Written by: D. Matthew Jameson III, Chair of the Construction Services Group at Babst Callan
Since January 1, 2017 Pennsylvania has been using an on-line directory to file notices relating to the Mechanics’ Lien Law. This significant change is a result of Act 142, signed into law on October 14, 2014 then-Governor Tom Corbett that amended Pennsylvania’s Mechanics’ Lien Law. These amendments established a structured procedure for owners, contractors, and subcontractors to receive and give notice of mechanics’ lien claims, as well as a web-based central electronic repository under which these notices must be filed (the “Directory”). Act 142 was widely supported by both owners (along with construction lenders) and contractors as a means to better identify all subcontractors and material suppliers with lien rights on a project.
Specifically, Act 142 allows the following four notices to be filed with the Directory: (1) Notice of Commencement; (2) Notice of Furnishing; (3) Notice of Completion; and (4) Notice of Nonpayment. While the owner of a construction project has discretion to determine whether the Directory will be used on the project, it is difficult to contemplate any reasons why an owner would not want to use the Directory and many reasons why an owner should use the Directory – the biggest of which is to make sure that the owner know exactly who has lien rights on the project. Prior to Act 142, there was no way for an owner to know who the second-tier subcontractors were on a project, even though those second-tier subcontractors had lien rights. The owner can trigger the use of the Directory by filing a Notice of Commencement before any labor, work, or materials are furnished for the project if the owner wishes to avail itself of the Directory’s protections. If an owner files a Notice of Commencement, a subcontractor (defined as including first- and second-tier subcontractors or material suppliers) must file a Notice of Furnishing detailing the work it will perform within 45 days of first performing that work or delivering materials to preserve its lien rights. Act 142 also permits – but does not require – an owner to file a Notice of Completion within 45 days of “actual completion” of work on the project, and allows a subcontractor to file a Notice of Nonpayment if it does not receive complete payment for its work or materials. The Directory can be accessed at http://www.scnd.pa.gov/.
As the amendments set forth in Act 142 became effective on December 31, 2016, owners, contractors, and first-tier subcontractors should immediately evaluate their form contracts to ensure compliance with a number of new requirements for applicable projects. Notably, all contracts for searchable projects must include a written notice stating that a subcontractor’s failure to comply with the Act’s notice requirements will result in the loss of lien rights. Act 142 sets forth the exact language that must be included in the contract. Furthermore, the owner and general contractor on a searchable project must now make reasonable efforts to ensure the Notice of Commencement is made a part of the contract documents provided to all subcontractors awarded work on the project. Failure to comply with these requirements could potentially constitute a violation of the amended Mechanics’ Lien Law. Owners and contractors should also consider adding flow-down clauses in their contracts imposing requirements on contracting parties to include the necessary written notice in subcontracts, and include the Notice of Commencement as a contract document for any subcontract.
Any person who requests, encourages or requires a subcontractor not to comply with the amended Lien Law’s notice provisions may face civil and criminal penalties, including payment of attorneys’ fees and court costs. The person may also be liable for actual damages resulting from the subcontractor’s resulting failure to comply with the new notice provisions.
As of the end of July 2017, there are approximately 100 projects listed on the Directory. Each entry on the Directory may be accessed by the general public, and includes information regarding the project’s name and address, as well as the name and address of the owner, general contractor, and any subcontractors who have filed Notices of Furnishing for the project.
Although both the amendments to the Lien Law and the Directory itself were drafted and prepared in consultation with attorneys and industry professionals, certain details remain unclear. As of July 27, 2017, no legal challenges have been filed regarding either the amended Lien Law or the Directory. Until such challenges are brought and resolved in the courts, the full scope of a party’s obligations under the amended Lien Law remains uncertain.
For more information on the changes to the Lien Law or modifying your standard contracts to comply with the amendments please contact D. Matthew Jameson III, Chair of the Construction Services Group at Babst Calland, at firstname.lastname@example.org or (412) 394-5491.