In approximately one year, changes to Pennsylvania’s Mechanic’s Lien Law (the “Act”) are expected to take effect providing owners and general contractors with an added defense to subcontractor and second-tier subcontractor and supplier mechanic’s liens. The new provisions will create a more structured notice procedure by creating a searchable electronic central repository where notices will be filed. The State Construction Notices Directory (the “Directory”) is expected to be operational by December 31, 2016, and will provide owners with the ability to determine whether subcontractors have received payment before issuing final payment to the contractor, thereby eliminating the risk of a double payment scenario when the owner is forced to defend and indemnify a general contractor for claims of non-payment. This same protection will assist general contractors facing similar issues with respect to payments to second-tier subcontractors and suppliers.
The new provisions of the Act, applicable to projects of $1.5 million or more, provide for the filing of 4 types of notices with the Directory: (1) a Notice of Commencement by the owner or its agent; (2) a Notice of Furnishing by subcontractor; (3) a Notice of Completion by an owner or general; and (4) a Notice of Nonpayment by a subcontractor. The notice requirements are very specific and can be found in the provisions of the Act amendments http://www.legis.state.pa.us/cfdocs/legis/li/uconsCheck.cfm?yr=2014&sessInd=0&act=142
The Notice of Commencement may be filed by an owner or agent of the project wishing to take advantage of the Act’s protections, but must be filed prior to the commencement of labor or the furnishing of materials for the project. An owner who chooses to file a Notice of Commencement has an obligation to post a copy of the Notice at the project site before work commences and make a reasonable effort to ensure the Notice is part of the contract documents.
If the owner properly files a Notice of Commencement in accordance with the Act, a subcontractor must file a Notice of Furnishing with the Directory within 45 days of performing work or delivering materials to the site. A subcontractor that fails to comply with the Act’s requirement of filing a Notice of Furnishing forfeits its right to assert a lien claim.
The Act further provides for the ability to file a Notice of Completion within 45 days of actual completion of the work, i.e., the issuance of an occupancy permit to the owner, or his agent, and the acceptance of the work accompanied by cessation of all work on the project; or the cessation of all work on the project for 30 consecutive days. Filing a Notice of Completion is intended to be informational and optional.
Subcontractors who have not received full payment for their work, or for goods or services, may file a Notice of Nonpayment in the Directory. The Notice of Nonpayment is similarly discretional, and will not affect a subcontractor’s right to assert a lien as compared with the Notice of Furnishing, which does. Fling a Notice of Nonpayment will not excuse a subcontractor’s failure to file the Notice of Furnishing. Although optional, filing a Notice of Nonpayment is intended to increase the chances of a subcontractor being paid without having to file a lien claim.
The new provisions to the Act will not change or affect an owner’s right to stipulate to a lien waiver by requiring a general contractor to post a payment for bond for a project.
The Act’s amendments offer various protections to all parties. Subcontractors will be benefitted from the Act in having definitive information about the owner and property to assist with nonpayment issues. Owners will have an added protection against double payment situations by ensuring subcontractors have been paid before issuing final payment to general contractors, and likewise general contractors will be afforded similar protections with respect to payment of second-tier subcontractors with lien rights. All parties will have clear information identifying potential lien claimants. Filing a Notice of Commencement should reduce the threat of mechanic’s liens, however subcontractors will need to be proactive and diligent in protecting their rights at the beginning of a project by timely filing a Notice of Furnishing.
SMGG can help you navigate current Mechanic’s Lien issues, and provide additional guidance when the Act’s amendments take effect. If you have a question about mechanic’s liens or related issues, please contact Erica Laughlin of Strassburger McKenna Gutnick & Gefsky’s Construction Practice Group in Pittsburgh at firstname.lastname@example.org or (412) 281-5423.