Actual Notice Exception to Pre-Lien Notice Requirement of Nevada Lien Statute Does Not Apply to Architect’s Offsite Work When No Onsite Work Has Been Performed Even Though Owner Knew That Architect Was Performing Work for the Project

Iliescu v. Steppan, No. 68346, 2017 Nev. LEXIS 38, (Nevada Supreme Court, May 25, 2017)

Appellants Iliescu entered into a Land Purchase Agreement to sell four unimproved parcels in downtown Reno, Nevada to Consolidated Pacific Development (“CPD”) for development of a high-rise, mixed-use project to be known as Wingfield Towers, which agreement was subsequently assigned to BSC Investments, LLC (“BSC”).  BSC subsequently hired Mark Steppan (“Steppan”), to provide design services for the Wingfield Towers.  Financing was never obtained for the project and the escrow never closed on the sale of appellants’ property.  In addition, since BSC did not pay Steppan for his services, Steppan recorded a mechanic’s lien against appellants’ property.  However, Steppan did not provide appellants with a pre-lien notice.

In this case, the Nevada Supreme Court was asked to determine whether the actual notice exception for pre-lien notices should be extended to offsite work and services performed by an architect for a prospective buyer of the property.  NRS 108.245(1) requires a mechanic’s lien claimant, other than one who performs only labor, to deliver a written notice to the owner of the property of the right to lien after they first perform work on or provide material to a project.  However, substantial compliance with this requirements is met if the property owner: (1) has actual notice of the construction on the property and (2) knows the lien claimant’s identity. 

Following a bench trial, the district court found that no pre-lien notice was required because appellants had viewed the architectural drawings and attended meetings where the design team presented the drawings and thus had actual notice of the claim.

The Supreme Court reversed the district court, finding that the actual notice exception does not extend to offsite work when no onsite work has been performed on the property.  The Court relied in part on the findings of jurisdictions outside of Nevada, who have recognized that mechanics liens for offsite architectural services when no work has been incorporated into the property poses a substantial risk of prejudice to property owners.  Since one of the predominant purposes for the notice requirement is to provide the owner with knowledge that work and materials are being incorporated into the property, the court acknowledged that there is a risk that extending the actual notice exception to off-site work would swallow the rule.  In addition, where no onsite work had begun on property, there has been little or no benefit to the property itself.  Further, while an owner who is “disinterested” in the construction of work on the property, may record a notice of non-responsibility to avoid liability for a lien stemming from work that it did not request, such a notice is only effective when the construction on the property was ultimately completed.  As such, the risk that a prospective buyer will not pay its architect, for services performed for a project that may be never be constructed, should not be borne by the current property owner.

The Supreme Court reversed the decision of the district court and remanded with the direction that judgment be entered in appellants’ favor.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Luke Nicholas Eaton

 

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