Bill that Includes Major Revisions to Pennsylvania’s Mechanic’s Lien Law Passes House and Moves to Senate

Prior to 2007, the Pennsylvania Mechanic’s Lien Law of 1963, 49 P.S. §1101-§1902 (the “Mechanic’s Lien Law”) operated for over 40 years in its original form, without any significant or substantive modifications. In 2007, however, amendments to the Mechanic’s Lien Law went into effect that significantly changed the statute. For example, the 2007 amendments changed, inter alia, the enforceability of upfront waivers and the definition of a “subcontractor.” In 2009, additional amendments to the Mechanic’s Lien Law went into effect which changed some of the 2007 amendments.

Now, the Pennsylvania legislature is once again considering major revisions to the Mechanic’s Lien Law. More specifically, on March 27, 2012, by a vote of 190-6, the Pennsylvania House of Representatives passed HB 1602. HB 1602 provides a major overhaul to the Mechanic’s Lien Law by changing (1) residential mechanic’s lien requirements; (2) introducing a new notice requirement for owners and subcontractors; and (3) developing a new statewide notice directory. HB 1602 will now move to the Senate for further consideration.

If HB 1602 becomes law, the Mechanic’s Lien Law would be revised as follows:

1. Changes to Residential Mechanic’s Lien Requirements. Under HB 1602, a subcontractor will not have the right to file a lien with respect to an improvement on a residential property if:

(a) the owner or tenant paid the full contract price to the contractor; and

(b) the property is used or is intended to be used as the residence of the owner or tenant.

2. Notice of Commencement and Furnishing Requirement. HB 1602 introduces a new “notice” requirement into Pennsylvania Mechanic’s Lien Law for owners and subcontractors. More specifically, under the legislation, an owner may require that a subcontractor provide a “notice of furnishing” in order for the subcontractor to preserve its lien rights on a project. The subcontractor, however, is only required to file a notice of furnishing, if the owner files a “notice of commencement.” If an owner files a notice of commencement and the subcontractor fails to file a notice of furnishing, the subcontractor forfeits its right to file a mechanic’s lien on the project.

> Owner’s Notice of Commencement.

Prior to commencing with any improvements to its property which may give rise to a mechanic’s lien, the owner or agent of the owner may file a notice of commencement with the State Construction Notices Directory (the “Directory”). If a notice of commencement has been properly and timely filed, a subcontractor is then required to file a notice of furnishing in order to retain its lien rights.

Under the bill, the owner’s notice of commencement must include the:

(a) name, address, and e-mail address of the contractor;

(b) name and location of the project being constructed;

(c) legal description of the property upon which the improvements are being made;

(d) name, address, and e-mail address of the legal record owner of the property;

(e) name, address, and e-mail address of the person other than the owner at whose direction the improvements are being made, if that person is not the true legal record owner of the property; and

(f) if applicable, the name, address, and e-mail address of a surety for the performance and payment bonds.

Moreover, if an owner elects to file a notice, the owner is required to conspicuously post a copy of the notice at the project site before physical work commences upon the property, and the owner must take reasonable measures to insure that the notice of commencement remains posted at the project site for the duration of the project.

> Subcontractor’s Notice of Furnishing Requirement.

Under the proposed requirement, if an owner files a notice of commencement, a subcontractor would have to serve a notice of furnishing in order to maintain its lien rights. If the subcontractor filed its notice of furnishing within twenty (20) days of the subcontractor’s first day of work on the job, the subcontractor would have the legal right to file a mechanic’s lien for all of its work on the project. If, however, the subcontractor filed its notice after the initial twenty (20) day window, the subcontractor’s lien would only be enforceable for the services or materials furnished within the period of the twenty (20) days before the date on which the notice is given and all time periods thereafter.

In order to be effective, the notice must contain, at a minimum, a description of the property and a general description of the labor, skill, materials, fixtures, machinery or tools furnished to the project, the name and address of the person that is supplying said items to project, and the name and address of the person that contracted for said items for the project.

In addition, the notice must be served in one of the following manners:

(a) certified mail to the owner’s address;

(b) personal delivery to owner, with evidence of delivery signed by the owner; or

(c) filing of the notice with the Directory.

HB 1620 also includes a provision that is shall be against public policy and unlawful for a contractor or subcontractor to request or require that a subcontractor not file a notice of furnishing.

3. Creates a State Construction Notices Directory. If HB 1602 is enacted, the Pennsylvania Department of Labor and Industry (the “Department”) will establish an internet website known as the “State Construction Notices Directory” (the “Directory”). The Directory is intended to serve as a central statewide repository for notices of commencement, and as the primary means for contractors and subcontractors to readily locate notices of commencement. The Directory would make public notices available in a job site specific format that is searchable by owner name, contractor name, property address, and/or other identifying features that the Department believes are necessary. Under the bill, the Department of Labor and Industry is also authorized to assess filing fees.