PA Mechanics Lien Law Revision Proposed

There was a great seminar Aug. 27 held by the Master Builders’ Association and NAIOP Pittsburgh on the proposed amendments to the Mechanics Lien Law.  The seminar was presented by Dick Donley of Chaska Properties and Mike Klein from Blumling & Gusky LP, and moderated by the bill’s sponsor, Rep. Mike Turzai (R-Allegheny).

Turzai is introducing HB1960 next week to update the Mechanics Lien Law. Amendments to the laws in 2007 established a process for contractors/subcontractors to file a lien for monies due them against the real property where they performed work. The legislation introduced by Turzai maintains the basic concepts of the current law but incorporates a new provision for “notice of commencement” by owners, and “notice of furnishing” by the sub or supplier. This option allows the owner to file a notice of commencement with a local prothonotary; this notice would require that all subcontractors file a notice of furnishing with an owner within 30 days of either the filing of the notice of commencement, or within 30 days of first performing work on the owner’s property. The notice of furnishing protects the subcontractor’s rights to lien. Failure to file a notice of furnishing would void the right to lien by the subcontractor, sub-subcontractor or supplier.

 Owners will not be required to file a notice of commencement under the proposed legislation, and subcontractors will not need to file a notice of furnishing on projects for which the owner did not file.

The purpose of the “notice of commencement” process is to allow the owner to know exactly who provided services or products for a project, and thus protect themselves from liens which might be filed by subcontractors whom the owner was not aware of. This process would allow an owner to insure that the contractor paid all subs on a project before they receive final payment. The modifications would not diminish the lien rights of subcontractors or suppliers, but is designed to ensure that owners are not forced to pay twice for a subcontractor whose work in progress has already been paid to the general contractor.

Donley expressed concerns about the owner’s liability for defaults that he was not aware of. Klein echoed the sentiments, and provided some insight into the need for the amendment. Klein noted that prior to the amendment in 2007 a mechanics lien filing was a once or twice a year thing, but that now liens are filed by the dozens each month. All parties stressed that no revision seeking to reduce the right to file liens was being proposed but that the need for the changes came from the hurried process of amending the law in 2006, a process that didn’t include owners and developers at the drafting table.

 Donley proposed another interesting twist that may find its way into the legislation in coming sessions. One of the law’s provisions is that there is a 6 month window after completion during which a lien can be filed. While that window of time is open developers can’t convert their construction loans to permanent financing. With an amended law that requires all subs to file a notice of furnishing, owners can be certain that everyone is paid, and get waivers of liens from all subs and suppliers who have been paid. Donley’s point is that the 6-month expiration would become moot once all subs who filed were paid, and waived the lien because of payment. His assertion is that the statutory limit could expire once the payments could be verified.

 Perhaps the most persuasive argument came from Mike Klein’s comment that doing real estate business in Ohio was a breeze compared to PA, because their legislation included these provisions. When a lawyer tells you how much less time it takes, everyone should listen!

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