Guest Editorial by Greg Higgins and Eric Biesecker, Nexsen Pruet, PLLC’s Construction Law Practice Group
Curtailment of Double Payment on North Carolina’s Public Projects – Effective January 1, 2013, a new scheme is being introduced for North Carolina’s public projects that will provide contractors with some protection against double payment. The new scheme requires contractors to furnish any claimant with a copy of the payment bond within seven days of the claimant’s written request. It requires contractors to provide all of their subcontractors and suppliers with a “Project Statement.” It requires subcontractors to provide all of their subcontractors and suppliers with the contractor’s Project Statement, too. A contractor or subcontractor that fails or refuses to provide a Project Statement cannot enforce its contract against the lower tier party until the Project Statement has been provided to the lower tier party.
The Project Statement must contain: (1) the name of the project; (2) the physical address of the project; (3) the name of the contracting body; (4) the name of the contractor; (5) the name, phone number, and mailing address of an agent authorized by the contractor to accept service of requests for the payment bond, the notice of public subcontract, and the notice of claim on payment bond; and (6) the name and address of the principal place of business of the payment bond surety.
Upon receipt of a Project Statement, subcontractors and suppliers should serve “Notice of Public Subcontract” upon the contractor. If Notice of Public Subcontract is sent within 75 days of the subcontractor’s or supplier’s first date of furnishing labor or materials, then the subcontractor or supplier can pursue its full claim. Otherwise, the subcontractor’s or supplier’s claim will be limited to the greater of (1) the value of the labor or materials provided within 75 days of claim or (2) $20,000.00, unless the contractor has failed to timely furnish a copy of the payment bond to the claimant.
A Contractor’s Lien Waiver May Not Prejudice a Subcontractor’s Lien Rights – Under current law, a lien waiver signed by the contractor before a subcontractor files a lawsuit to enforce its Claim of Lien On Real Property waives the subcontractor’s right to enforce the contractor’s lien on real property (e.g., a contractor’s lien waiver waives a subcontractor’s subrogated lien rights). Effective April 1, 2013, N.C. Gen. Stat. § 44A-23 will provide that a contractor’s lien waiver will not prejudice the rights of the subcontractor if (1) the subcontractor has given notice to the Lien Agent; (2) the subcontractor has served a notice of claim of lien upon funds on the owner; and (3) the subcontractor has delivered a copy of the notice of claim of lien upon funds served upon the owner to the Lien Agent.
Claims of Lien on Real Property Must Be Served – North Carolina’s current laws require filing, but not serving, Claims of Lien on Real Property. Effective January 1, 2013, Claims of Lien on Real Property must be served upon the owner, and if the Claim of Lien on Real Property is being asserted by a subcontractor or supplier (e.g. by subrogation pursuant to N.C. Gen. Stat. § 44A-23), then it must also be served upon the contractor. The Claim of Lien on Real Property will not be perfected until it is both served and filed. Therefore, service and filing of the Claim of Lien on Real Property should occur before 120 days after the last furnishing of labor or materials at the site of the improvement by the person claiming the lien. Service is deemed complete when the Claim of Lien on Real Property is personally delivered or deposited for delivery. Parties can be served at (1) the address the party listed on the permit relating the project, (2) the address for the party listed on the tax rolls for any county in North Carolina, or (3) the address for the registered agent of the party listed with the Secretary of State.
The Form of the Claim of Lien On Real Property is Changing – North Carolina law currently does not require a Claim of Lien on Real Property to contain a certification that it was served or require a subrogated lien to name the contractor through which subrogation is asserted. Effective January 1, 2013, each Claim of Lien on Real Property must include a certification of proper service. If the Claim of Lien on Real Property is being asserted by a subcontractor or supplier (e.g., by subrogation pursuant to N.C. Gen. Stat. § 44A-23), then it must also name the contractor through which subrogation is asserted. Chapter 44A also now expressly allows subcontractors and suppliers to use either (a) their own dates of first or last furnishing of labor or materials, or (b) the contractor’s dates of first or last furnishing of labor or materials.
Notice of Contract Changes – The current version of N.C. Gen. Stat. § 44A-23 contemplates only the contractor posting and filing the Notice of Contract. Effective January 1, 2013, the statute will allow the owner to post and file the Notice of Contract. Additionally, the deadlines associated with the Notice of Contract will be relaxed. The owner or contractor will be able to comply with the Notice of Contract requirements by posting and filing the Notice of Contract within the latter of (1) 30 days following the date the permit is issued for the improvement of the real property or (2) 30 days following the date the contractor is awarded the contract for the improvement of the real property involved. The statute does not define “permit.”
Bankruptcy “Fix” – Recent bankruptcy cases generated confusion regarding the date that a lien upon funds arises or attaches, and therefore whether a Notice of Claim of Lien Upon Funds could be served after a party in the contractual chain files bankruptcy. Effective January 1, 2013, section § 44A-18 will make clear that a lien upon funds arises, attaches, and is effective immediately upon the first furnishing of labor, materials, or rental equipment at the site of the improvement. This clarification is intended to permit subcontractors and suppliers to serve Notices of Claim of Lien Upon Funds (and related subrogated Claims of Lien on Real Property) after another party in the contractual chain files bankruptcy. The revisions also make clear that until a lien claimant serves a Notice of Claim of Lien Upon Funds, any owner, contractor, or subcontractor against whose interest the lien upon funds is claimed may make, receive, use, or collect payments thereon and may use such proceeds in the ordinary course of its business.
Sanctions for False Statements Expanded and Increased – North Carolina’s current law states that a contractor or other person receiving payment for improvements to real property who knowingly furnishes a false statement of the sums due or claimed to be due (e.g., a fraudulent lien waiver) is guilty of a Class 1 misdemeanor. Effective January 1, 2013, the sanctions for such false statements will increase. In addition to the criminal sanctions, fraudulent lien waivers will constitute deceit and misconduct subject to disciplinary action under Chapter 87 of the General Statutes. As a result, a person that knowingly furnishes such a false statement may have its license revoked, suspended, or otherwise restricted. Moreover, an individual involved may also lose his or her ability to act as a qualifying party for a license.
Necessary and Proper Parties to Lien Enforcement Lawsuit – Effective immediately, not all owners, lenders or title insurance companies are necessary or proper parties to lien enforcement actions. N.C. Gen. Stat. § 44A-13 now states that a former owner is not a necessary party in a lien enforcement lawsuit if the former owner holds no ownership interest in the property at the time the lawsuit is commenced and if the plaintiff seeks no relief from the former owner. Subsequent purchasers and lenders also are not necessary or proper parties to lien enforcement lawsuits if the lien has been discharged via cash deposit or via a lien discharge bond. Nothing in the revised statute prevents a lien claimant from asserting any claims that are separate and distinct from enforcement of the lien. Read More.