Representative Sarah Stevens
I had the pleasure yesterday of attending the first of four meetings of the “House Committee on Mechanics’ Liens and Leasehold Improvements,” a non-standing legislative research committee of the North Carolina House of Representatives co-chaired by Representatives Sarah Stevens (R-Mt. Airy) and Dean Arp (R-Monroe). The Committee’s work is focused primarily on whether the state’s mechanics’ lien statutes should be tweaked to strengthen the lien rights of contractors performing work for project owners who lease, rather than own, the property being improved.
Represenative Dean Arp
Current statutory law allows contractors to place a lien on so-called “leasehold estates” (see N.C. Gen. Stat. § 44A-7(7)), but as Raleigh construction attorney Henry Jones, counsel to the Carolinas Electrical Contractors Association and N.C. Association of Plumbing & Mechanical Contractors, explained, such liens, in practice, are “illusory,” for two reasons: (1) when the lease is terminated, so are any lien rights asserted against the tenant’s leasehold interest; and (2) a successful levy against a leasehold generally means accepting not only the lease’s benefits, but also its burdens, including the obligation to make rent payments.
The 2011 Pete Wall Plumbing decision of the N.C. Court of Appeals, which Research Division staff member Shelly DeAdder did a terrific job of summarizing, is a vivid example of how a contractor can be left holding the bag when a leasehold interest is terminated. As Representative Stevens put it, “Poor Pete Wall did the work, but didn’t get paid,” and the expiration of its lien rights when the leases at issue were terminated by the record owner represented an “unfair result.” Judge Steelman’s concurring opinion in Pete Wall Plumbing, while acknowledging the majority opinion “reaches the correct legal conclusion under the present state of our statutory and case law,” called upon our state legislature to “consider revising the provisions of Chapter 44A to prevent this unjust result.”
The big question for the Committee to consider over the coming weeks is this: under what circumstances might it be appropriate to permit a contractor performing a tenant improvement to place a mechanics’ lien on the record owner’s “fee simple” interest?
This past summer, the N.C. General Assembly passed and Governor McCrory signed into law groundbreaking legislation authorizing the use of design-build, design-build bridging and public-private partnerships in the delivery and financing of public construction projects in the state. The legislation is sure to alter North Carolina’s public procurement landscape drastically and influence the complexion of the state’s construction industry, particularly at the design and prime contractor levels.
Last Wednesday, October 23, I attended an excellent panel discussion covering key aspects of House Bill 857 (“HB 857”) sponsored by Carolinas AGC Foundation, AIA North Carolina (@AIA_NC), the Professional Engineers of NC (@ProfEngNC), United Minority Contractors of North Carolina and the American Council of Engineering Companies of North Carolina. Based on that discussion and my own review and analysis of the legislation, here are my top ten observations:
In previous installments in this series, I discussed how last year’s lien and bond law revisions protect subs and suppliers via the “Bankruptcy Fix,” while also protecting prime contractors via double payment protection on bonded, public projects.
What about the title insurance industry? Well, their legislative “holy grail” was protection from so-called “hidden liens,” and their quest succeeded when the North Carolina General Assembly approved a preliminary notice procedure that creates a new party soon to be integral to the mechanics’ lien preservation process: the owner’s “lien agent.”
While I’ve never questioned the need to address the “hidden lien” issue, I am squarely on record as opposing this particular legislation in the particular manner in which it was passed. Candidly, however, that battle’s been lost, and the industry’s focus needs to be on complying with the new regime. Indeed, the statutory provisions governing the preliminary lien notices called for by the legislative revisions go into effect for virtually all private construction projects for which the first construction work commences today, April 1, 2013 (happy April Fool’s Day!), or later.
In other words, the horse it out of the barn, and it ain’t goin’ back in. Time to saddle up and ride. And so this post provides an introduction to the new preliminary lien notice each potential lien claimant must provide to the owner’s “lien agent” in order to fully preserve future lien rights under North Carolina’s mechanics’ lien statutes. I’ll start with a quick primer on the problem of hidden liens, and then move through the basics of the new statute from the perspective of each party in the contractual chain, from the top down. I’ve attached a multitude of links that should prove helpful in transitioning to this brave new world of mechanics’ lien preservation. Continue reading
For North Carolina general contractors, the big prize in last year’s lien and bond law legislation was protection from double payment exposure on bonded public contracts. Carolinas AGC lobbyist Dave Simpson has said on numerous occasions that he spent the better part of two decades pushing the N.C. General Assembly for double payment protection. In a similar vein, Carolinas AGC member Susie Shaw of Beam Construction added that “this has been an issue I have heard about from my father since I was a young child. It took a long time, but I am glad it is coming to pass in my lifetime.”
