Carolinas AGC Testifies Against NC Lien Agent Law

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Carolinas AGC and its members testified against new North Carolina lien agent legislation, scheduled to take effect April 1, at a January 30 legislative hearing. While several other construction groups also oppose the legislation, CAGC was the only association to testify against it, citing that it will cause more red tape and risks for contractors, specialty contractors, suppliers and service companies.

At the public hearing, chaired by Rep. Sarah Stevens (R-Surry), CAGC representatives testified that the commercial construction industry should be exempt from the cumbersome legislation and that it should apply only to one- and two-family residential construction projects. That’s because most of the problems with so-called hidden liens, as previously represented by the title insurers who support the legislation, lie with large-tract residential construction. The title insurers are now stating that they run into similar problems on isolated commercial projects as well.

The legislation (Senate Bill 42) is modeled after a Virginia law which only applies to one- and two-family residential construction projects. Under the new NC law, to protect lien rights on private commercial jobs where the total amount is $30,000 or more, a contractor or subcontractor within three business days of contracting with a lower-tier sub or supplier would have to furnish the lower tiers with written notice identifying the lien agent (who must be a title insurer). Then, within 15 days of the first furnishing of labor or materials, anyone who provides labor or materials would have to notify the lien agent.

“The basic question I have asked repeatedly—and have not gotten a clear answer to—is: If it is so important for commercial construction to be included with Senate Bill 42, why is it not part of Virginia law?” Dave Simpson, CAGC’s NC government relations and building director, said in comments at the Raleigh hearing. “Why use an approach of hitting a gnat with a sledge hammer when the real problem on hidden liens is with large-tract residential construction projects—not commercial projects?”

Carolinas AGC member Matt Bouchard, an attorney with Lewis & Roberts, testified that there are far less risks for title insurers on commercial property because a commercial owner, unlike in residential construction, typically hires one general contractor, at-risk construction manager or design builder, not numerous prime contractors. “It’s not unusual for the residential owner/developer to contract directly with 15, 20, 25 trades or more, all of whom the law treats as ‘prime contractors’ with direct lien rights against the property being improved,” Bouchard said. “When that contracting reality is coupled with the pressure on the residential owner/developer to sell a new house as soon as possible, all the ingredients for title insurer loss arising from hidden liens on tract developments is present.”

CAGC member Ricky Vick of S.T. Wooten agreed: “We do not see any justifiable reason to burden commercial construction firms with the additional cost and responsibility that this law places on them when the main issue trying to be resolved is not commercial construction. Placing additional costs and burdens on NC firms in this economy has the real potential to costs jobs and/or force firms out of business.”

CAGC member Scott Bengel of Shelco, Inc., testified that the new law “significantly changes the risk scenario for commercial projects, creates a great deal of inefficiency that can increase risk and is generally confusing and inefficient without reducing the commercial project’s risk.”  Read testimony and comments here.