Disclaimer: This fact sheet pertains only to the Mechanics’ Lien Law of Pennsylvania. Other states, including Maryland, New Jersey, and Delaware have dramatically different Mechanics’ Lien Laws.
What is a mechanics’ lien? A security interest in the title to a property for the benefit of those who have supplied labor or materials to the property. In other words, it’s a tool to help contractors, subcontractors, and suppliers ensure payment.
Obviously subs/suppliers care about mechanics’ lien rights, but what about GCs? Most contracts with owners require GCs to defend and bond off mechanics’ lien claims. Therefore, on a basic level you need to know: (1) what mechanics’ liens are; (2) how to avoid them (get a list of all subs/suppliers and make sure everyone is getting paid for the labor and material they supply); (3) how to defend against them (did the claimant follow all the procedures for perfecting a lien within the allotted time?); and (4) how to bond them off.
On rare occasions, a GC might need to file a mechanics’ lien claim to secure its right to payment. In this event, you need to know how to preserve your claim.
Who can file a lien? General contractors, subcontractors and sub-subcontractors (i.e. contractors and suppliers who have a direct contract with subcontractors). No one below the level of a sub-subcontractor has lien rights.
When to file a lien? Subcontractors (but not general contractors) must provide the owner with what is referred to as a formal notice of intent to lien. This formal written notice must be provided to the owner at least 30 days before the lien claim is filed by a subcontractor or supplier.
All claimants must file their lien claim within six months of the claimant’s last date of work.
How do I determine the last date of work? Time limits to file a claim or serve a formal notice of intent to lien are based on the date of completion of the claimant’s work, not from the date of completion of the entire project. The work is complete when the claimant has performed the last of the labor or delivered the last of the materials required by the terms of the claimant’s contract. [Note: claimants cannot tack on additional material or labor to a contract for the purpose of extending the time to file a claim. It is prudent to count deadlines from the last substantial new work. Warranty work and repair work may not extend the filing deadlines.]
What must a subcontractor include in its formal notice of intent to lien?
- Name of claimant
- Name of the person with whom claimant contracted;
- The amount claimed;
- The general nature and character of the labor or materials furnished;
- The date of completion of claimant’s work; and
- A description of the property.
What happens after a lien claim is filed? Within one month after the initial claim filing, written notice of the filing of the lien must be served on the owner, typically by the sheriff. Thereafter, the claimant has 20 days to serve an affidavit of service with the court.
After the above steps have been taken, no further action is immediately necessary. However, within two years of filing the claim, the claimant must file a complaint to enforce its claim.
Does a mechanics’ lien require any pre-filing before construction? No.
Can a public project be liened? No. Liens are not allowed for labor or material furnished for a purely public purpose.
What is the minimum amount for a lien claim? $500.00.
Can lien rights be waived? Yes, but certain procedures need to be followed as Pennsylvania has declared lien waivers to be void as against public policy.
On all projects, a subcontractor can waive its rights to file a lien only if the general contractor provides a bond guaranteeing payment to subcontractors, i.e. a payment bond. As long as a payment bond is in place, a general contractor may file a stipulation against liens with the prothonotary’s office in the county where the project is located. To be effective, a stipulation against liens should be filed: (1) prior to commencement of work on the ground; (2) within 10 days after execution of the principal contract; or (3) not less than 10 days before the contract with the subcontractor. Moreover, the lien stip must be indexed in the name of the general contractor and owner of the property. Although the GC does not have to provide its subs/suppliers with a copy of the Stipulation Against Liens, it is a good practice to do so because this way the GC ensures that its subs/suppliers actually receive notice.
A subcontractor can also waive lien rights in exchange for progress payments received on a project.
Is there a way to remove a lien? Yes. A lien against the property may be removed by petitioning the court to discharge the lien by depositing the amount of the lien with the court or by posting a bond in double the amount of the lien.
Is payment a defense to a mechanics’ lien claim? There is no automatic “defense of payment” for the owner. The owner can be required to pay for a project twice. But the owner can protect itself by recording a copy of the general contract or stipulation in the prothonotary’s office before commencing construction. This will limit each subcontractor to a pro-rata share of money still owed to the general contractor.
Why might a mechanics’ lien be preferred over filing a breach of contract complaint in court? A mechanics’ lien creates a better security interest. In the event of the owner’s bankruptcy, the automatic stay of the United States Bankruptcy Code does not stay perfection of the mechanics’ lien claim for new construction. This is because a lien claim “relates back” to the time when work visibly commenced on the project. Moreover a mechanics’ lien has priority over all liens on a property (except an acquisition or construction loan). Additionally, lien rights survive any foreclosure or sale of property (except foreclosure on an acquisition or construction loan).
Accordingly, if the owner’s finances appear to be precarious and a contractor is not getting paid, a mechanics’ lien might be the best mechanism for protecting the contractor.
This article is authored by attorney Shannon O. Young and is intended for educational purposes and to give you general information and a general understanding of the law only, not to provide specific legal advice. Any particular questions should be directed to your legal counsel or, if you do not have one, please feel free to contact us.
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