Penalties Clarified Under The Idaho Contractor Registration Act

With few exceptions, the Idaho Contractor Registration Act (“Act”) requires registration of anyone who engages in construction work or holds themselves out as capable of performing construction work for others. Contractors in Idaho are well aware that failure to comply with the Act has serious consequences.

The Act contains several non-criminal penalties for failure to register. Idaho Code § 54-5208 provides, in pertinent part, that “[a] contractor who is not registered as set forth in this chapter, unless otherwise exempt, shall be denied and shall be deemed to have conclusively waived any right to place a lien upon real property. . .” Additionally, under Idaho Code § 54-5217(2), a contractor, unless otherwise exempt, cannot file a lawsuit to collect “for the performance of any act or contract for which registration is required by this chapter without alleging and proving that he was a duly registered contractor. . . at all times during the performance of such act or contract.”

Although the Act has been effective since January 2006, Idaho appellate courts have only recently interpreted these provisions. A recent Idaho Supreme Court opinion, Parkwest Homes LLC v. Barnson, clarifies the Act’s penalty provisions as they relate to a contractor’s right to a mechanic’s lien.

In Barnson, the contactor, ParkWest, negotiated and executed a contract to construct a home before it registered under the Act but did not commence construction work until it was properly registered. ParkWest sought full compensation for its work by recording a claim of lien against the property and filing a lawsuit to foreclose its lien. A dispute arose regarding the validity of ParkWest’s lien. The owner argued that the lien was void because ParkWest was not registered under the Act when it entered the contract.

The Idaho Supreme Court did not find such a harsh reading of the Act persuasive. It held that the Act only denies the right to lien “for work or labor done or materials furnished in the construction during the period that the contractor is not registered.” The Court found that “to hold otherwise would mean that a contractor who violated the Act would be forever barred from obtaining a mechanic’s lien.” The Barnson decision shows that the Idaho Supreme Court will liberally construe the Act to allow recovery for the contractor. It is clear, however, that a contractor is only entitled to lien for work performed while duly registered under the Act. This raises several issues with Idaho’s lien statutes.

Idaho’s courts are currently full of priority disputes between mechanic’s lien claimants and beneficiaries under deeds of trust. The priority date for a deed of trust is the date that it was properly recorded. As contractors are well aware, the priority date for a mechanic’s lien is the date of commencement of the work.

Under the Barnson decision, the priority date for a mechanic’s lien is probably when a contractor begins work on a project as a duly registered contractor under the Act. Thus, a contractor who begins construction on a project before it registers under the Act risks losing its lien priority. Moreover, a contractor who fails to timely renew its registration may lose its lien priority on any work performed after the period in which it was unregistered. Given the deflated property values in this economic downturn, a loss in lien priority often results in no recovery for the contractor.

Another important consideration is that a mechanic’s lien is invalid unless recorded within 90 days after last performing work. The 90 day period typically starts to run when the project is substantially complete. Under Barnson, however, the 90 days will likely run from the last day the contractor performed work as a duly registered contractor under the Act. Thus, a contractor may lose its lien rights if it begins a project as a registered contractor under the Act but fails to renew its registration more than 90 days prior to recording a claim of lien.

In Barnson, the Idaho Supreme Court liberally construed the Act’s penalty provisions in favor of compensating contractors for work performed while registered. As this recovery is based only upon the contractor’s lien rights, it is imperative that contractors timely register under the Act and continuously maintain their registration status to take full advantage of Idaho’s lien laws.

(Published by the Idaho Business Review, July 2010)

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