This post explains the “double payment” provisions of the new lien/bond laws in-depth, focusing on how prime contractors are exposed to double payment liability on public projects, how the new statute provides protection from that exposure, and the limits of the new legislation. Continue reading
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The North Carolina Court of Appeals (“COA”) this morning issued a 33-page opinion clarifying the types of professional engineering services entitled to a claim of lien under North Carolina’s mechanics’ lien statutes. One of the three COA judges, however, issued a dissenting opinion, which means further review by the North Carolina Supreme Court could be in the offing. This post explores the facts of Ramey Kemp & Associates, Inc. v. Richmond Hills Residential Partners, LLC et al., discusses the majority and dissenting opinions, and comments on the important points to take away from the decision.
I represent a number of highway/heavy contractors, all of whom know that doing business with the North Carolina Department of Transportation (“NCDOT” or the “Department”) requires careful attention to the agency’s “Standard Specifications for Roads and Structures.” NCDOT’s Standard Specs contain both front-end “General Requirements” (what would be called “General Conditions” on virtually any other public or private construction contract) and back-end standards for all aspects of highway work — from earthwork, pipe culverts, subgrade and asphalt pavements to signing, materials, pavement markings and electronic signalization.As my highway/heavy clients also know, the NCDOT’s Standard Specs are regularly revised every 4-6 years. Last year, NCDOT issued the 2012 version of its highway construction bible, updating the 2006 version. This post focuses on what I consider to be the ten most significant changes to NCDOT’s front-end “General Requirements.” As you will see below, these ten revisions affect how contractors obtain, perform and make claims on NCDOT work.
Back in 2010, when a group of construction, real property and bankruptcy lawyers first started meeting to consider potential revisions to North Carolina’s lien and bond statutes, one of the driving forces behind those discussions — particularly for those who typically represent subcontractors and suppliers — was protection for downstream project participants after an upstream player filed for bankruptcy. Such protection, known commonly as the “Bankruptcy Fix,” was included in the package of revisions signed into law last summer. This post explores the origins of the Bankruptcy Fix and discusses how the 2012 lien law legislation protects the right of subs and suppliers to serve a Notice of Claim of Lien Upon Funds even after a party above them in the contractual chain files for bankruptcy.
As 2012 draws to a close — faster than many of us can believe — the dawn of a new era under North Carolina’s mechanic’s lien and bond statutes quickly approaches. And that means it’s high time for me to end my brief blogging hiatus with a series dedicated to helping construction industry participants throughout the state understand the changes that are rapidly coming down the pike.
By way of brief recap, legislation protecting general contractors from double payment liability on public projects and legislation protecting title insurers from “hidden liens” on private projects made splashy headlines this past summer. I’ll be delving into the nuts and bolts of those significant changes as this series continues. This post, however, is dedicated to addressing a less-publicized, but no less substantial, alteration to the lien law that every potential lien claimant will need to bear in mind in 2013, and beyond: the process by which lien rights are “perfected.”
In a controversial 2-1 decision released October 2, 2012, the North Carolina Court of Appeals (“COA”) affirmed a trial court’s dismissal of a mechanic’s lien claim asserted by contractors who did not have a contract with the “Owner” of the improved real property as of the date of first furnishing — even though the “Owner” ultimately acquired title to the land during the course of the contractors’ performance.
Photo credit: tvland.com
The John Conner Construction, Inc. v. Grandfather Holding Co., Inc. decision is significant to the construction industry because it limits the reach of the term “Owner” as that term is used in North Carolina’s mechanic’s lien statutes. Since there was one dissenting vote from the three-judge panel, however, the case is likely to be reviewed by the N.C. Supreme Court, which could elect to expand who qualifies as an “Owner” for the purposes of the lien law.
A full exploration of the facts, holding, dissent and practical implications of the John Conner Construction decision follows: