Most people in the construction industry are generally aware of the new requirements that were recently enacted, which 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 project owner.
Other than a few exceptions, the new lien agent laws apply to all private projects over $30,000. For owners of these projects, the new requirements can be distilled into five basic action items:
- Designate a Lien Agent. Not later than the time when the project owner first contracts to make improvements to real property, it must designate a registered lien agent for the project, choosing from a list of registered lien agents maintained by the North Carolina Department of Insurance. The owner accomplishes this step by delivering a “Notice of Designation” to the selected lien agent, along with payment of the lien agent’s fee, which should not exceed $50.00. If at any time during the project, the lien agent becomes unwilling or unable to perform its duties, the project owner must designate a replacement in a timely manner.
- Identify the Lien Agent. The project owner must provide any potential lien claimant with the lien agent’s contact information. This information must be provided within seven days after receiving a written request for such information from a lien claimant. As a best practice, the project owner should include the lien agent’s contact information in its contracts with contractors and design professionals.
- Identify Contractors & Design Pros. In connection with designating a lien agent, the project owner must send a notice to the lien agent that contains the contact information for each of the owner’s contractor and design professionals.
- 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. Project owners would be wise to review this information to confirm it was properly included.
- Collect Lien Waivers. The new statutes include greater restrictions on the ability of a project owner to preclude certain liens (e.g., a lien on funds by a subcontractor) by obtaining waivers and releases of liens from its contractors. That said, a contractor may, of course, waive and release its own lien rights. In addition, contractors’ lien waivers may be effective to bar certain subcontractors’ liens in the event that the subcontractor fails to comply with the statutory procedures. Thus, as a best practice, project owners should always obtain lien waivers and releases from its contractors periodically throughout the project and as a prerequisite to final payment.
With the enactment of the new lien statutes, an already confusing process has only become increasingly convoluted. Project owners seeking to ensure that their projects are conducted in accordance with the newly enacted lien laws should seek counsel from competent construction lawyers to ensure full compliance with the new laws.