Does Pennsylvania law permit contractors and owners to extend the six-month filing deadline by agreement?
It is not uncommon for a subcontractor, for example, to call his or her attorney regarding filing a lawsuit against the prime contractor, 13 months after the dispute arose, only to learn that buried deep within the 50 page, single spaced, 8-point font contract, lurks a clause that shortened the statute of limitations to bring the lawsuit.
In Pennsylvania, the statute of limitations for breach of a written contract is generally four (4) years. See 42 Pa.C.S. §5525. But, Pennsylvania expressly permits parties to a written contract to modify the statute of limitations to bring suit, as follows:
An action, proceeding or appeal must be commenced within the time specified in or pursuant to this chapter [Limitation of Time] unless, in the case of a civil action or proceeding, a different time is provided by this title or another statute or a shorter time which is not manifestly unreasonable is prescribed by written agreement.
42 Pa.C.S. §5501(a)
As construction contracts continue to become even more burdensome to contractors and subcontractors, it is inevitable that an owner or prime contractor will (or has already) attempted to shorten the time to file a mechanics’ lien. Under the Pennsylvania Mechanics’ Lien of 1963 (the “Lien Law”), contractors and subcontractors must file their lien claim within six (6) months after the “completion of work.” 49 P.S. § 1502(a)(1). “Completion of Work” is defined by the Lien Law as the “performance of the last of the materials required by the terms of the claimant’s contract or agreement, whichever last occurs.” Id. § 1201(8).
Pennsylvania courts have not been confronted with the issue of whether parties may contractually modify the six-month limitations period for filing a mechanics’ lien. Recently, however, the Missouri Court of Appeals was confronted with the issue in Manning Constr. Co., Inc. v. MCI Partners, LLC, 419 S.W.3d 134 (Mo. Ct. App. W.D. 2013).
In Manning, MCI Partners, LLC (the “Owner”) was the owner of a condominium project in Kanas City (the “Project”). The Owner’s Construction Manager (the “CM”) contracted with Manning Construction Company (the “Contractor”) to construct three buildings on the Project, in two phases, on a cost-plus basis. The Contractor ultimately only built one building (Building #2) before the Project was stopped due to the Owner’s inability to obtain additional financing. A certificate of substantial completion for Building #2 was issued in August 2007.
During the Project, the Contractor submitted twelve (12) pay applications for its work between January 25, 2007, and April 14, 2008. The Contractor received full payment on the first nine (9) pay applications, but received only partial payment on applications ten, eleven, and twelve. According to the Contractor, the total value of its work was in excess of $3.3 million, but that it was paid slightly more than $3.1 million.
Sometime in December 2008, in an attempt to work things out without resorting to litigation, the Contractor’s principal met with a representative of the CM to discuss payment for the unpaid invoices. In addition, the Contractor told the CM that the time to file a mechanics’ lien was quickly approaching. Under Missouri law (like Pennsylvania) the lien claim must be filed within six (6) months after the performance of the last of the labor or delivery of the last of the materials required by the contract. See Mo. Rev. State. § 429.080.
Using the substantial completion date of August 2007 as the date of the last of the labor performed under the contract, the Contractor told the CM it had to file the lien by February 2008. The CM requested that the Contractor not file a mechanics’ lien, because doing so would interfere with the Developer’s efforts to sell the condominium units, and to obtain financing for further construction.
Understandably, the Contractor was likely worried about obtaining additional work from the CM and Owner. Thus, rather than immediately filing a mechanics’ lien, the Contractor accepted the CM’s offer to perform landscaping work on the Project in exchange to extend Contractor’s lien rights. The Contractor performed the work and issued Change Work Order # 10, which was approved by the CM on December 17, 2008. Then in June 2009, the CM and Contractor agreed to Change of Work # 11, which authorized the Contractor to perform additional landscaping, to further extend Contractor’s lien filing deadline.
Finally, after still not being paid, the Contractor gave-up and filed its mechanics’ lien on November 19, 2009. The lien filing claimed that “Contractor last furnished labor, materials and services to the Project on June 1, 2009” Thereafter, Contractor brought suit to foreclose on its mechanics’ lien.
Following a two-day bench trial, the court held that Contractor’s November 2009 lien filing was untimely because it failed to comply with the six-month limitations period. The court rejected Contractor’s claim that the landscaping work performed under Change of Work Orders 10 and 11 extended the six-month lien-filing period. More specifically, the court found that the work was done solely for the purpose of attempting to extend the mechanics’ lien filing deadline. Further, none of the work was directly related to or improved the building on which the Contractor sought to establish its lien. Therefore, the Contractor’s failure to file the lien within six months of substantial completion (i.e., February 2008) barred a mechanics’ lien from being imposed on the completed structure.
The Contractor appealed to the Missouri Court of Appeals. The court affirmed the trial court’s ruling. Specifically, the court held that a contractor and property owner cannot extend the six-month filing deadline by agreement. The court reasoned that “the requirement of filing the lien on time is not something which defendant can enlarge … A mechanics’ lien is a creature of statute, and not of contract.” Consistent with this principle, explained the court, a contractor cannot perform additional work simply to extend or revive a mechanics’ lien.
Similar to Missouri, Pennsylvania courts may not permit a contractor to extend the time for filing a lien under certain circumstances. For example, a contractor cannot “unilaterally” extend the time for filing a mechanics’ lien by “purposely” failing to complete his work under the contract by omitting a small item and performing it later in time to toll the statute. South Hills Co. v. Kelly, 85 Pa.D&C. 495 (C.P. Allegheny 1953). More recently, the Pennsylvania Superior Court held that a contractor’s performance of “corrective work” will not extend the date of completion. Neelu Enterprises, Inc. v. Agarwal, 58 A.3d 828 (Pa. Super. 2012).
Unlike Missouri, Pennsylvania has not addressed whether the parties to a written contract may modify the Lien Law’s six month limitation period. Even though Pennsylvania courts have consistently held over the past century that the Lien Law must be strictly construed because it is a derogation of common law the Pennsylvania Supreme Court’s recent opinion in Bricklayers of Western Pennsylvania Combined Funds v. Scott’s Development Co. potentially opens the door for a lient claimant to argue that the statute should be liberally construed to effect its remedial purpose. In conclusion, the take away here is you should not assume that you are able to contractually agree to extend the time file a mechanic’s lien claim.