How Contractor’s Registration affects Construction Liens on Real Property Development
Construction is booming in the Seattle area and across Washington state. As new homes, offices, and developments go up, property owners, developers, contractors, and subcontractors need a lawyer to explain how the law affects their projects.
One important aspect is the relationship between contractor registration and the ability to file construction liens, also known as mechanic’s liens.
Here, we will explain everything you need to know about how a contractor’s registration status impacts their right to claim a lien on a property in Washington. We’ll cover the key statutes and legal cases governing this law area.
While this information provides an overview, remember that construction lien law is complicated. You should always consult an experienced construction law attorney for assistance with a specific situation.
What is a Construction Lien?
Let’s start with the basics. In Washington, RCW 60.04.021 states that “any person furnishing labor, professional services, materials, or equipment for the improvement of real property shall have a lien upon the improvement for the contract price of labor, professional services, materials, or equipment furnished at the instance of the owner, or the agent or construction agent of the owner.”
In simple terms, contractors, subcontractors, and suppliers who provide work, services, or materials to improve a piece of property are entitled to place a lien on that property to secure payment for what they have provided. The lien is a legal claim against the property that the owner must pay off before they can sell or refinance it.
Construction liens provide important protection to contractors and suppliers. They help ensure that these parties will be paid for their contributions to a project. At the same time, an improperly filed or invalid lien can cause major headaches for a property owner. A lien makes transferring or obtaining a loan against the property very difficult until the lien is dealt with.
The Importance of Contractor Registration
You might assume that anyone who does work to improve your property would have the right to file a lien if they aren’t properly paid. But that’s not the case.
To validly record a construction lien in Washington, a contractor must properly register with the state.
RCW 60.04.011(11) defines a “potential lien claimant” as someone who is “registered or licensed if required to be licensed or registered by the provisions of the laws of the State of Washington.” This refers to Washington’s contractor registration law, RCW 18.27.
Under RCW 18.27.020(1), contractor registration is mandatory. The process goes through the Department of Labor & Industries (L&I). To become registered, a contractor must obtain a surety bond and liability insurance coverage that meets state requirements.
The purpose behind requiring contractor registration is consumer protection. The law aims to shield property owners from shoddy work and fly-by-night operators by ensuring that all contractors meet certain standards.
The Washington Supreme Court has explained that the goal is “to prevent the victimizing of a ‘defenseless’ public.” (Northwest Cascade Construction Co. v. Custom Component Structures, Inc.)
improperly registered contractors lose the right to file a construction lien. It doesn’t matter how much work they did or how much they are owed. An unregistered contractor has no lien rights, period.
This is a very strict rule. Even if a contractor does a great job and the property owner is unjustly enriched by not paying, the court will find a lien by an unregistered contractor invalid. The courts have consistently refused to bend the registration requirement, no matter how much the contractor has lost. (See Stewart v. Hammond, for example.)
Penalties for Unregistered Contracting
Operating as a contractor in Washington without registering not only creates a bar to filing a construction lien. It’s actually a crime.
RCW 18.27.020 makes it a gross misdemeanor for a contractor to advertise, offer to work, submit a bid, or perform work without being properly registered. The same applies if a contractor’s registration has been suspended or revoked, hires unregistered subcontractors, or allows another person/business to use their registration.
A violation is a separate gross misdemeanor for each day the offense continues after the contractor receives a citation from L&I. It’s also a separate offense for each worksite.
Once a contractor’s registration is reinstated after a violation, they enter a two-year audit and monitoring period. The Departments of Revenue and Employment Security will scrutinize whether the contractor owes any taxes, fees, or penalties. It’s an intense process.
Unregistered contracting also violates Washington’s Consumer Protection Act (RCW 19.86). Under RCW 18.27.350, which makes any contractor registration violation an unfair trade practice affecting the public interest.
This allows an aggrieved party (like an unpaid subcontractor or supplier) to file suit against the unregistered contractor. They can recover their actual damages, legal costs, and attorneys’ fees. The court even has discretion to triple the damages award, up to $25,000.
In short, performing contracting work without proper registration is never advisable. The penalties are severe and wide-ranging. The difficulty of challenging a construction lien is another reason for contractors to ensure their registrations are active and in good standing.
What Property Owners and Developers Need to Know
As a property owner or developer, a construction lien can create a major headache, even if you’ve done everything right on your end. A lawyer can explain how these liens work and the impact they can have on your project and property.
First, let’s recap what a construction lien is. As explained earlier, any unpaid contractor, subcontractor, or supplier who provides labor, services, or materials to improve your property may place a lien on it. The lien is a legal claim against your property that clouds the title.
