On March 27, 2012, the Pennsylvania House of Representatives passed HB 1602, a bill that makes major changes to Pennsylvania’s mechanics lien law and if passed by the Senate and signed into law will impact any contractor working in Pennsylvania. All contractors should be aware that HB 1602 weakens a contractor’s most effective weapon against non-payment, the mechanics lien.
1. No Right to Lien a Residential Project.
HB 1602 amends Section 301 of the Mechanics Lien Law, 49 P.S. Section 1301, adding a sub-part (b), which states that a subcontractor shall no longer have the right to lien a residential project when the owner has paid the general contractor in full. While other States, like New Jersey, have different rules for filing mechanics liens against residential property, I am not aware of any State that prohibits the filing of a mechanics lien against a residential property outright, as HB 1602 does.
HB 1602 would effect small contractors the most and it would take away a cost effective and efficient means for ensuring payment. The amounts owed on most residential projects are small. However, these small amounts have a huge impact on a small construction firm’s cash flow. Moreover, most small construction firms do not have the resources to devote to litigation for such small amounts, especially when litigation costs can easily exceed the amount owed and collection from a general contractor is often doubtful.
2. Notice of Commencement
The other major change to the Mechanics Lien law that HB 1602 makes concerns the prerequisites to filing a mechanics lien. Under HB 1602, an owner can require a subcontractor to provide a “notice of furnishing” to the owner within twenty days of its first day of work in order to preserve its mechanics lien rights. A subcontractor is required to provide the owner with a notice of furnishing when the owner has filed a notice of commencement in the “State Construction Notices Directory” maintained by the Department of Labor and Industry.
An owner files a Notice of Commencement by filing it with the Department of Labor and Industry and it must include:
- the name and address of the general contractor, name and location of the project,
- legal description of the property upon which the improvements are being made,
- name, address, and email address of the legal record owner of the property,
- name, address, and email address of the person other than the owner at whose direction the improvements are being made (I would imagine this means a tenant), and
- name, address, and email address of the surety if performance and payment bonds are posted (this makes no sense because if a payment bond is posted then subcontractors probably have no lien rights anyway.
Additionally, the owner must post a copy of this notice conspicuously at the project site before any “physical work” commences and ensure that the posting remains posted during the duration of the project.
For the subcontractor’s part, when a Notice of Furnishing is required it must state:
- a general description of the subcontractor’s work;
- name and address of the subcontractor; and
- name and address of the person with whom the subcontractor contracted.
Basically, all of the same information that a subcontractor is already required to give when it files it formal notice of intention to file a mechanics lien under Section 501. Moreover, HB 1602 dictates the format of the Notice of Furnishing.
This Legislation is a disaster and fails my test for supporting legislation:
(a) is there a compelling reason for changing current policy?, and (b) does it makes sense?
The answer to both questions is NO and I am not sure who this bill is intended to benefit. It is entirely unclear what problems with the current lien law this bill would solve. I do not see it benefiting owners who must not only pay a fee to file a Notice of Commencement but also assure that the Notice is posted and maintained. Additionally, it clearly makes it more difficult for subcontractors to file a mechanics lien, which I am not sure why we want a policy against that.
Hopefully, the Senate comes to its senses and defeats this Bill. We will be sure to keep you posted.
Wally Zimolong
Wally represents contractors (and subcontractors) and developers. His clients build and develop residential, commercial, and industrial properties nationwide. Wally enjoys working with the owners of the businesses he represents because they tend to be entrepreneurs and all around interesting people.
