Contractors and suppliers: What to do to protect your lien rights

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Guest editorial by Victor A. Anderson, Jr., M. Caroline Lindsey, and Daniel J. Knight, Anderson Jones, PLLC, Raleigh. 

 On July 13, 2012, Governor Perdue signed into law two bills which make significant changes to North Carolina’s lien laws.  Though a few of the changes will take effect immediately, a substantial number of changes will not take effect until 2013.  By educating themselves on these changes and incorporating them into project management procedures, contractors, subcontractors and suppliers can better protect themselves and their lien rights.

A summary review of some of North Carolina’s lien and bond law changes can be found on the Anderson Jones PLLC website. Upon first glance, these new requirements may seem tedious, frustrating, and, quite possibly, just another way to further consolidate power in the hands of title insurance companies, title insurance agencies, and owners of the subject property.  States like Minnesota, New Jersey, and Tennessee, however, have passed similar provisions, and contractors and subcontractors have learned to adapt to them.

Contractors

For contractors, several dates are very important to remember:

***   Beginning on April 1, 2013, contractors should send a Notice to Lien Agent the same day that they contract with the owner of the property.

***   Beginning on April 1, 2013 upon contracting with a subcontractor who is not required to furnish labor or materials on the project site, contractors have three business days within contracting with that subcontractor to provide them with written notice containing the lien agent’s contact information. This should be standard policy within your project management procedure.

***   Beginning January 1, 2013, if the project is a public project and a payment bond is required, and a second or third tier subcontractor requests a copy of the payment bond issued by a contractor, then the contractor must provide a copy of the payment bond to the subcontractor within seven calendar days of receiving the request.

***   Beginning January 1, 2013, if the project is a public project, contractors should immediately draft a project statement and provide it to their subcontractors. Project statements should include a provision requesting that subcontractors provide it to their subcontractors and suppliers. This provision is known as a “flow-down” provision.

Subcontractors and Suppliers

Under the North Carolina General Statutes, suppliers are considered subcontractors.  Subcontractors, along with contractors should also modify their project management procedures by incorporating these changes:

***   Beginning April 1, 2013, upon entering into a subcontract all subcontractors should send a Notice to Lien Agent.

***   Beginning April 1, 2013, subcontractors must provide their lower-tier subcontractors with the lien agent’s contact information and require that they provide their subcontractors and suppliers with the lien agent’s information.

***   Beginning January 1, 2013, on public projects, subcontractors must provide their lower-tier subcontractors with a project statement. This is known as the “flow-down” provision. Subcontractors working on public projects, upon receipt of the contractor’s project statement, should immediately mail a copy to their lower-tier subcontractors.

***   Beginning January 1, 2013, second-tier and third-tier subcontractors on public projects should send a Notice of Public Subcontract to the Prime Contractor if the subcontract is, or ever could be, $20,000.00 or more.

While the changes to North Carolina’s lien and bond law seem significant, and can be pose an administrative hassle, it is clear that these modifications will rectify various problems that have arisen with pre-existing lien and bond law. This synopsis is in no way comprehensive, and you should consult with this office, or your attorney, should you have questions.  Read More.

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