner of any interest in land who, personally or through an agent, enters into a contract, express or implied, for the improvement of land.”8 Hence, the “owner” for purposes of the lien law is not always the fee simple property owner. A tenant may be an “owner” for purposes of the lien law, such as where a tenant contracts for the improvement or build-out of the leased premises.
In such a case, the lien would typically only attach to the tenant’s leasehold interest rather than to the landlord’s fee interest, because there is a presumption against agency between a tenant and the landlord.9
Lien Perfection Step-by-Step
In order to be enforceable, a construction lien must be properly and timely perfected by a lien claimant. Lien perfection involves compliance with a series of requirements mandated by statute. Failure to comply will likely result in a loss of lien rights.
Except for small residential projects (up to four family living units), the perfection of a construction lien consists of the following three steps:
Step 1: At least 30 days before filing the lien, the lien claimant must serve the owner with a written notice of intent to file a construction lien claim.10 This is a warning shot intended to give the owner an opportunity to avoid the filing of a lien. It tells the owner that a lien will be filed unless the claimant receives payment within 30 days.
Step 2: No later than six months from the date the lien claimant performed, furnished, or procured the last labor, services, materials, plans, or specifications, the lien claimant must file a claim for lien in the office of the Clerk of Circuit Court of the county in which the property (construction site) sits.11 Claimants should note that this deadline is not measured from the date of the last invoice or the last payroll period; it is measured from the date of the last furnishing of labor, materials, etc.
Step 3: Serve a copy of the claim for lien on the owner within 30 days after the filing of the claim for lien.12
Respecting small residential projects (four family units or fewer), an additional initial step may also be required, subject to certain exceptions – an early notice of lien rights must be served upon the owner.13 This notice is merely intended to inform unsophisticated owners that contractors have construction lien rights.
A prime contractor (one in privity with the owner) must include the notice in its written contract with the owner, or it must serve the owner with a separate written notice within 10 days of commencing work if there is no written contract.14 A non-prime claimant must serve the owner with two copies of the written notice within 60 days of commencing its work.15 The exact language of this notice is prescribed by statute, and its contents differ depending on whether the claimant is a prime or non-prime claimant.16
The construction lien law prescribes the methods of service of the notices and other papers upon the owner as required to perfect a construction lien. Regular mail cannot be used. Instead, proper service requires “personal delivery, delivery by registered or certified mail, service in a manner described for service of a summons under s.801.14, or any other means of delivery in which the recipient makes written confirmation of the delivery.”17
An otherwise valid construction lien may be rendered invalid for use of an improper service method. For example, the Wisconsin Court of Appeals held that a construction lien was invalid because a subcontractor’s notice of lien rights had been served upon the owner using regular mail, even though the owner had actually received it.18
Lien Enforcement
A construction lien is enforced through the foreclosure of the lien against the owner’s interest in the property.19 An action to foreclose the lien must be commenced within two years from the date of the filing of the claim for lien.20 The procedures set forth in chapter 846 governing mortgage foreclosures apply to construction lien foreclosure actions.21 However, a construction lien foreclosure judgment is not subject to a redemption period.22
The priority of the construction lien is not based upon the date of filing, but rather relates back to the date of visible commencement of the construction project.23 In the case of new construction, visible commencement is “the beginning of substantial excavation for the foundations, footings or base,” and in the case of an addition visible commencement is “the beginning of substantial excavation” or “the beginning of substantial preparation of the existing structure to receive the added new construction.”24
Owners have the option to avoid construction liens, filed against their property by all parties other than the prime contractor, by requiring the prime contractor to procure payment and performance bonds as prescribed by law.25 The project’s total cost is increased by the bond premiums, however.
Construction liens cannot be placed against public real property.26 On state and local government construction projects, certain non-prime upper-tier claimants may be protected by a payment bond or by the ability to place a lien against unpaid contract proceeds.27
Conclusion: Take Extra Care
Too often, contractors wait until a payment problem has festered before scrambling to pursue their lien rights, but that may be too late. The lien law often is not difficult to comply with, but it has no tolerance for mistakes or missed deadlines.
With the ongoing economic impact of the pandemic, construction contractors, suppliers, service providers, and design professionals must take extra care to preserve and properly exercise their vital construction lien rights.
This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section web pages to learn more about the benefits of section membership.
Endnotes
1 Wis. Stat. §§ 779.01-.17.
2 See Wis. Stat. § 779.01(3).
3 See Wis. Stat. §§ 779.02 and 779.06.
4 Wis. Stat. §§ 779.01(2)(c) and 779.01(3).
5 Wis. Stat. § 779.01(2)(a).
6 Wis. Stat. § 779.01(3).
7 See Wis. Stat. § 779.01(3).
8 Wis. Stat. § 779.01(2)(c).
9 Id.
10 Wis. Stat. § 779.06(2).
11 Wis. Stat. § 779.06(1).
12 Id.
13 Wis. Stat. § 779.02.
14 Id.
15 Id.
16 Id.
17 Wis. Stat. § 779.01(2)(e).
18 Murphy v. Droessler, 188 Wis. 2d 420, 525 N.W.2d 117 (Ct. App. 1994).
19 Wis. Stat. § 779.09.
20 Wis. Stat. § 779.06(1).
21 Wis. Stat. § 779.09.
22 City Lumber & Supply Co. v. Fisher, 256 Wis. 402, 41 N.W.2d 285 (1950).
23 Wis. Stat. § 779.01(4).
24 Id.
25 See Wis. Stat. §§ 779.035-.036.
26 Druml Co., Inc. v. City of New Berlin, 78 Wis. 2d 305, 310, 254 N.W.2d 265 (1977).
27 See Wis. Stat. §§ 779.14 and 779.15.
