Monday, July 17, 2017

PA Lien Law Changes Begin Impacting Projects

The Pennsylvania Mechanic's Lien Law was enacted in what seems now like another era: John F. Kennedy was still president, the Vietnam War was still a small, localized conflict, and for some reason, PA decided that 1963 was the year to codify a major new set of laws relating to the filing of construction liens.

No major changes to the Pennsylvania Mechanic's Lien Law were made for 50 years... quite a record. But over the years other things changed: such as the way construction financing is procured and recorded, how larger and larger project depend on an ever expanding number of suppliers and subcontractors, and the persistent problems of non-payment, notice of the filing of a lien, find out who owners are, and how to get in touch with them and general contractors.

In 2014, the Pennsylvania legislature finally took another look and decided to deal with some of these issues by updating the 1963 law by passing Act 142 Amending the act of August 24, 1963 (P.L.1175, No.497). Overall, Act 142 was intended to make PA construction projects more public: that is, to make the public aware of what the project is and who is building it. This takes some of the guesswork out of finding out who the owner is, putting that information online in a public database.

According to a recent article by The Legal Intelligence, "The amendments to Pennsylvania's Mechanics' Lien Law of 1963 are specifically relevant for owners, contractors and subcontractors."  When a law is involved, relevance is often just a word used to indicate that more regulations have been enacted. This is the case in PA.

What does the legislation do?
It establishes a database called the "Pennsylvania State Construction Notices Directory". This directory is online, and be accessed by anyone interested in construction projects. The database allows, but does not require, owners to register their projects with a value of $1.5 million.

Why would an owner register a project?
The new law provides incentives to the owner: if you register your project, additional required notices must be filed by contractors and subcontractors and suppliers prior to the filing of a lien.

What are the notice requirements for registered projects?

While there are four notices that can be filed, only two are required:

The owner must file a notice of commencement prior to beginning work (or obtaining materials). This notice must not only be filed with the Notices Directory, but also be posted at the project. It should also be included in the contract documents.

Subcontractors and suppliers are required to file a "Notice of Furnishing" within 45 days after the first day or work or delivering materials to the project. If that PA Notice of Furnishing (NOF) is not filed in time, the subcontractor or supplier waives its lien rights, unless their contract did not provide a warning that failure to file the NOF would result in a waiver of lien rights. Importantly, owners or others who discourage the filing of a NOF are committing a crime, punishable by second-degree misdemeanor charges, on top of damages to the aggrieved party of attorneys fees and court costs.

Notice of non-payment is recommended, and can be filed in the directory. This may be helpful to subcontractors and suppliers who have not been paid, and to owners who are trying to avoid liens or stoppage of the work because of a contractor's failure to pay its workers.

Notice of completion is similarly recommended, and is filed by the owner within 45 days of the completion of the work.

Our advice, if you are a subcontractor or supplier who is beginning work on a project with a value over $1.5 million: review the directory to see if that project is listed... and then comply with the new rules!

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