Pennsylvania has continued to refine its mechanic’s lien law in recent years, and next year will bring the most sweeping changes ever for owners and contractors that work on larger projects.
As of December 31, 2016, Pennsylvania officially will become a “Notice to Owner” state for projects valued in excess of $1.5 million. This update to the law will involve several new steps purported to improve notices between participants on a job and help avoid the filing of lien claims.
Under the current law, subcontractors can work in semi-obscurity, meaning that owners do not always know what subcontractors are doing or who has (or has not) been paid. As a result, owners can be forced to “pay twice” – once to the general contractor and then again to a sub that claims it was not paid and threatens a lien.
These issues are very problematic on larger projects, and the law presumably will help address these challenges because of the notice requirements.
The most important thing to know about the new lien law is it applies only to projects valued at more than $1,500,000, defined as a “Searchable Project.” For those projects, Pennsylvania will create a central Internet-based State Construction Notices Directory for:
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Notices of Commencement;
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Notices of Furnishing;
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Notices of Completion; and,
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Notices of Nonpayment.
This simply means that owners, contractors and subcontractors have a single online resource to identify what jobs exist, who is working on them, when work stops and starts, and if there are issues with payment.
If the Searchable Project owner files a Notice of Commencement, then any subcontractor or sub-subcontractor must file a “Notice of Furnishing” with the Directory within 45 days after first performing work or services at the job site or providing materials to the job site. Any potential lien claimant that fails to file a Notice of Furnishing forfeits the right to file a mechanic’s lien claim. General contractors do NOT need to file a Notice of Furnishing to preserve lien rights.
Arguably, lien claimants that do post a Notice of Furnishing on the Notices Directory are more likely to be paid and less likely to need lien claims or lawyers because the owners will be made directly aware of these issues.
It is vital to note that these new construction notice provisions will be in addition to, and not in replacement of, the notice provisions already set forth in the mechanic’s lien statute. Subcontractors or material suppliers must still provide formal notice to the property owner of intention to file a mechanic’s lien claim 30 days before actually filing the claim. The claim itself must be filed within six months of the last day on the job.
Owners, general contractors, lenders and title insurance companies, all of whom were in favor of these amendments and lobbied for their enactment, probably always will post Notices of Commencement on Searchable Projects. However, this is not mandatory under the amendments. It makes sense for owners to file a Notice of Commencement, as it will likely lower the risk of mechanic’s liens. Owners, general contractors and title carriers also will continue to record general contracts in order to create a defense of payment against subcontractor liens once an owner has paid a general contractor in full.
These changes do not affect the previous revisions to the lien law that allow for releases of liens on the condition that a payment bond is posted.
There is a real question as to whether the Commonwealth of Pennsylvania will be ready to implement the searchable database and website by the end of 2016. The legislature carved out an extension for the implementation of the site, and the revisions to the code requiring construction notices will be effective on the publication in the Pennsylvania Bulletin of the operational date of the State Construction Notices Directory.
Preserving lien rights in Pennsylvania has always been tricky, and these amendments are sure to raise many issues – especially in the weeks and months after the database is running. It is important to stay ahead of potential issues and ensure that all contingencies are considered to avoid losing your rights.