A validly recorded lien attaches to your property’s title. You typically cannot sell the property or refinance until you satisfy the lien, either by paying it off, negotiating a release, or getting a court order removing it.
As you can imagine, a lien can spell disaster if you have a pending sale or are counting on a loan to move your project forward. Buyers won’t want to purchase a property with a lien, and lenders won’t approve a loan. The lien can derail your plans and timeline, costing you time and money.
Always hire contractors properly registered with the state. Hiring a registered contractor increases your chances of getting reliable, competent, and honest service. As discussed above, an unregistered contractor cannot file a lien.
By doing your due diligence and only hiring registered contractors, you can avoid the nightmare scenario of an invalid lien gumming up the works. Knowing a contractor can’t hold your property hostage over a payment dispute provides immense peace of mind.
Of course, even the most careful property owners and developers sometimes face a lien. In many cases, this comes as a surprise. You may not know about an issue until you suddenly discover a lien against your property.
A contractor might file a lien, even an unjustified one, for many reasons.
A legitimate disagreement may arise over the quality of their work or how much you owe. Perhaps a subcontractor you’ve never met has some beef with the general contractor. The contractor can even file out of spite or a desire to strong-arm you into paying them off to keep a sale on track.
Whatever the reason for the lien, as soon as you become aware of it, the first step is to investigate the contractor’s registration status. If they are not properly registered, you likely have an easy out. An unregistered contractor cannot validly file a lien in Washington, period. The lien should be invalid and unenforceable.
The process of getting an invalid lien removed is not always simple. There are specific notice and procedural requirements that must be followed. But if the contractor truly is unregistered, you should be able to get the lien stricken.
Work with an experienced construction law attorney to deal with a lien. An attorney can quickly assess the situation, research the contractor’s status, and take the necessary legal steps to clear the lien if it is improper. The sooner you address the situation, the better.
Property owners and developers should check registration when they file a lien and make it a key point in their vetting process before hiring a contractor. When selecting contractors, add checking their registration to your due diligence checklist.
You should also ensure that your contracts require any contractors and subcontractors to be properly registered. That way, if an issue arises, you’ll be in a stronger position. It can also help insulate you if a subcontractor claims they didn’t get paid—if they aren’t registered, their quarrel is with the general contractor, not you.
Owners and developers can prevent a tricky situation from spiraling into a costly crisis by prioritizing contractor registration from the get-go and acting swiftly if a suspicious lien arises. Construction liens may be an unavoidable part of the industry, but a savvy approach can minimize their impact on your project.
Verifying Contractor Registration Status
It is easy to check whether a contractor is properly registered in Washington. The L&I website has a contractor registration verification tool at https://secure.lni.wa.gov/verify/.
You can search by contractor name, license number, or UBI (unified business identifier) number.
The results page will show:
- The contractor’s full business name
- Type of entity (sole proprietorship, partnership, LLC, etc.)
- Names of owners/governing persons
- UBI number
- Whether currently registered
- Effective and expiration dates of registration
- Bonding company (important if you need to sue)
- Insurance info
- L&I tax debts
- License violations in last six years
- Lawsuits against bond
If the search shows the contractor is not registered, you can contest any lien they attempt to file. An attorney can help you navigate the process.
Reach Out to an Experienced Washington Construction Lawyer Today
In the end, contractor registration and construction liens are two sides of the same coin in Washington state. The law ties them closely together, making registration a prerequisite for exercising lien rights.
Hopefully, this article has taught you how contractor registration affects construction liens in Washington. You should now understand some basics of what the law requires and the importance of registration compliance for all parties.
However, this article is not a substitute for legal advice. Every case is unique, and the law in Washington is nuanced. If you face a lien issue or other construction dispute, don’t go it alone. Reach out to an experienced construction law attorney who knows the ins and outs of Washington law.
A good construction lawyer can be your strongest ally in a lien situation. An attorney can review the facts, give you an honest assessment of your options, and champion your interests, whether that means filing, enforcing, challenging, or removing a lien. An attorney can also help you implement best practices to avoid lien issues in the future.
The right legal counsel can make all the difference in resolving a lien matter quickly and successfully so you can get back to business. If you take one thing from this information, let it be the importance of seeking out an attorney you can trust when liens become an issue. It may be the best investment you make in your project.
Even if you are unsure whether you need legal assistance, you can trust a construction lawyer to be honest with you. They do not want to waste their time on a needless matter, so they can evaluate your situation and advise whether your circumstances warrant legal assistance.
