DEFINITIONS

The definitions used in the Act are of paramount importance. Following are certain terms used in this summary, which, for ease of reference, have been defined as follows:

"Structure" means any building, structure or improvement erected or constructed on land, together with the personal property and fixtures.

"Contractor" means the business contracting with the owner for construction, alteration, repair, labor, fixtures, or machinery. Includes architects and engineers who supervise the construction, alteration or repairs.

"Subcontractor" means the business contracting with the Contractor.

"Claimant" means either the Contractor or Subcontractor which is filing a lien.

"Materials" means the building materials, supplies of all kinds, and fixtures necessary and incorporated into the Structure.

"Completion" means the performance of the last of the labor or delivery of the last of the materials required by the terms of the Claimant's contract.

"New Construction" means the erection and construction of new Structure or a substantial addition rendering the original Structure for a new or distinct use and effecting a material change in the interior or exterior thereof."Alteration/Repair" means the alteration or repair of an existing Structure which is not New Construction. See § 1201.

RIGHT TO LIEN

Both Contractors and Subcontractors have the right to place a lien on a Structure, but only if the amount of the claim exceeds $500. See § 1301. Unless a person is a Contractor or Subcontractor, there is no right to lien. See § 1303. If the Structure is not completed through no fault of the Claimant, then the right to lien nevertheless exists. See §1305. Owners cannot remove the Structure from the land to evade a lien. See §1307.

As a result, when contracts are approximately $500, we often counsel clients to price the contract with the owner and/or the contract with subcontractors to fit specifically within or outside of the minimum dollar amounts.

WAIVER OF LIEN; FILING

A Contractor or Subcontractor may waive the right to lien, if the waiver is in writing. See § 1401.

If a Contractor waives the right to lien, then to enforce the waiver against the Subcontractor, the Contractor must: 1) prove actual notice to the Subcontractor prior to the Subcontractor furnishing labor or materials; or 2) file the Contractor's contract with the owner with the proper Prothonotary: a) prior to any performance of work by anyone; b) within ten (10) days following the execution of such contract; or c) not less than ten (10) days prior to the execution of contract with the Subcontractor. The filing must be indexed in the name of the Contractor as defendant and owner as plaintiff, and also must be filed with the Contractor as plaintiff and the owner as defendant. See § 1402.

If liens are not waived for Subcontractors, and if the claims of the Subcontractors exceed the unpaid balance of the contract price with the Contractor, then the owner may apply to have the claim limited to the pro-rata share, but only if either: 1) the Subcontractor has notice of the times for payment prior to the time that the Subcontractor provides labor or materials; or 2) the contract was filed with the Prothonotary. See § 1405.

A Subcontractor may rescind the contract with the Contractor, if the Contractor's contract with the owner permits payment to Contractor more than four (4) months following Completion, unless: 1) the Subcontractor has actual notice of that contractual term prior to the time of the execution of the contract with the Contractor; or 2) the Contractor's contract with owner was filed with the Prothonotary. If rescinded, the Subcontractor may still file a lien for prior work. See § 1406.

FILING AND PERFECTION OF LIEN

To perfect a lien—that is, to put the public on notice of the lien—the requirements are different for Contractors and Subcontractors, and for New Construction and an Alteration/Repair.

Special Rules for Subcontractors.

Only in the case of an Alteration/Repair (but not New Construction), the Subcontractor must provide a preliminary notice to the owner of the intention to file a lien. The notice must set forth in writing: 1) the name of the Subcontractor; 2) the name of the Contractor; 3) a general description of the property; 4) the amount due; and 5) a statement of the intention to file a lien. The preliminary notice for an Alteration/Repair must be given on or before the date of Completion. See § 1501(a).

In cases of both New Construction and an Alteration/Repair, the Subcontractor must give formal written notice of the intention to file a lien, with the following information: 1) name of Subcontractor; 2) name of the Contractor; 3) amount due; 4) nature of the labor and materials furnished; 5) date of the Completion; 6) description of the property subject to the lien; and 7) the date upon which the preliminary notice was given, with a copy thereof. The formal notice may be served by mail, posting or by Sheriff. The formal notice must be given at least thirty (30) days prior to the filing of the lien. See § 1501(b).

At any time after Completion by a Subcontractor, the owner or Contractor may perform a special filing to require the Subcontractor to file any lien within thirty (30) days after notice to the Subcontractor of the filing. See § 1506. In the event of such a filing, a Subcontractor would not have to give a formal notice to the owner. See § 1501(b).

All Claimants.

To perfect a lien, every Claimant must: 1) file the claim within six (6) months after Completion; and 2) serve notice to the owner within (1) month after filing of the court term and number, and the date of filing the claim. An Affidavit of Service (or Acceptance of Service) must be filed within twenty (20) days after service the claim, which filing must contain the date and manner of service. Service must be by the Sheriff or by posting. See § 1502. The dates for filing the claim must be coordinated with the preliminary notice and formal notice required by Subcontractors. For example, a Subcontractor's formal notice would have to be given within three (3) months after Completion.

The information required by law to be in the claim is complex, but the claim must generally provide: 1) the name of the Claimant, and whether the Claimant is a Contractor or Subcontractor; 2) name of owner; 3) date of Completion; 4) the amount due; 5) a description of the Structure; and 6):

a) if a Subcontractor, then: i) the name of the Contractor; ii) the date of the preliminary notice, if any; and iii) the date of the formal notice; or

b) if a Contractor and a contract for an agreed sum, then: i) an identification of the contract; and ii) a general statement of the character of the labor and/or materials furnished; or

c) if a Contractor and not a contract for an agreed sum, then: a detailed statement of the character of the labor or materials furnished, or both, and the price charged therefor. See § 1503.

A Mechanic's Lien becomes effective: 1) for New Construction, as of the date of visible commencement upon the land; or 2) for an Alteration/Repair, as of the date of filing the claim. See § 1508. The owner may file security of adequate amount with the court to release the lien.

DUTIES AND REMEDIES AFTER NOTICE

After service of the preliminary notice of a Subcontractor, the owner may retain funds due to the Contractor. See § 1601. If the owner retains funds due to a Contractor, then the owner must give written notice to the Contractor, which provides: 1) the name of the Subcontractor; 2) the amount of the claim; 3) the amount withheld, if any; and 4) that if the Contractor does not undertake to settle or defend the claim within thirty (30) days from service of the notice, then the owner is entitled to the remedies below. The notice may be given personally, or by certified mail. See § 1602.

If the Contractor does not settle or otherwise secure against the claim, then the owner may: 1) pay the claim of the Subcontractor and sue the Contractor; or 2) defend the claim, and the Contractor shall pay all of the owner's costs (including attorneys' fees) for such defense, whether or not the owner is successful.

JUDGMENT

An action to obtain a judgment upon a claim shall be commenced within two (2) years from the date of filing. A verdict must be recovered within five (5) years from the date of filing. See § 1701. Nothing in the Act prevents a Contractor or Subcontractor from otherwise proceeding to collect the debt. See § 1702.

CONCLUSION

In conclusion, the most important point is that a Contractor has only four (4) months from the date of Completion to file a lien. A Subcontractor has three (3) months to provide a formal notice of intention to file a lien, and then only one (1) additional month to file the lien. In addition, a Subcontractor must give the owner a preliminary notice if the work is an Alteration/Repair.

Also, the right to lien may be waived in writing, or waived through a filing with the Prothonotary. Depending upon your interest as an owner, Contractor, or Subcontractor, you may need to more carefully review agreements, implement a change to your standard agreement, or implement a program to consistently file or check for filings with the Prothonotary.

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