THERE’S
A NEW LAW IN TOWN H.B. 136: ARE YOUR LIEN RIGHTS PROTECTED???
BY JIM BARBER, CP
On March 22, 2004, a progressive step for
all Utahans was taken when former Governor Olene Walker signed
into law H.B. 136, more commonly referred to as the “Electronic
Filing of Preliminary Lien Documents bill.” Effective
May 1, 2005, H.B. 136 modifies several sections of Utah Code
Ann. §38-1-1 et. seq. involving Mechanic’s Liens,
Utah Code Ann. §14-1-20 and §14-2-5 concerning Contractors’
Bonds, Utah Code Ann. §63-56-38.1 of the Utah Procurement
Code, and Utah Code Ann. §38-11-204 of the Residence
Lien Restriction and Lien Recovery Act.
This article provides an overview of H.B.
136 with illustrative diagrams while incorporating the amendments
of H.B. 105, commonly referred to as the “Construction
Filing Amendments” signed into law by Governor Jon Huntsman,
Jr. on March 11, 2005.
The Law – H.B. 136
H.B. 136 is a piece of progressive legislation designed to
protect all parties involved with a construction project including,
but not limited to, real property owners, contractors, subcontractors,
suppliers, lenders, sureties and the general public. Sharing
project knowledge among interested parties affords protections
for all involved. Which protections are virtually unheard
of within the construction industry.
Significantly, H.B. 136 mandates new requirements
for filing preliminary lien notices which will profoundly
affect the administration of lien rights. Under this new law,
after May 1, 2005, all preliminary lien notices must be filed
through the newly developed online system called the “State
Construction Registry.”
State Construction Registry (§38-1-27)
Effective May 1, 2005, H.B. 136 mandates the development of
a standardized, online system for filing and managing notices
of commencement, preliminary notices and notices of completion,
thus facilitating compliance with the new law. Non-compliance,
of course is fatal to the assertion of lien rights. Key features
of the State Construction Registry are its ease of use, password
protection, standardized process and automatic notification
system that sends e-mail notices to all interested parties.
The following diagram illustrates how the State Construction
Registry works. (See Diagram 1).
Detailed
information concerning the State Construction Registry, including
information regarding registration, may be found at http://www.ConstructionRegistry.utah.gov
Please see Diagram 2 for additional information contained
in a recently released State Construction Registry handout.
More assistance concerning the State Construction Registry
is available by contacting Utah Interactive at (801) 983-0275
or by contacting the Department of Professional Licensing
(DOPL) at (801) 530-6628. DOPL is the administrative agency
charged with the administration of the State Construction
Registry.
Local
Government Entities Must Transmit Building Permit Information
One of the most demanding requirements of the new law involves
the tracking and reporting of building permits issued by hundreds
of local government entities within fifteen days after the
issuance of such permits. At the onset this task appeared
to be a logistical nightmare. However through perseverance,
combined with hours upon hours of hard work, patience and
understanding this enormous task was accomplished. When building
permit information is transmitted by the local government
entity to the State Construction Registry the new law mandates
such information shall form the basis of a notice of commencement.
Commencement
Notice Requirement (§38-1-31)
The intent of the new law (§38-1-31(1)(b)) is clear and
unambiguous: within fifteen days after commencement of physical
construction work the original contractor shall file a notice
of commencement with the State Construction Registry, when
no building permit has been issued. 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 (§38-1-31(1)(e)).
Preliminary
Notice Requirement (§38-1-32)
Under the new law subcontractors and suppliers are required
to file a preliminary lien notice with the State Construction
Registry within twenty days after commencement of their work
or the commencement of furnishing labor, service, equipment
and material to a construction project or twenty days after
the filing of a notice of commencement.
However,
when subcontractors or suppliers fail to meet the twenty day
requirement they must first, comply with it, after which 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 before
the expiration of five days after the filing of the preliminary
notice; provided however they may pursue the person with whom
the subcontractor or supplier contracted.
Completion
Notice Requirement (§38-1-33)
Upon final completion of a construction project, an owner
of a construction project, an original contractor, a lender
that has provided financing for the construction project,
or surety that has provided bonding for the construction project,
may file a notice of 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 (§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 which
the owner contracted.
Reliance
on the Residence Lien Restriction and Lien Recovery Fund Act
shall diminish as the new law is implemented; with the expectations
that the need for the Residence Lien Restriction and Lien
Recovery Fund 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 both diagrams used in this article.
Disclaimer
Notably, each construction project is unique and specific
and should be considered with those factors in mind. It should
be noted that federal and state laws regarding construction
projects are highly detailed and complex, containing several
exceptions and caveats that cannot be fully addressed in this
article. This article is not intended nor should it be considered
legal advice. The author encourages all real property owners,
contractors, subcontractors, suppliers, lenders, sureties
and the general public to seek guidance from legal counsel
regarding any construction project where they may be either
a direct or indirect party of interest.
Jim
Barber is a Certified Paralegal (CP) in the Salt Lake City
law firm of Christensen & Jensen (www.chrisjen.com), where
he practices in the areas of real estate law, civil litigation,
insurance defense and corporate law. In his 18 years of practice
he has worked to resolve the conflicts of numerous contractors,
subcontractors, developers, engineers and real property managers.
He received his Paralegal Diploma from the College of Professional
Studies and his certification from the National Association
of Legal Assistants. Mr. Barber is a licensed negotiator and
mediator practicing in the Salt Lake City area. He is the
author of numerous articles including “USERRA: Navigating
Uncharted Legal Territory,” Utah Bar Journal November
2003 and contributing author of “Moonlighting In These
Oppressive Economic Times,” 82 U. Det. Mercy L. Rev.
119 (2004). Mr. Barber has been a speaker at numerous seminars
including the CLE seminar titled “There’s A New
Law In Town – H.B. 136! Are Your Construction Lien Rights
Protected?” Mr. Barber is a member of the Legal Assistants
Association of Utah, the Rocky Mountain Paralegal Association,
the Legal Assistants Division of the State Bar of Texas and
the Commercial Law League of America. Jim may be reached by
email at jim.barber@chrisjen.com.
[2005]
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