RINGING IN THE NEW YEAR WITH CHANGES TO THE LIEN LAW AND THE NEW PENNSYLVANIA MECHANIC’S LIEN DIRECTORY

1/3/2017 | Construction Blog

The Pennsylvania Mechanics’ Lien Law (“Lien Law”) was amended to establish a searchable construction project and mechanic’s lien directory which can affect the mechanic’s lien rights of Owners, Contractors, and Subcontractors.  The amendments apply to projects having a cost estimate of $1.5 million or more, and they become operable on December 31, 2016.

Finding and Using the Directory

Under the Lien Law amendments, the Commonwealth Department of General Services (“DGS”) is required to set up and operate the searchable directory. This directory (the “State Construction Notices Directory”) is to be a standalone internet website that will likely be linked through the DGS webpage (http://www.dgs.pa.gov). The link to the directory can be found at www.scnd.pa.gov/.  This link provides an instructional video explaining how the directory functions and allows a user to create an account to file notices.  DGS is required to inform the public about the directory and instructions on its use within 120 days of operation by publishing information about it in the Pennsylvania Bulletin.

The Function of the Notices

So, what are the notice requirements under the amended Lien Law? There are four types of notices referenced in the amendments, two of which can be filed by or on behalf of a searchable project Owner, and two by a Subcontractor (as defined in the Lien Law, a subcontractor has a contract to supply labor or material to a prime contractor, or to another subcontractor).  The Owner notices are: (1) Notice of Commencement and (2) Notice of Completion. They are entirely discretionary. The purpose of filing a Notice of Commencement is to then require a Subcontractor to file a Notice of Furnishing in order to preserve its lien rights. If a Notice of Commencement is not filed, there is no need for a subcontractor to file a Notice of Furnishing.  However, if a Notice of Commencement is timely and properly filed, a subcontractor must timely and properly file a Notice of Furnishing to preserve its lien rights.

The Subcontractor notices are: (1) a Notice of Furnishing and (2) a Notice of Nonpayment. The purpose of filing a Notice of Furnishing is to give the Owner, and others, public notice that a subcontractor has commenced furnishing labor and/or material to the project.  The Notice of Furnishing must be filed in the directory within 45 days of the commencement of work by the subcontractor.  If a subcontractor fails to timely and properly file a Notice of Furnishing, where a Notice of Commencement has been timely and properly filed, it forfeits its right to file a lien against the project.

The amended Lien Law requires that the contract include a written notice stating that the subcontractor will forfeit its lien rights if it fails to file a required Notice of Furnishing. The form and content of this written notice is found in the amended Lien Law. However, the amended Lien Law is silent as to whether this written notice is to be provided in the contract between project owner and prime contractor or in the subcontract between contractor and subcontractor, or both. It is recommended that project owners should provide this written notice both in its prime contract with the contractor and require the prime contractor to include the written notice in subcontracts and sub-subcontracts. 

Content of the Notices

The notice requirements under the amended Lien Law are summarized below. It is important to emphasize that the notice requirements under the amended Lien Law only apply to projects having a cost estimate of $1.5 million or more. They do not apply to projects having a cost estimate of less than $1.5 million.  If a project cost estimate is close to the $1.5 Million amount, it would be prudent for an Owner to treat the project as if a Notice of Commencement should be filed.

Notice of Commencement

• A fee (in an amount that has yet to be determined) will be applied to each filing.
• The notice must be filed prior to the commencement of any physical labor or work or furnishing of materials to the project.
• The notice must include: (i) the full name, property address and email address of contractor; (ii) the full name and location of the project site; (iii) the county where the project site is located; (iv) the legal description and tax identification number of the project site; (v) the full name, property address and email address of the record owner of the project site; (vi) the full name, property address and email address of the surety, if a bond is furnished for the project; and (vii) the identification number assigned to the filed notice.
• The notice must be conspicuously posted at the project site prior to the commencement of any physical labor or work or furnishing of materials to the project, and the project owner must make reasonable efforts to ensure that the notice stays posted until completion of the project.
• Project owner must make reasonable efforts to ensure that the notice is made part of the contract documents provided to all subcontractors performing work on the project.

Notice of Furnishing

• The notice must be filed within 45 days after the filing subcontractor first performs work or services at the project site or first furnishes material for the project.
• The notice must include: (i) a general description of the labor or materials furnished; (ii) the full name and address of the person supplying the materials or services; (iii) the full name and address of the person that contracted for those materials or services; and (iv) a description of the project, which is based on the description in the Notice of Commencement.
• The notice must be in the form identified in the amended Lien Law.
• A subcontractor that fails to follow the above procedures forfeits its right to file a lien claim.
• It should be noted that the amendments strictly prohibit a project owner (or anyone acting in its interest) to “suggest, request, encourage or require” a subcontractor to refrain from filing a Notice of Furnishing. Taking such action would subject that person to a misdemeanor criminal charge of the second degree, and a private cause of action by the subcontractor.

Notice of Completion

• Within 45 days of “actual completion of work”[1] for the project, the project owner may file a Notice of Completion to be indexed with the Notice of Commencement.
• The notice is to be transmitted via the directory to all subcontractors that filed a Notice of Furnishing.
• The filing of the notice is “purely precatory and is not dispositive of any relationship among the parties.”

Notice of Nonpayment

• Subcontractors that have not received full payment may file a Notice of Nonpayment.
• The failure to file this notice by the subcontractor “shall not be construed to affect or limit their rights [to file a lien].”
• Filing this notice does not relieve the subcontractor from complying with other written notice requirements under the Lien Law.

Summary

As with any change in the law which requires new procedures, there are sure to be some interpretational and perhaps procedural problems with the directory. Yet, Project Owners and Subcontractors each have something to gain from the amended Lien Law notice provisions. An owner that files a Notice of Commencement will benefit from (1) learning which subcontractors are performing work on the project, and which have preserved their lien rights by filing a Notice of Furnishing and (2) possibly avoiding a lien if a Subcontractor fails to properly file a Notice of Furnishing.  For a subcontractor, if the notice requirements function to better inform an owner as to the identity of subcontractors on a project, it could encourage an owner to take steps to ensure that its prime contractor timely pays those subcontractors.  Still, a clear downside of the notice requirements for a subcontractor is that they create another procedural pitfall to filing and enforcing its lien rights, in addition to those which already exist under the lien statute.

Kaplin Stewart’s Construction Group represents all of the participants in the construction process: Owner/Developer, Contractors, Subcontractors, Suppliers, Design Professionals, and Sureties. The lien law changes will no doubt result in questions or concerns about their effect on the lien rights of owners, contractors, and subcontractors. We invite you to contact one of the lawyers in our Construction Group to help guide you through this new process.

[1] “Actual completion of work” is defined under the amended Lien Law as one of the following: (i) the issuance of an occupancy permit, and the acceptance of such by the project owner, and accompanied by the cessation of all work on the project; or (ii) the cessation of all work on the project for 30 consecutive days, provided that work is not resumed under the same contract.