Pennsylvania Mechanics Lien Law and Amendments under Act 142

Posted by on Jun 9, 2017 in Business Law | 0 comments

Pennsylvania Mechanics Lien Law and Amendments under Act 142

Act 142 of 2014 was signed into law in October of 2014 (the “Act”) and made sweeping changes to the Pennsylvania Mechanics Lien Law (the “Lien Law”). The Act provided for a website directory, called the Pennsylvania State Construction Notices Directory found at www.scnd.pa.gov (the “Directory”), for the registration of projects costing over $1.5 million. The Act also created four new types of notices for owners and subcontractors working on any registered project which, unless complied with, would terminate a subcontractor’s lien rights. Although signed into law two years ago, the changes are just now effective because the Directory was recently established.

Executive Summary

The Act provides owners with additional protections against mechanics liens. The owner must file and subsequently post at the job site a Notice of Commencement with the Directory prior to commencement of any physical work. A subcontractor, to preserve lien rights, must file a Notice of Furnishing with the Directory within 45 days of starting work on the project. A subcontractors’ failure to timely file the Notice of Furnishing with the Directory will result in a forfeiture of the subcontractor’s lien rights.

Application and Procedure

The Act only applies to “searchable projects”. A “searchable project” under the Lien Law is any private project consisting of the erection and construction, or alteration or repair, of an improvement costing a minimum of $1.5 million. Any project owner may register a “searchable project” with the Directory, although registration is not mandatory. Failure to register a searchable project means the owner cannot use the protections provided by the Act. The Act protects owners by stripping subcontractors of lien rights if they do not comply with outlined filing procedures for work on the searchable project.

Once a searchable project is registered with the Directory, the project owner must take the following steps to obtain the protections of the Act:

    • Notice of Commencement: The project owner (or its agent) must file a Notice of Commencement with the Directory prior to commencement of any physical work on the searchable project. The Notice of Commencement is designed to apprise contractors, subcontractors, and labor and material suppliers of information relevant to any lien rights and generally must contain the following: the contractor’s name, address, and email address; the owner’s name, address, and email address; surety and bonding information, where applicable; adequately identify the project and county in which it is located; and provide the identifying number of the project assigned by the Directory. If timely filed, the Notice of Commencement acts to limit the pool of potential lien claimants. If a Notice of Commencement is not timely filed, then the project owner loses this potential claim-limiting tool, but can continue to defend claims under the pre-existing lien rules.
    • Contract language: Any subcontract for work on a searchable project must contain a written notice that failure to file a Notice of Furnishing will result in the loss of lien rights. The Lien Law provides the following express notice language to be included:“A subcontractor that fails to file a Notice of Furnishing on the Department of General Services publicly accessible Internet website as required by the act of August 24, 1963 (P.L. 1175, No. 497), known as the Mechanics’ Lien Law of 1963, may forfeit the right to file a mechanics lien. It is unlawful for a searchable project owner, searchable project owner’s agent, contractor or subcontractor to request, suggest, encourage or require that a subcontractor not file the required notice as required by the Mechanics’ Lien Law of 1963.”
    • Posting: The Notice of Commencement must be conspicuously posted at the searchable project site prior to the commencement of physical work, and must remain posted for the duration of the project.

Once the above steps have been fulfilled, the project owner will be protected from subcontractors’ liens only where the subcontractor does not file a Notice of Furnishing. Note that failure of the owner to file the Notice of Commencement or post it on the job site prior to commencement of work will bar the owner from the protections of the Act.

To preserve their lien rights, subcontractors performing work on or providing materials to a searchable project must file with the Directory a Notice of Furnishing within 45 days of first performing work or providing materials to the project. The purpose of this document is to inform the project owner of subcontractors providing labor and materials on its project. Subcontractors failing to file a Notice of Furnishing with the Directory forfeit their rights to file a lien claim under the Lien Law. The Lien Law, as revised by the Act, provides a suggested Notice of Furnishing form. The notice must generally include: a general description of work performed/materials provided; the full name and address of the party providing the work or materials; the full name and address of the party contracted to provide the work or materials (if different); and identification of the searchable project (including the project number assigned by the Directory).

Upon completion of the searchable project, the owner may file with the Directory a Notice of Completion within 45 days of completion. The Directory will automatically send the Notice of Completion to all subcontractors on the job that filed Notices of Furnishings. Actual completion means the issuance of an occupancy permit or the cessation of work on the project for 30 consecutive days. A subcontractor that has not received payment in full may also file a Notice of Nonpayment in the Directory. The Notice of Nonpayment is for informational purposes only and does not affect the subcontractors right to file a lien, so long as they have filed the Notice of Furnishings.

Both the Notice of Completion and the Notice of Nonpayment have no effect on the respective parties’ legal rights regarding completion or the filing of a lien under the Lien Law. Both are purely for informational purposes to parties using the Directory.

The Act also includes criminal and civil penalties, such as payment of attorneys’ fees, court costs and actual damages, for persons (generally owners, their agents, and contractors) who request, encourage or require a subcontractor not to comply with the Act’s notice provisions; thus, non-compliance can be costly.

Project Participant Considerations

Project Owners/Developers: To take advantage of the protections offered by the Act, owners and developers should review and update their project documents and commencement procedures. Owners will need to ensure that Notices of Commencement are timely filed and posted, and that their construction contracts incorporate down-stream provisions ensuring contractor and subcontractor compliance with notice requirements. Owners must also avoid circumstances where themselves or their contractors/agents could be accused of engaging in prohibited conduct in attempts to prevent subcontractors from filing with the Directory.

Prime Contractors: Prime contractors should also make sure that their subcontracts
incorporate and comply with notice requirements, when applicable. As with owners, prime contractors must also avoid circumstances where their personnel could be accused of engaging in prohibited conduct in attempts to prevent subcontractors from filing with the Directory.

Subcontractors/Suppliers: Timely compliance with the Notice of Furnishing requirements
of the Act is now essential to preserve lien rights for a searchable project. However, information regarding owner, project and non-payment information for lien filing purposes should be easily accessible. Subcontractors should also make sure that their agreements with other downstream subcontractors and material suppliers incorporate and comply with notice requirements.

General Construction Parties: The Directory will provide construction participants with valuable access to owners, developers, contractors and subcontractors regarding payment information, timely performance, and potential disputes.

If you have any questions regarding the above, or any other real estate development or collection matters, please contact Christian Miller by email or phone at (717) 845-1524 or cmiller@mpl-law.com.

photo credit: metrotransitmn Mechanic at East Garage via photopin (license)

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