Most people in the construction industry are generally aware of the new requirements that were recently enacted to require project stakeholders to file certain paperwork with so-called “lien agents.” Lien agents are supposed to serve as a clearinghouse for lien documentation and create a more comprehensive strategy of dealing with liens on construction projects in North Carolina. However, with some of the recent changes to North Carolina lien laws already taking effect on January 1 and even more changes set to take effect on April 1, the biggest question for most project stakeholders remains unanswered: how do the new lien laws affect me?
Not surprisingly, the answer to this question varies for project owners, general contractors and subcontractors. This alert explains the real-world application of the new lien laws, particularly as they apply to you, the general contractor.
Other than a few exceptions, the new lien agent laws apply to all private projects over $30,000. For general contractors on these projects, the new requirements can be distilled into five basic action items:
- Notify the Lien Agent. Immediately upon first furnishing labor or materials, the general contractor should notify the lien agent, using the statutory notice form. If the lien agent does not receive this notice within fifteen days of first furnishing of labor or materials, the general contractor’s future lien rights could be compromised.
- Identify the Lien Agent. A general contractor must, within 3 days of contracting with a subcontractor, provide the subcontractor written notice containing the lien agent’s contact information. A statutory form may be used to provide such notice, but as a best practice, the general contractor should include the lien agent’s contact information in the body of the subcontract.
- Review the Building Permit. The statutes require posting a building permit in a conspicuous location. This permit must contain the contact information for the lien agent (otherwise, a sign disclosing such information must be posted onsite). It is the responsibility of the person applying for the permit to provide the lien agent’s contact information to the permitting authority.
- Collect Lien Waivers from Subcontractors. The new statutes include greater restrictions on the ability of a general contractor to preclude certain liens (e.g., a lien on funds by a second-tier subcontractor) by obtaining waivers and releases of liens from its subcontractors. That said, subcontractors’ lien waivers may be effective to bar certain lower-tier subcontractors’ liens in the event that the lower-tier subcontractor fails to comply with the statutory procedures. Thus, as a best practice, general contractors should always obtain lien waivers and releases from its subcontractors periodically throughout the project and as a prerequisite to final payment.
- Provide Adequate Notices of Claim of Lien. Importantly, the changes to the lien law also include a new requirement that a lien claim must be both filed with the clerk of court and served on the project owner. Also, a lien claimant must certify that it has served its claim of lien on the necessary parties in accordance with the statute. As a best practice, general contractors should use the statutory forms provided for claims of lien, which include the necessary certification language.
Of course, merely following the above-described requirements will not preserve a general contractor’s lien rights. These new requirements pertaining to lien agents are in addition to the old requirements under North Carolina law, and a general contractor must also comply with the procedures already in place under North Carolina law to file and perfect its lien. Just as importantly, general contractors should make absolutely sure that a lien claim is valid before filing it. The new statutes impose remarkably harsh penalties, including criminal sanctions, for filing a false lien.
With the enactment of the new lien statutes, an already confusing process has only become increasingly convoluted. General contractors seeking to preserve their lien rights – and avoid criminal penalties – should seek counsel from competent construction lawyers to ensure full compliance with the new laws.