Monday, 9 April 2012

Lien Law Study Committee submits final report to NC General Assembly

Guest Editorial by Nan E. Hannah, Esq. and Keith E. Coltrain, Esq., Member and Chair of the Lien and Bond Law Revision Committee of the Construction Law Section of the North Carolina Bar Association.

On March 27 the North Carolina General Assembly’s Committee on Mechanic’s Lien on Real Property issued its final report which now goes to the Legislative Research Commission (“LRC”) for approval. If approved, the proposed revisions to Chapter 44A contained in the report will go to the House and Senate for consideration during the 2012 short session.

For the construction industry, this provides a solid reason to monitor the upcoming short session. What is it that we are watching?

House Bill 489 (H489) was introduced in March 2011. This bill was the result of the Construction Law Section of the North Carolina Bar Association’s efforts to implement comprehensive revisions to Chapter 44A. The focus of these revisions were to address changes in industry practices and several major court decisions which stressed the industry and undermined the constitutional mandate that the legislature provide laborers and materialmen with an adequate lien.

House Bill 489 was too controversial to be passed in the 2011 Legislative Session. The House and Senate agreed, however, that the matter deserved to be studied. Thus, the, the issue was sent to the LRC which appointed a committee to explore the subject. The committee’s co-chairs, Senator Peter Brunstetter of Forsyth Countyand Representative Sarah Stevens of Gaston County, dove into the details of H489 and met informally with stakeholders.

The co-chairs identified aspects of H489 which were deemed non-controversial or potentially subject to compromise within the short window of time provided to the committee. The committee then held three formal meetings and organized an informal stakeholder’s meeting to discuss the various issues.
The committee’s final report included aspects of H489, but it is not nearly as comprehensive. The changes adopted include:

1.  Definitions: Off-site non-commodity work would be defined as an “improvement” thus providing a basis for lien rights even if the work were not delivered to the project site.

2.  Bankruptcy fix: There is a “fix” for the Harrelson-Mammoth bankruptcy issues. The recent decision in the Construction Supervision Services, Inc. bankruptcy raises a question as to whether a fix is necessary. That decision, however, has been appealed, and the proposed fix remains for now.

3. Standardized lien waivers: Forms have been added to 44A-12 to provide standardized partial and final lien waivers to reduce the confusion which continues to arise with the language of many existing forms.

4. Increased sanctions for false statements: The changes to 44A-24 would expand who could assert claims for harm caused by false statements. Violators would also be subject to disciplinary actions by their respective licensing boards.

5. Payment Bond Claims on Public Projects: Under the adopted changes, a contractor on a public project would have to provide each of its subcontractors a “project statement” which would contain the information necessary for lower-tier subcontractors to provide a pre-notice to the contractor. So long as a lower-tier subcontractor timely provided the pre-notice, it would be entitled to pursue its full claim to the same extent it does now. Delays in providing the pre-notice would limit the lower-tier subcontractor’s claim to the value of work provided within sixty days of its claim. Regardless, lower-tiered claimants would still be able to recover up to $10,000.00 even if they failed to provide the pre-notice.

Noteworthy is the absence of relief for the title industry from “hidden liens.” The committee recognized the importance of the issue but concluded it did not have to time to resolve it. The report recommends further study.

The committee also recommended further study into the Pete Wall issues (i.e., liens against leasehold interests) with the purpose of strengthening the lien rights of persons who contract with lessors.

There remain several significant issues with our mechanics lien law – even beyond the hidden lien and Pete Wall issues. Those issues should be reviewed in the future. For now though, we have appreciated the opportunity to initiate the current proposed changes and to serve as an advisor in the legislative process.

Read Committee on Mechanic’s Lien on Real Property final report here.

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