See What's New in PA's Mechanics' Lien Law According to Dilworth Paxson Partner Joseph F. Kessler

01/10/2017

       I.            49 P.S. § 1501.1 – STATE CONSTRUCTION NOTICES DIRECTORY

A.    Online by December 31, 2016

B.     Use www.scnd.pa.gov

C.     For projects in excess of $1.5 million

D.    Owner or its agent (includes contractor) may, prior to commencement of labor, work or furnishing of materials for searchable project, file Notice of Commencement.

E.     All contracts for a searchable project must include a written notice:

“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.” § 1501.2

F.      Additionally, owner shall conspicuously post Notice of Commencement at site before physical work starts on project showing Directory number assigned - § 1501.3(a)(4).

G.    Once Notice of Commencement is filed, then subcontractor who performs work or services or provides materials shall comply (§ 1501.3(b)) by filing Notice of Furnishing (within 45 days after first performing work or services at jobsite or first providing materials to jobsite).

H.    General opinion, if subcontractor fails to comply, right to file lien claim forfeited (despite contradictory language).

I.       Performance and payment bonds must be identified as part of Notice of Commencement.

NOTE:  If payment bond has been obtained, upfront lien waivers are preferable making whole registration process unnecessary.

J.       Notice of Completion (§ 1501.4(a)) for Informational Purposes Only.

The term, ‘actual completion of work’ shall mean the following:

                                                                    i.            The issuance of an occupancy permit to the searchable project owner, or his agent, and the acceptance by the searchable project owner, or his agent, of the work accompanied by cessation of all work on the searchable project; or

                                                                  ii.            The cessation of all work on the searchable project for thirty (30) consecutive days, provided that work is not resumed under the same contract.”

K.    Notice Directory provides owner with heads up that subcontractor, sub-sub or supplier is not being paid.

Somewhat duplicative of formal notice by subcontractor as condition precedent to filing lien claim already in Lien Law.

L.     Many Questions Left Unanswered.

    II.            STATUS OF LIEN WAIVERS

A.    For most projects lien waivers are prohibited (§ 1401(b)); however, there is still opportunity to obtain waivers from subcontractors (which term, defined in § 1201(5), includes sub-subcontractors and suppliers to first tier subcontractors). This definition is broader than original Act.

B.     Subcontractors are permitted to waive rights upfront, “provided the contractor has posted a bond guaranteeing payment for labor and materials provided by subcontractors”

C.     Subcontractors are permitted to waive lien rights for most residential properties (defined in § 1201(14)) but are precluded from filing a lien if the owner or tenant paid the full contract price to the contractor or the property is intended to be used as the residence of the owner or tenant (§ 1301(b)).

 III.            FILING CLAIMS

A.    The time frame in which any party could pursue mechanics’ lien claim is expanded.

1.      Under § 1502(a)(i) – period now extended to 6 months.

2.      Subcontractors still need to provide 30 day notice before filing lien (§ 1501(b)(1)).

 IV.            STATUS OF LIEN PRIORITIES

A.    In Pennsylvania, lien priority depends in part on nature of improvement on which work is performed.

B.     For original erection and construction, substantial addition and/or conversion of existing structure to new or different use (defined § 1201(12)), Lien Law grants lien priority from date of “visible commencement upon the ground of the work of erecting or constructing the improvement” §1508(a).

1.      Status granted regardless of whether claimant initiated first work.

2.      Alteration and repair projects (defined in § 1201(11)) performed on existing structures that do not constitute erection or construction have priority only from date lien claim filed §1508(b).

C.     Special rules applying to purchase money mortgages and open-end mortgages give lenders complying with those sections superpriority over all liens (even erection and construction liens perfected prior to the mortgage itself).

1. §1508 provides, in pertinent part, as follows:

“(c)  Any lien obtained under this act by a contractor or subcontractor shall be subordinate to the following:

(1)  A purchase money mortgage, as defined in 42 Pa.C.S. § 8141(1) (relating to time from which liens have priority).”

See Subsection (2) revised as follows:

(2) An open-end mortgage as defined in 42 Pa.C.S. § 8143(f) where at least sixty percent (60%) of the proceeds are intended to pay or are used to pay all or part of the costs of construction.

2. “Costs of Construction” expanded by §1201(15) and includes any disbursements  made by the borrower or any person acting for the benefit of borrower or to an affiliate of  borrower.

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