Curtis A. Welch
503.972.2529
 

The Importance of Determining "Commencement of the Improvement"

June 2014

Curtis A. Welch
503.972.2529
Published by the Section on Construction Law of the Oregon State Bar

    Determination of whether a construction lien claim has priority over a trust deed or mortgage often decides when, or if, the lien claim will be paid. The term "commencement of improvement", defined in ORS 87.005(1), plays a key role in deciding priority.

    Under ORS 87.025(1), liens created under ORS 87.010(2) and (6) have priority over liens, mortgages or other encumbrances on the land that were not recorded at the time of the commencement of the improvement. ORS 87.010(2) creates the lien for labor and equipment used in preparing a lot or adjoining street, and ORS 87.010(6) creates the lien for an architect, land surveyor or other person who prepares plans, drawings, surveys or specifications that are used for landscaping or for preparation of a lot or parcel of land.

    ORS 87.025(2) covers the priority of the remainder of the ORS 87.010 liens--those liens created under ORS 87.010(1), (4) and (5) and "perfected under ORS 87.035". In turn, ORS 87.025(7) provides in pertinent part that "[t]he perfection of a lien under ORS 87.035 relates to the date of "commencement of the improvement" as defined in ORS 87.005."

    The text of ORS 87.005(1) is as follows: "Commencement of the improvement means the first actual preparation or construction upon the site or the first delivery to the site of materials of such substantial character as to notify interested persons that preparation or construction upon the site has begun or is about to begin." (emphasis added).

    This definition was added to the Construction Lien Law in 1975 (ch. 466 § 2) as part of House Bill 2336 (1975). Testimony Presented to the Senate Judiciary Committee Concerning House Bill 2336 before the S. Jud. Comm., 1975 Leg., OR (Donald R. Husband, Chairman, Advisory Committee on Lien Law Revision, May 8, 1975).

    Three terms in ORS 87.005(1), "construction", "improvement", and "preparation", are defined in ORS 87.005.

    "Construction" is defined in ORS 87.005(2) to mean "creating or making an improvement or performing an alteration, partial construction, or repair in and upon an improvement."

    "Improvement" is defined in ORS 87.005(5) to mean "a building, wharf, bridge, ditch, flume, reservoir, well, tunnel, fence, street, sidewalk, machinery, aqueduct or other structure or substructure."

    "Preparation" is defined in ORS 87.005(9) to mean "excavating, surveying, landscaping, demolishing or detaching existing structures or leveling, filling in or otherwise making land ready for construction".

    At first glance the ORS 87.005(1) definition of "completion of the improvement" may appear ambiguous because of the proviso at the end. That proviso – "of such substantial character as to notify interested persons that preparation or construction upon the site has begun or is about to begin" – either modifies the preceding phrase "the first delivery to the site of materials" and/or the next preceding phrase "the first actual preparation or construction upon the site." The legislative history does not shed any light on this issue. There is no discussion in the legislative history of the subject proviso or the intended meaning of the definition of "commencement of the improvement." 

    
The legislative history simply states, in relation to the overall changes in the lien law in House Bill 2336, that as far as priorities were concerned, "[t]here was no substantive change with existing law and the only purpose was to codify." Minutes, House Judiciary Committee, April 7, 1975 at p. 2.

    However, there is an important canon of statutory construction that supports a conclusion that the proviso at the end of ORS 87.005(1) modifies only the phrase "the first delivery to the site of materials". That canon of statutory construction, known as the "doctrine of the last antecedent", was explained in Service Employees Int'l Union Local 503 v. DAS, 183 Or App 594, 602-03, 54 P 3d 1043 (2002), and applied to a state risk management statute at issue in that case. The Court stated that the "doctrine of the last antecedent" is as follows:

        "Referential and qualifying words and phrases, where no contrary intention
    appears,
refer solely to the last antecedent. The last antecedent is ‘the last phrase, or clause 
    that can be made an antecedent without impairing the meaning of the sentence.' Thus a 
    proviso usually is construed to apply to the provision or clause immediately preceding it. . . .

        Evidence that a qualifying phrase is supposed to apply to all antecedents instead of only 
    to the immediately preceding one may be found in the fact that it is separated from the 
    antecedents by a comma."

    Service Employees, 183 Or App at 603 (citing State v. Webb, 324 Or 380, 386, 927 P 2d 79 (1996) (quoting Norman J. Singer, 2A Sutherland Statutory Construction § 47.33, 270 (5th ed 1992)).

    The Service Employees court noted that the proviso at issue in that case was not separated by a comma from the last antecedent phrase, and that there was not any other textual indicator that the proviso modified anything other than the last antecedent phrase. Service Employees, 183 Or App at 603.

    Similarly, the proviso at the end of ORS 87.005(1) is not separated by a comma from the last antecedent phrase. Further, there is no other textual indicator that the proviso modifies anything other than the phrase "the first delivery to the site of materials".

    Applying the "doctrine of the last antecedent" to ORS 87.005(1), the first actual preparation or construction upon the site does not need to be of "substantial character" in order to constitute "commencement of the improvement."

    The case of SERA Architects v. Klahowya Construction, 253 Or App 348, 362, 290 P 2d 881 (2012) rev den 353 Or 533 (2013) confuses the issue because of the specific facts of that case and the manner in which the court quoted portions of ORS 87.005(1). That case related to a lien under ORS 87.010(5) and the relation-back of the priority of the lien to when a general contractor started work on the project. The court stated that "commencement of the improvement" is defined in ORS 87.005 (1) as the ‘first actual preparation or construction upon the site . . . of such substantial character as to notify interested persons that preparation or construction upon the site has begun or about to begin.'" SERA Architects, 253 Or App at 358. (text omitted in original). The court omitted from its citation to ORS 87.005(1) the phrase "or the first delivery to the site of materials", thereby making it appear that the court was observing that the first actual preparation or construction had to be of "substantial character."

    However, there was no delivery of materials at issue in the SERA Architects case, and therefore no need for the court to include the phrase "or the first delivery to the site of materials" in its citation to ORS 87.005(1).

    Rather, the work at issue in that case involved a general contractor demolishing existing cabins on the proposed development and the clearing of trees.

    Further, the date of commencement of improvement of the project was undisputed and therefore there was no need for the court to even discuss the extent of the general contractor's work. SERA Architects, 253 Or App at 360.

    In conclusion, regardless of whether a client's involvement in a project involves preparation or construction, or the delivery of materials, it remains important for the client not only to clearly document the timing of the client's own preparation or construction or delivery, but also to be able to document the time of the first actual preparation or construction upon the site, and the first substantial delivery of materials to the site.

Related Practice Areas

Construction
Real Estate and Land Use

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