Nevada Supreme Court Clarifies Mechanic and Materialman Lien Issues

On August 7, 2014, the Nevada Supreme Court issued two opinions dealing with the priority of mechanics’ liens and the proof required for a materialman to establish a lien.  These cases provide valuable guidance to lenders, materialmen, contractors, and subcontractors operating in Nevada.

In Byrd Underground, LLC v. Angaur, LLC, 130 Nev. Adv. Op. 62, the United States Bankruptcy Court for the District of Nevada certified three questions to the Nevada Supreme Court.  The questions focused on whether placement of fill materials and grading constituted “construction of a work of improvement” for purposes of a lien priority determination under NRS 108.225.  The question, for purposes of priority, is whether the improvements are visible upon a reasonable inspection.

The Court held that the question of whether improvements are visible upon a reasonable inspection is a question of fact for the trial courts.  The Court stated that the preparatory work could constitute a “work of improvement” and that the trier of fact needs to “look to the entire structure or scheme of improvement as a whole . . . rather than solely evaluating the activities based on whether they are preparatory or structural or vertical construction, in determining whether construction on a work of improvement has commenced.”  The Court also held that the construction contract dates and permit issuance dates were irrelevant to the question of whether a “work of improvement” had commenced.  The Court did point out, though, that the permits or contracts can help determine the scope of the work of improvement, which would assist in the determination of when visible work began.

Byrd may make it more difficult for lenders and other lienholders to establish priority of their lien.  Accordingly, they should take additional precautions and obtain additional protections from property owners and title insurance.

The issue in Simmons Self-Storage Partners, LLC v. Rib Roof, Inc., 130 Nev. Adv. Op. 57, was whether establishment of a materialman’s lien requires proof that the materials were used for the property or improvements or simply that they were delivered for use on or incorporation into the property or improvements.  The Court held that a lien can be established by showing evidence that the materials were supplied for use on or incorporation into the improvements on the property liened.  The Court noted that NRS 108.222 does not require the materials to be delivered to a specific location.  The lowered burden of proof should make it easier for suppliers and materialmen to establish a lien.