There's a new Lien Law in Town: Are Your Lien Rights Protected?
by Jim Barber
On March 22, 2004, House Bill 136 was signed into law. More commonly known as the "Electronic Filing of Preliminary Lien Documents" bill, H.B. 136 took effect on May 1, 2005, and made significant modifications to the laws governing Mechanics' Liens (Utah Code Ann. ("UCA") ¤¤ 38-1-1 et seq.) and Contractors' Bonds (UCA ¤¤ 14-1-20 and 14-2-5), as well as amending UCA ¤63-56-38.1 of the Utah Procurement Code and UCA ¤38-11-204 of the Residence Lien Restriction and Lien Recovery Act. This article provides an overview of both H.B. 136 (2004) and the further amendments made by H.B. 105 (2005), commonly referred to as the "Construction Filing Amendments."
The New Law - H.B. 136
H.B. 136 is intended to protect all parties involved in a construction project: owners, contractors, subcontractors, suppliers, lenders, sureties, and the general public. The bill requires that certain information be provided by those entities that may file liens. The availability of such project knowledge among the interested parties affords protection to all involved. Until now these protections have been unavailable to construction-project participants.
Significantly, H.B. 136 imposes new requirements on those entitled to lien property by requiring them to file a preliminary lien notice. This new step will profoundly affect the administration of lien rights. Under this new law, all preliminary lien notices must be filed through the newly developed online system called the "State Construction Registry."
The State Construction Registry (UCA ¤ 38-1-27)
H.B. 136 mandates the development of the State Construction Registry, a standardized, online system for filing and managing notices of commencement, preliminary notices, and notices of completion, thus facilitating compliance with the new law. Noncompliance, of course, is fatal to the assertion of lien rights. Key features of the State Construction Registry are its Internet access, ease of use, password protection, standardized process, and automatic-notification system, which generates and sends e-mail notices to all interested parties. The Diagram below illustrates how the State Construction Registry works.
Detailed information concerning the State Construction Registry, including information regarding registration, may be found at http://www.ConstructionRegistry.utah.gov
Local Government Entities Must Transmit Building-Permit Information
One of the key requirements of the new law involves the tracking and reporting of building permits issued by counties, cities, and towns within fifteen days after the issuance of such permits. When building-permit information is transmitted by the local government entity to the State Construction Registry, the new law mandates that such information shall form the basis of a notice of commencement of the Construction Project.
Commencement-Notice Requirement for Projects Commenced without a Building Permit (UCA ¤ 38-1-31)
For projects which do not require a building permit, the contractor, under UCA ¤ 38-1-31(1)(b), must file a notice of commencement with the State Construction Registry within fifteen days after commencement of physical construction work. A notice of commencement is effective as to all labor, service, equipment and material furnished to the construction project after the filing of the notice of commencement (UCA ¤38-1-31(1)(e)).
Preliminary-Notice Requirement (UCA ¤ 38-1-32)
The new provisions also require subcontractors and suppliers to file a preliminary lien notice with the State Construction Registry within twenty days after either (a) commencement of their work or the commencement of furnishing labor, service, equipment, and material to a construction project of (b) the filing of a notice of commencement. However, when subcontractors or suppliers fail to file a preliminary-lien notice within the twenty-day period, they are precluded from seeking any claim for compensation earned for performance of labor or service or supply of materials or equipment furnished to the construction project prior to the expiration of five days after their late filing of a preliminary notice Ð a prerequisite now to the filing of a notice of lien. However, such a late subcontractor or supplier may still may pursue the person with whom they contracted.
Completion-Notice Requirement (UCA ¤ 38-1-33)
Upon final completion of a construction project, the owner, an original contractor, a lender that has provided financing, or a surety that has provided bonding for the construction project, may file a notice of project completion with the State Construction Registry.
Filing a notice of completion modifies the time periods in ¤38-1-27, so that all preliminary notices shall be filed subsequent to the notice of completion and shall be filed within ten days from the date the notice of completion is filed.
Filing a Lien with the County Recorder is Prohibited Prior to Preliminary-Lien Notice (UCA ¤ 38-1-32(d))
The new law specifically prohibits the filing of a lien with the County Recorder prior to a preliminary notice being filed pursuant to ¤38-1-7. Failure to comply with the preliminary-notice requirements of ¤38-1-7 may defeat the assertion of lien rights.
Lien Recovery Fund (¤38-11-204(4)(b))
At times, parties involved with a project feel compelled to file a claim under the Residence Lien Restriction and Lien Recovery Fund Act. One of the conditions precedent to filing a claim is assurance that the owner possesses a written contract with the original contractor, real estate developer, or factory built housing retailer and has paid in full the original contractor, real estate developer, or factory built housing retailer with which the owner contracted.
It is hoped that reliance on the Residence Lien Restriction and Lien Recovery Fund Act will diminish as the new law is implemented and that the need for the Act will ultimately disappear.
Conclusion
One of the many benefits of this new law should be revealed in the near future when contractors, subcontractors, and suppliers see an increase in timely payments, while lenders, sureties, and the general public enjoy protection from and a reduction of unjustifiable liens and fraud. However, benefits of this new law do not stop here. Future benefits may include enhancements to the State Construction Registry such that it will become a useful tool in preventing "unlicensed or uninsured" contractors from obtaining building permits, thus, reducing "poor construction practices and construction fraud." This new law is only the first step of better things to come.
The author wishes to thank Utah Interactive for their support and for providing the diagram used in this article.