Guest view: Pennsylvania's mechanic's lien process will change in the New Year
In 2009, in the thick of the economic recession, a few construction companies went out of business.
These unfortunate instances resulted in some unforeseen payment consequences: Mystery liens began popping up on construction projects from vendors that owners did not even know existed. Owners were further surprised to know that these unknown entities were associated with their projects.
It might seem odd to a layman that an owner might not know all the companies on a project, but on a construction project a general contractor will hire sub- and specialty contractors and each of these companies might in turn hire subcontractors and material suppliers.
With the specialization of so many aspects of a project, one can imagine the numerous companies it takes to construct a building. The number tends to increase with the size of a project. On a city high-rise, a general contractor might work with 50-plus subcontractors directly and these firms might have numerous contracts with other firms for labor and material.
When the recession hit and those companies went out of business, owners found themselves asking: "Who is this company filing a lien?" As a way to bring these companies into the light, making owners and general contractors know every entity that works on a project, the Pennsylvania General Assembly enacted Act 42 of 2014.
The legislation amended the commonwealth's mechanic's lien law and applies to non-residential construction projects of $1.5 million or more when an owner files a voluntary notice of commencement.
This notice is filed online on the soon-to-be launched Pennsylvania State Construction Notices Directory (www.scnd.pa.gov). The legislation mandated that the commonwealth have the online directory in operation by Jan. 1.
It works like this:
- The owner, or an agent of the owner, files a notice of commencement in the online directory on a construction project. The filing creates a project on the directory and costs $72. This nominal fee is the only cost associated with this directory. Within 45 days of first performing work or supplying materials, subcontractors or suppliers must file notices of furnishing in the directory. If this notice is not filed by a subcontractor within the 45 days, the entity forfeits its mechanics' lien rights.
- 45 days after completion of work the owner may file a notice of completion in the directory. After the owner’s filing, any subcontractor or supplier who has not received full payment may file a notice of nonpayment. These two notices are not mandatory per the statute.
The new mechanic's lien law provisions are intended to create a more structured notice procedure by creating a directory that is searchable through the online repository that will house all filed notices in the state.
Ideally, an owner can log on and determine if subcontractors on their project have received payment before issuing a final payment to the general contractor. This process eliminates the risk of the "surprise lien" on a project for an owner.
Additionally, this new online process will benefit subcontractors and suppliers too. They will be able to use the directory's searchable database to gather information about an owner, property, contractors and nonpayment issues.
These new provisions do not change or alter an owner's right to have contractors waive liens rights on a project where there is a performance or payment bond on a particular project. With this new online process, all parties will have to be proactive and diligent in protecting their lien rights upon breaking ground on a project.
To assist with an expected learning curve with this new process, the Keystone Contractors Association is helping the construction industry prepare for the new lien procedures with seminars and publishing a lien law resource guide for contractors.