In Nevada, as in many other states, mechanic’s lien filed by contractors, subcontractors and suppliers attach to the real property when “work is commenced.” In other words, all the mechanic’s liens filed—even the liens of subcontractor or supplier that performed or provided the last work or materials to the project—attach to the real property on the day the first work was performed. This date is important because the liens have priority over any other lien, mortgage or other encumbrance which is recorded after that date.
Recently, the Nevada Supreme Court addressed this critical date (the day “work commenced”) in Byrd Underground LLC v. Anguar, LLC, 130 Nev. Adv. Rep. 62, 333 P.3d 273 (2014). The Byrd, case involved a situation where unrelated third party contractors hauled and spread fill dirt on the subject property prior to the general contractor being hired or the permits being pulled for the construction of the project.
After the general contractor was hired and the work was let out for bid, Byrd, an excavations subcontractor, went on site and dug several holes to determine the amount of fill placed on the site so it could calculate its bid. Subsequent to Byrd’s test hole exploration, the title company for the lender conducted an onsite inspection and found the property to be vacant. After the title company’s inspection was concluded, the lender recorded its deed of trust. The project went forward, Byrd was not paid for the work it performed, and the owner went bankrupt.
In the bankruptcy proceedings, the lender challenged the mechanic lien holder’s claim of priority. Prior to deciding priority, the bankruptcy court certified three questions for decision by the Nevada Supreme Court. The Nevada Supreme Court decided two of the certified questions and abstained on the third because it raised issues of fact.
First, the Nevada Supreme Court reaffirmed that mechanic’s liens attach to the real property when the “commencement of work” is apparent from a reasonable visible inspection. It also reaffirmed that “preparatory work” does not constitute “commencement of work.” In light of these ruling the Court determined that the question of when work commences is a factual issues and thus inappropriately decided on summary judgment.
The Court also found that the issuance of the building permit is irrelevant to the issue of “when” work commenced. The Court however noted that the building permit could be relevant to the issue of the scope of “the work of improvement.” If all this seems confusing, it should because it is.
In a more recent unpublished decision, Las Vegas Paving Corp. v. RBC Real Estate Fin. Inc., 2015 Nev. Unpub. LEXIS 1124 (Sept. 2015) the Court added clarity to its prior decisions.
In Las Vegas Paving Corp., the Court established a procedure for determining “when” the “work of improvement” commences. The Court stated that the scope of “the work of improvement” must first be determined. The Court reiterated that the scope of the “work of improvement” is a factual issue. By determining the scope of the “work of improvement” such work could be distinguished from “preparatory work” which does not establish priority. Once the scope of the “work of improvement” is defined then it can be determined when the commencement of that work was first apparent by a reasonable inspection.
In an uncertain construction climate it is essential for contractors, subcontractors and material and equipment suppliers to secure their claims. When “the work commences” and thus when lien priority attaches can be crucial to whether payment will be recovered. Although the Nevada Supreme Court has created uncertainty in the establishment of lien priority, such uncertainty may benefit the lien claimants by allowing them to take the decisions of such issues to a trial on the merits.