Court of Appeals Clarifies “Constructive Notice” Under Wisconsin’s Construction Lien Laws
The Wisconsin Court of Appeals recently revisited the issue of when a contractor loses its lien rights after the owner of the property sells it to another party. Wisconsin courts have long held that a contractor does not lose its lien rights if, after it commences work, the owner with whom it contracted conveys the property to another, provided the contractor has no actual or constructive notice of the conveyance and otherwise complies with the notice provisions of the lien statute.
In Bayland Buildings, Inc. v. Sprit Master Funding VIIII, LLC, the court addressed when a contractor is deemed to have “constructive notice” of the owner’s conveyance of the property to another party, thereby extinguishing its lien rights. In that case, Bayland, the general contractor, entered into an agreement with the property owner to construct a building worth over $3 million. A little over a year into the project, the owner conveyed the property to a new party. In the days leading up to the closing, the contractor, Bayland, received emails from the owner stating that it was bringing on a new “investor” and that a warranty had to be in place for a closing to occur with respect to the new investor.
When the project was completed, the contractor was owed nearly $500,000 for work it performed. The original owner refused to pay and claimed that it sold its entire interest in the property. Bayland then filed a lien and sued the new owner. The new owner argued that it was not liable for unpaid charges because the contractor had “constructive notice based on the email exchanges and modified warranty” that the property had been sold.
Court of Appeals Findings
The court of appeals found that the contractor did not have constructive notice of the change in ownership based on the email exchanges. Important to the court’s conclusion were the owner’s statements that it was bringing on an “investor” and there was nothing indicating the owner was selling all of its interest in the property. The court’s decision was also based on the longstanding principle to “construe construction lien laws liberally.” As a result, the contractor could pursue the new owner of the property for the nearly $500,000 in unpaid bills.
The court of appeals’ decision teaches us a couple of important lessons. First, a party that purchases a property under construction should ensure that the contractor is provided with actual notice that the prior owner no longer has any ownership interest in the property. Once actual notice is provided, the contractor cannot pursue a lien claim against the new owner. Second, the contractor has no duty to review records to confirm ownership status of the property during the construction project. Even though Bayland was able to maintain its lien claim against the new owner, the better practice is to provide proper lien notices to all entities or persons who had an ownership interest from the start of construction through the date the claim for lien is filed.
For this reason, the more prudent course of action is to begin assembling information to file a lien about three months from the date of last contract work on the project if you have not been paid. This includes obtaining copies of all deeds in place from the beginning of the project through the date of lien notice. Residential projects have additional requirements. If you are not promptly paid on a project (within 60 days of last contract work), you should contact competent lien attorneys immediately. Axley routinely represents contractors, subcontractors, and material suppliers with lien claims, and we can provide you timely legal advice so you can perfect your lien claims and increase your ability to be paid in full for your hard work.