Posts Tagged ‘six months’

A Quick Reference Guide to Pennsylvania Mechanics’ Lien Laws

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?

  1. Name of claimant
  2. Name of the person with whom claimant contracted;
  3. The amount claimed;
  4. The general nature and character of the labor or materials furnished;
  5. The date of completion of claimant’s work; and
  6. 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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Construction Contractor Gets OSHA Citations Vacated

In November 2006, the Occupational Safety and Health Administration (“OSHA”) cited and fined Volks Constructors, a full service heavy industrial contractor, $13,300 for failing to properly record certain workplace injuries and for failing to properly maintain its injury log between January 2002 and April 2006.  The contractor contested the citations on the grounds that they were untimely because they were issued at least six months after the last recorded injury occurred.  Pursuant to OSHA regulations, no citation may be issued after the expiration of six months following the occurrence of any violation.

By way of background, the Occupational Safety and Health Act provides that each employer shall make, keep and preserve records of workplace injuries and illnesses.  OSHA regulations require employers to record information about work-related injuries and illnesses in three ways:

(1)               employers must prepare an incident report and a separate injury log within seven calendar days of receiving information that a recordable injury or illness has occurred;

(2)               employers must prepare a year-end summary report of all recordable injuries during the calendar year, which summary must be certified by a company executive; and

(3)               the employer must save all of these documents for five years from the end of the calendar year that those records cover.

In the case of Volks Constructors, OSHA began an inspection of Volks in May 2006 and discovered that Volks had not been diligent in completing its logs, forms, and summaries between 2002 and 2006.  OSHA then took approximately six months to issue a set of citations to Volks for violations related to Volks’ failure to fully complete incident report forms, its failure to enter injuries in the log, its failure to conduct year-end reviews between 2002 and 2005 and, in at least one instance, its failure to have the proper person certify the year-end review.  Notably, Volks was not cited for any violation of the requirement that it save the forms and the log for five years.

Volks’ improperly recorded injuries occurred between January 11, 2002 at the earliest and April 22, 2006 at the latest.  By the time OSHA issued the citations in November, however, the citations were issued a maximum of 54 months after the earliest improperly recorded injury and a minimum of six months, plus ten days, after the latest improperly recorded injury.

Volks moved to dismiss the citations as untimely because OSHA regulations state that no citation may be issued after the expiration of six months following the occurrence of any violation and the injuries giving rise to Volks’ recording failures took place more than six months before the issuance of the citations.  An OSHA Administrative Law Judge (“ALJ”) ruled in favor of OSHA and Volks appealed to the Occupational Safety and Health Review Commission (“OSHRC”).  On appeal the Secretary of Labor argued that Volks’ violations were continuing violations that prevented the six month statute of limitations from expiring until the end of the five-year document retention period.  The Secretary essentially argued that because Volks’ violations were still occurring on May 10, 2006 when the inspection began, the citations were timely because they were issued within six months of May 10, 2006.  The Commission agreed with the Secretary and affirmed the citations.  Volks then filed a petition for review with the United States Court of Appeals for the District of Columbia Circuit.

On review, the District of Columbia Circuit was asked to decide whether OSHA’s record-keeping requirement, in conjunction with the five-year regulatory retention period permits OSHA to subvert the six-month statute of limitations.

In reviewing the Commission’s decision, the Circuit Court noted that pursuant to OSHA regulations, OSHA may cite employers for violations within six months of the violation’s occurrence; meaning if an injury is reported on May 1, OSHA can cite an employer for the failure to create a record beginning on May 8, and may issue a valid citation for such failure anytime within the following six months, and only the following six months.  Moreover, once an employer has made such a record, it must also retain it for five years.  If the employer loses or destroys a record before the end of the five year record retention period this is another violation.   OSHA may cite employers for violations of the five year record retention requirement within six months of the violation’s occurrence.  In other words, OSHA may cite a company for failure to maintain its records for the required five years for six months after the fifth year, and only for six months after the fifth year.  In the Volks case, OSHA never cited Volks for a violation of the five year record retention requirement because it could not cite Volks for the loss or destruction of a record that Volks never made.  Rather, OSHA only cited Volks for the failure to create a record.

Thus, the DC Circuit Court concluded that the citations were issued far too late and therefore had to be vacated.  The court concluded that the statutory language which deals with record keeping is not authorization for OSHA to cite the employer for a record-making violation more than six months after the recording failure. Rather, OSHA must enforce record-making violations swiftly or else forfeit the chance to do so.

In reaching this decision, the DC Circuit Court strongly disagreed with the Secretary’s argument that the five year record keeping requirement extended the statute of limitations by noting that the Secretary’s interpretation incorrectly assumed that the obligation to maintain an existing record expands the scope of an otherwise discrete obligation to make the record in the first place.  The Circuit Court viewed the two obligations as distinct stating “one cannot keep what never existed; a company cannot retain a record it never created.”

Notably, the DC Circuit Court distinguished the Volks case as a case of inaction ( i.e., Volks failed to properly create certain reports) from a case of continuing action.  For example, the court noted that where a company continues to subject its employees to unsafe machines, or continues to send its employees into dangerous situations without appropriate training, OSHA may be able to toll the statute of limitations on a continuing violations theory because the dangers created by the violations persist.

Based on the decision reached in the Volks case, if you receive an OSHA citation more than six months after a discrete violation of an OSHA regulation, you should strongly consider contesting the citation on the grounds of timeliness.  The attorneys at Harmon & Davies can assist you with contesting OSHA citations.

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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