A couple of weeks ago, I posted my thoughts about the N.C. Court of Appeals’ recent decision in Ramey Kemp & Associates, Inc. v. Richmond Hills Residential Partners, LLC et al., which held that an engineer’s preparation of a project status update letter constituted what I call a “lienable activity,” i.e., an event sufficient to trigger the 120-day deadline for filing a mechanics’ lien under N.C. Gen. Stat. § 44A-12(b). In light of the Ramey Kemp decision, general contractors might well ask themselves, “Gee, if an engineer’s project status letter is a lienable activity on a construction project, how about the close-out paperwork I’ve gotta provide under my contract, particularly as-builts?” Good question. Virtually every prime contract I’ve ever seen requires a variety of close-out documents – including as-built drawings – as a condition precedent to the release of retainage and final payment. If an engineer’s preparation of a status update letter is sufficient to trigger the 120-deadline, shouldn’t as-built drawing preparation, usually performed after substantial completion, be considered a similarly lienable activity? After all, both activities involve paperwork, and both activities might be contractually required. Are North Carolina’s courts likely to treat these activities the same way for the purposes of determining a project participant’s date of last furnishing of services? Probably not. Here’s why. Any court considering the issue would likely start with the definition of “Improve” in the lien statutes. And unfortunately for contractors, a strict reading of that term’s definition leads me to believe that any attempt to classify as-built drawings as an “improvement” to real property would be a tough sell. To facilitate the analysis, I’ve divided the definition of “Improve,” found at N.C. Gen. Stat. § 44A-7(3), into three colored segments below:
In blue, you’ll see the portion of the definition applicable to contractors. In yellow is the portion of the definition applicable to design professionals. In green is the portion of the definition applicable to rental equipment suppliers. The majority opinion in the Ramey Kemp decision focused on the yellow portion of the definition in holding that the preparation of a status update letter is one of the “professional or skilled services” typically performed by design professionals, and is therefore lienable. The blue portion of the definition, however, is what applies to building contractors. That language does not give me a level of comfort that as-built preparation is a lienable activity. In blue, I only see language related to on-site work on the property itself; I don’t see language related to the paperwork that might arise from that on-site work. So while the COA has held that a design professional’s paperwork constitutes an “improvement” to real property, I think a contractor would face an uphill climb proving that its paperwork can be similarly classified. Bottom line, the Ramey Kemp decision hasn’t changed my view about how general contractors should calendar their lien deadlines. Indeed, my general rule-of-thumb remains unchanged: calendar the 120-day mechanics’ lien deadline from the date of your last performance of on-site, pre-substantial completion, non-punch list work. Yes, a strong argument can be made that legitimate punch list work performed post-substantial completion is a lienable activity, and I’d be very comfortable defending that position in court, if the need were ever to arise. But when it comes preserving statutory lien rights, and given how strictly courts tend to apply mechanics’ lien statutes, the conservative approach is always the best. So determine the date your last sub — or your own crew, if it self-performed the last project activity — completed non-punch list work, count 120 days from there and mark your calendar accordingly. Better still, run that proposed deadline by an experienced construction lawyer to ensure that all unique facts are considered and your mechanics’ lien rights are adequately preserved.