Court issues much needed guidance on responding to a Lien Law Section 76 demand

The Appellate Division of the Third Department has issued a decision providing some much needed guidance to those out there that are responding to a demand served pursuant to Lien Law Section 76.  In Matter of Bette & Cring, LLV v. Brandle Meadows, LLC, the Court reviewed a beneficiary's challenge of a response to a Section 76 demand served by a trustee.  Of note, the court stated the following: 

• Beneficiaries of the trust are entitled to exercise their rights under Lien Law Section 76 once per month.  Notably, complying with the demand in one month does not excuse a failure to properly comply in another month.  In this case, the trustee failed to respond properly to an earlier demand for a verified statement but claimed that by later allowing the beneficiary to review the books and records that it cured the initial improper verified statement.  The court disagreed and found that the later inspection of the books and records did not forgive the trustee's obligation to provide a proper verified statement that included all of the information required by the lien law. 
• Even if a matter is in arbitration the beneficiary of the trust still has rights under Lien Law Section 76.
• The verified statement must set forth the trust assets receivable.  A statement that "no funds are receivable without condition" is inadequate.  The trustee must identify the alleged conditions on the assets. 
• Allegations regarding a line of credit and trust payments made pursuant thereto must be particularized. 
• The funds received into the trust must be particularized. 
• Identification of trust payments must include the purpose for the payment and whether the payments were for "labor, materials, taxes, insurance, performance under contract or subcontract, interest charges on mortgages, or other particular trust claim or item of cost of improvement"
• If transfers are made pursuant to a "Notice of Lending", such transfers must be sufficiently identified. 

Because of the very particular items needed in response to a Lien Law Section 76 demand, and because of the potentially severe consequences of not responding or of responding improperly, I highly everyone consult with a construction attorney to make sure that their response is proper. 

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com