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Meeting lien and bond claim filing deadlines can sometimes feel like a race against the clock. For claimants who provide on-site labor for a construction project, properly identifying the date such labor was last furnished is a critical component to winning that race.
An unpublished Fourth Circuit Court of Appeals decision illustrates the point. In U.S. ex rel. Mavis Mechanical Services, Inc. v. Hanover Ins. Co., 182 F.3d 910 (4th Cir. 1999), a subcontractor on a federal construction project tried to establish compliance with the Miller Act’s one-year filing deadline by arguing it furnished labor on two occasions within a year of its lawsuit. The first instance involved attendance at a coordination meeting; the second involved mobilization to the site to perform certain valve installation work it had yet to complete, but refusal by the sub to actually perform the work when the GC refused to make payment on alleged past due amounts. On these facts, the Fourth Circuit upheld the district court’s determination that neither site visit qualified as “labor” for the purposes of the Miller Act’s one-year filing deadline. That holding doomed the sub’s Miller Act claim to dismissal.
The moral of the story?
While the conservative approach is to rely on an experienced construction attorney to serve preliminary lien and bond notices for North Carolina construction projects, there are many subs and suppliers who prefer the DIY approach. I’m sure many of you do-it-yourselfers already rely on these web-based tools for facilitating your preliminary notices, but just in case, here are my three favorites:
North Carolina’s House Committee on Mechanics’ Liens and Leasehold Improvements gathered for the third of four scheduled meetings last Friday, March 7. Up for discussion were two legislative proposals: one that would strengthen liens on leaseholds, and one with the potential to weaken the “direct liability” or “wrongful payment” liens of subcontractors and suppliers.
Progress was made on both proposals, but with the Committee scheduled to meet for the last time and issue its recommendations on April 7, the clock is ticking on what might be accomplished during the legislative short session convening in May.
Here’s what you need to know about where things stand and what happens next:
UPDATE 3/11/14 7:00 p.m. I just received word that the N.C. Land Title Association believes it needs more time to explain to other construction industry stakeholders the concerns giving rise to its legislative proposals. As a result, NCLTA has decided not to pursue its current proposals as part of the legislative study committee’s recommendations for legislation during the upcoming short session. NCLTA will seek to discuss its concerns with interested stakeholders over the next few months in the hope of reaching a consensus on solutions that can be recommended as legislation during the 2015 long session. In the interim, I am leaving this post up for informational purposes only.
With apologies to Yogi Berra, it’s déjà vu all over again.
Like in 2012, when the N.C. Land Title Association (“NCLTA”) successfully guided lien agent legislation through the North Carolina General Assembly’s short session, the organization is once again promoting a policy proposal widely opposed by the contracting community in advance of the Legislature’s May reconvening for its abbreviated 2014 get-together.
This time, the NCLTA has the Claim of Lien Upon Funds in its sights.
Here’s what you need to know:
The House Committee on Mechanics’ Liens and Leasehold Improvements of the N.C. General Assembly reconvenes at 1:00 p.m. on Monday, March 3. Now that the Committee has spent its first two of four meetings considering the pros and cons of potential legislative action, the expectation is that its members will turn their focus to considering actual legislative proposals next week.
Contractors and suppliers are likely to push for legislation extending liens on leaseholds to the underlying “fee simple” ownership interest of landlords in virtually all circumstances, while commercial realty and banking interests are likely to ask the General Assembly to do nothing. You can read more about these polar opposite approaches in my previous liens-on-leasehold blog posts here and here, respectively; a white paper from the N.C. Subcontractors Alliance, Inc., embracing an expansive approach to contractor protection, can be found here.
Between these poles, might a middle ground be found?
In the second of four meetings, the House Committee on Mechanics’ Liens and Leasehold Improvements of the North Carolina General Assembly heard from representatives of the banking and commercial real estate industries on Monday, February 3. Both representatives spoke forcefully against extending liens for tenant improvements to the record owner’s underlying interest in the leased property improved. (For context, you can find my coverage of the committee’s initial meeting here).
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?
1. Scott Wolfe of Zlien.com tweeted about the pros and cons of filing a claim of lien on real property in advance of a construction mediation. The linked blog post notes that while a claim of lien might enhance the claimant’s negotiation leverage, it might simultaneously generate adversarial tension up the chain, which in turn could make a mediated resolution more difficult to achieve.
It’s an interesting strategic question, particularly now that N.C. Gen. Stat. § 44A-23(d) expressly gives subs and suppliers the option to file their lien claims within 120 days of the prime contractor’s date of last furnishing, as opposed to their own date of last furnishing. More than ever, timing is everything. Continue reading
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
It’s a pleasure to welcome the thoughts of David Morrison of the United Kingdom to NC Construction Law, Policy & News. David has been a contractor, subcontractor, trader and project manager throughout his years in the construction industry. Beginning life mixing concrete in Hackney, London in the 1980s, David soon began to develop a reputation as the “pen pusher” on-site when he became interested in law and legislation in the industry. Having experienced both sides of construction disputes, David now enjoys a much more tranquil life on the marketing team at UK Tool Centre. Admittedly, he does miss the smell of mortar and bacon at dawn, though…
Having a contract properly prepared and signed is the single most important aspect of securing payment for work carried out by tradesmen. A document that clearly expresses the expectations of both customer and tradesman is invaluable should any dispute arise regarding work carried out and its worth. Tradesmen in the UK should familiarise themselves with the Supply of Goods & Services Act 1982 and have their contracts and workmanship adhere to its specifications to ensure prompt payment for services rendered and the legal right of entitlement if payment in part or in whole is withheld.