The Mechanic's Lien Law has been radically amended to prohibit owners and contactors from obtaining Waivers for Mechanic's Liens on commercial projects.1
However, if a contractor is paid for a commercial project, a waiver of lien for the amount of payment can be entered. Similarly, a subcontractor can waive the right to file a Mechanic's Lien if payment is received or if the contractor posts a bond guaranteeing payment for labor and materials which is provided to the subcontractor. Otherwise, as noted by the Legislature "a waiver by a contractor of lien rights is against public policy, unlawful, and void."
There are four (4) other major changes to the Mechanic's Lien Law which a contractor and owner should be aware of: (1) the definition of subcontractor has been expanded; (2) the preliminary notice requirements have been changed; (3) the claimant now has an additional two (2) months to file a lien; and (4) Mechanic's Liens have been subordinated to certain types of mortgages.
Expansion of Subcontractor Definition
The term subcontractor now includes one who, pursuant to a contract with a subcontractor, is in direct privity with the contractor. However, if direct privity does not exist then the subcontractor definition does not apply. This new definition expanded the prior definition of subcontractor under the old act and now secondary subcontractors are now considered subcontractors.
Expansion of Notice Requirements
The notice requirements for subcontractors regarding alterations or repairs has been changed under the Act. The requirement that a subcontractor give an owner preliminary notice of its intent to file a claim in the case of alterations or repairs, the owner has been abolished. Accordingly, only the formal notice procedures set forth in the Act need to be followed on claims for alterations or repairs.
Expansion of Time to File a Claim
A claimant now has six (6) months after all work is completed, as opposed to four (4) months under the old law to file and perfect a Lien with the Prothonotary's Office. This change reflects the reality that its often difficult to meet the notice requirements of the Act.
Subordination of Certain Workages
The new amendment also provides that a Lien obtained by a contractor or subcontractor shall be subordinate to purchase money mortgages and open-ended mortgages. Accordingly, if a lender provides funding for the contract, the Lien will not take priority. Any other claims that are superior to the subcontractor and contractor Mechanic's Lien are still given priority under the Act.
These major changes to the Pennsylvania Mechanic's Lien Law of 1963 reflect the Legislations intention to expand the rights of contractors to use Mechanic's Liens to obtain payment on a project. The Mechanic's Lien can be used as a tool to obtain payment from owners and contractors and the prior blanket waiver of liens no longer exists. These changes require both owners and contractors to be especially diligent to have executed lien waiver releases when payments are made on each pay application. Furthermore, owners should require contractors to indemnify them for any lien claims even for lowered tiered parties to prevent Mechanic's Liens from being utilized to cloud a property title on a project.
Should you have any questions regarding this matter or any commercial litigation issues,
please call or e-mail John P. Corcoran, Jr. at (412) 261-6400 or email@example.com.