Spilman Thomas & Battle, PLLC
  January 7, 2013 - West Virginia

New N.C. Lien Laws Take Effect Next Week. Is Your Company Ready?

The North Carolina construction world was abuzz during 2012 about new legislation bringing significant changes to North Carolina’s mechanic’s lien and payment bond laws. Governor Perdue signed SB 42 and HB 1052 into law this past summer. Key provisions of the laws are set to take effect on January 1, 2013, with other changes coming on April 1, 2013. Chief among these are the establishment of a new construction actor, the “lien agent,” and new procedures for serving and perfecting claims of lien upon funds and on real property. 

With these changes upon us, it is crucial that contractors, suppliers and their attorneys understand and are prepared to meet these statutory requirements. This article discusses a few of the more significant changes to existing lien laws, but it is important to note that the new legislation affects other areas as well, including contractor lien waivers and payment bonds on public projects. 

I. The Lien Agent.

The most significant change to North Carolina’s lien laws is the addition of a new construction participant—the “lien agent”—which has not previously existed in the state. 

A. When Is a Lien Agent Required?

Beginning April 1, 2013, project owners must designate lien agents for all private projects where the total cost of improvements is $30,000 or more, excluding improvements to existing family residences. The lien agent must be a title insurance company or title insurance agency chosen from a list of registered lien agents maintained by the Department of Insurance. 

B. How Does the Owner Designate a Lien Agent?

The owner must designate the lien agent no later than the time the owner first contracts with any person to improve the real property. An owner designates a lien agent by providing the lien agent with written notice that details certain required information about the property to be improved. After choosing the lien agent, the owner must post the identity of the lien agent at the property by including it on the building permit or, if no building permit is required, by posting a sign “conspicuously and continuously on the property” until all labor and furnishings of material are complete. If the owner fails to satisfy the posting requirement, then it must provide written identification of the lien agent within seven days to any potential lien claimant that requests it. 

C. So My Project Has a Designated Lien Agent, Now What?

Potential lien claimants who may wish to lien the real property on a project subject to the new law must first have provided written notice of their involvement to the designated lien agent. As with most lien notices, the General Assembly has provided a statutory form that should be used. The potential lien claimant must serve the notice on the lien agent within 15 days after first furnishing labor or materials or, at a minimum, before the owner conveys any interest in the property. Providing notice is required before the lien claimant can perfect its claim of lien on the real property. If the lien claimant has not provided timely notice to the lien agent, then its lien rights may either be terminated or subrogated to any new lender upon sale or conveyance of the real property. 

For the most part, it is the responsibility of the potential lien claimant to provide notice to the lien agent; however, there are two situations where an owner must give notice. First, when improvements are made to a single family residence and the contract between the owner and contractor contains an identification of the lien agent, the owner must give the notice to the lien agent. Second, when the contract is between a design professional (architects, engineers, land surveyors and landscape architects) and an owner and the contract does not provide the identification of the lien agent, the owner must provide notice to the lien agent on behalf of the design professional. 

Contractors must also provide written notice of the lien agent’s information to any lower-tier subcontractor or material supplier that is not required to furnish labor at the site of the improvements (and therefore would not see the posted designation). The contractor must provide this written notice within 3 business days of contracting with the lower-tier contractor. Failure to timely supply the required downstream notice by any contractor who has previously received notice of the lien agent’s contact information will result in the upstream contractor being held liable for any actual damages incurred by the lower-tier subcontractor as a result of the failure to give notice.

Practically speaking, contractors and suppliers furnishing labor or materials to a project subject to the new scheme should make it their practice to send the statutory notice to the lien agent on every new project within the first 15 days. Contractors should also make a point to supply the lien agent’s contact information to their lower-tier subcontractors or material suppliers within their subcontracts, or at least within 3 days after contracting. Contractors should note that the law has specific requirements for how the various new notices must be served. All contractors should consult with an experienced construction lawyer to set up their processes so they comply with these requirements.

D. I’ve Given Notice to the Lien Agent, Do I Now Have a Lien?

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http://www.spilmanlaw.com/Resources/Attorney-Authored-Articles/Construction/New-N-C--Lien-Laws-Take-Effect-Next-Week--Is-Your