One of the most frustrating situations for contractors and subcontractors is completing work and then not getting paid. When payment disputes arise, business owners often ask the same question: Should they pursue a mechanic’s lien or file a breach of contract lawsuit?
The answer to this question depends on the circumstances at issue. No two payment concerns unfold in exactly the same ways. To this end, understanding the differences between these two strategies can help construction professionals make informed decisions about their particular situations.
Weighing available options
A mechanic’s lien is often valued for one reason above all others: leverage. A properly filed lien creates a claim against the property itself. This can make property owners, developers and lenders pay close attention because a lien may interfere with refinancing, sales transactions and other property-related activities. In many cases, the mere existence of a valid lien motivates parties to negotiate payment more quickly than they otherwise would.
A breach of contract claim works differently. Instead of attaching to the property, a contractor seeks a judgment against the party that failed to pay. While a successful lawsuit can result in a court order requiring payment, the process may take significantly longer than filing a lien. Litigation often involves pleadings, discovery, motions and potentially a trial before a judgment is obtained.
Mechanic’s liens are typically governed by strict deadlines, requiring contractors to act quickly after payment issues arise. When used properly, a lien can create immediate pressure. Filing a mechanic’s lien is often less expensive at the outset than pursuing full-scale litigation. However, lien enforcement actions can eventually lead to litigation if payment is not made.
A mechanic’s lien can be particularly effective when the property has significant value and ownership is clear. A breach of contract claim may be preferable when multiple legal issues are involved, when damages extend beyond unpaid invoices or when there are disputes regarding project performance.
Importantly, these strategies are not always mutually exclusive. In many situations, contractors preserve lien rights while simultaneously pursuing contract remedies. Maintaining multiple avenues of recovery can strengthen a contractor’s position during negotiations. Seeking legal guidance can help those in need of quick reimbursement to evaluate their options – one, the other or both – effectively.