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Construction and Materialman's Liens in Kentucky, Part Two: Public Projects and the Rules Governing Liens Filed on Them

Lien statutes provide contractors, subcontractors and material suppliers with a vehicle to assure payment for their work and services on a construction project. As discussed in our last article on private project liens, Kentucky applies different lien rules depending upon whether the project is private or public. As with private project liens, the courts of Kentucky strictly construe the public project lien requirements and will disallow a lien if it is not filed in strict compliance with those requirements. Therefore, it is vital that the procedure for perfecting a lien involving a public project is strictly followed.

Public liens and filing basics

Generally, the applicable construction lien statute in Kentucky is KRS 376.010 et seq. Contrary to the effect of the private lien law, the public lien statute (KRS 376.210) provides that a mechanics’ lien on public projects will attach to project funds, not to the real property itself or the improvements thereon.

Because a lien cannot attach to the real property, there is no advantage for a general contractor to try to attach the funds, since those funds are already owed to the general contractor. However, a subcontractor in a public lien project must file a lien statement within 60 days after the last day of the month in which the services were performed or material was delivered. In addition, the Kentucky Fairness In Construction Act allows a subcontractor/materialman to also file a lien statement up to the date of substantial completion as defined in that Act, in the event the substantial completion date falls outside the statutory 60-day period.

The common practice is to file the lien statement in both the county in which the project is located, and in the county in which the seat of government that oversees the public facility is located. In addition, the lien claimant must send a copy of the lien statement to the public authority as well as proof of delivery of the lien statement to the general contractor. Once all requirements are met, the mechanics’ lien is “perfected.”

Steps to take after a lien is perfected

If a subcontractor/materialman has perfected a mechanics’ lien on a public project, the public authority and general contractor are to take certain steps. First, the public authority must withhold the amount claimed in the lien statement from any amount then due to the general contractor. If the amount due to the general contractor is not sufficient to cover the lien, the public authority will withhold the difference from future payments once the general contractor earns those payments.

Significantly, the general contractor must file a protest with the public authority within 30 days from the date it receives the lien statement from the public authority. Failure of the general contractor to file such a protest will result in the public authority paying the held funds to the lien claimant. However, if the general contractor files its protest in a timely manner, the public authority will notify the lien claimant and retain the withheld funds. It is then incumbent upon the lien claimant to timely file a suit to enforce the lien to seek disbursement of the funds upon adjudication or court order.

As a matter of public policy, the deadlines for perfecting a lien involving a public project are much shorter than the deadlines for perfecting a lien on a private project. Therefore, immediate attention is required to ascertain the filing requirements in order to preserve lien rights on public funds.

If you have questions about how public liens may impact you or your business, please contact a member of our Litigation Practice Group.

DISCLOSURE REQUIRED BY CIRCULAR 230. This Disclosure may be required by Circular 230 issued by the Department of Treasury and the Internal Revenue Service. If this article, including any attachments, contains any federal tax advice, such advice is not intended or written by the practitioner to be used, and it may not be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. Furthermore, any federal tax advice herein (including any attachment hereto) may not be used or referred to in promoting, marketing or recommending a transaction or arrangement to another party. Further information concerning this disclosure, and the reasons for such disclosure, may be obtained upon request from the author of this article. Thank you.

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