By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Utah’s mechanic’s lien laws were changed significantly in the 2011 General Session of the Utah Legislature. Many of the changes to the lien laws were pushed by the banking and insurance industries and will generally make it more difficult for a contractor or supplier to maintain or enforce its lien rights. Other changes modified the lien rights of architects, engineers, and others providing preconstruction services. The changes to the lien rights of architects, engineers and others providing preconstruction services are arguably the only positive development resulting from the changes in the lien laws. The changes to the lien rights of architects, engineers and others providing preconstruction services are explained after a discussion of: (1) the types of liens that can now be filed, (2) the preliminary notice requirements for construction service liens, and (3) the priority scheme of lien claims versus construction mortgages.
With the passage of the new lien laws, the familiar terminology of a mechanic’s lien has been replaced in the statutes with the terms “construction service lien” and “preconstruction service lien.” Effectively, there are now two types of liens that can be filed, construction service liens and preconstruction service liens, which are generally applicable to construction services and preconstruction services, respectively.
Construction services and preconstruction services are defined as follows:
- Construction services “means to furnish labor, service, material, or equipment for the purpose and during the process of constructing, altering, or repairing an improvement” and “includes scheduling, estimating, staking, supervising, managing, materials testing, inspection, observation, and quality control or assurance involved in constructing, altering, or repairing an improvement.”
- Preconstruction services “means to plan or design, or to assist in the planning or design of, an improvement or a proposed improvement,” before construction of the improvement commences, and also includes “consulting, conducting a site investigation or assessment, programming, preconstruction cost or quantity estimating, preconstruction scheduling, performing a preconstruction construction feasibility review, procuring construction services, and preparing a study, report, rendering, model, boundary or topographical survey, plat, map, design, plan, drawing, specification, or contract document.”
For contractors entitled to file construction service liens, one of the most significant changes to the lien laws is the implementation of stricter requirements for filing preliminary notices. For all private projects commencing on or after August 1, 2011, any party that may have a lien right must file a preliminary notice with the State Construction Registry within 20 days of commencing its own work on a project. A contractor that does not file a preliminary notice with the State Construction Registry will lose the right to file a construction service lien or to make a claim on a payment bond issued for a private project. Late preliminary notices can still be filed, but they will only be applicable for work performed five days after the late preliminary notice is filed. This means that your company could file a construction service lien or make a claim on a payment bond but only for work performed five days after the late preliminary notice was filed. Additionally, if a notice of completion is filed with the State Construction Registry, all preliminary notices must be filed within 10 days of the filing of the notice of completion.
Previously, parties that had a contract directly with the “owner” of the project did not need to file a preliminary notice. This has been changed and now all parties, regardless of whom they contracted with, will be required to file a preliminary notice on all private projects commencing on or after August 1, 2011. Additionally, lien claimants were previously exempt from having to file a preliminary notice on private projects if there was not a notice of commencement or valid notice of commencement filed with the State Construction Registry. Those exceptions no longer exist under the laws that take effect on August 1, 2011.
In summary, you must timely file your preliminary notices or you will lose your lien rights. However, if you lose your lien rights on a private project, you will still have your contractual claims against the party that hired you to perform the work. Other claims for payment may exist depending on the situation, such as Lien Recovery Fund claims and claims against the owner for failure to obtain a payment bond. Every case is different, so please consult with legal counsel when you have not been paid.
If you file your own preliminary notices, you should be aware that the information required to be in a preliminary notice has also been substantially modified. The information required for a preliminary notice is similar to the information required to file a mechanic’s lien and you may need to obtain tax parcel numbers from the County Recorder.
Also, it is strongly suggested that you file your preliminary notices as soon as possible due to changes to the manner in which priority is determined between lien claimants and lenders when a project fails. Effective for all projects beginning on or after August 1, 2011, priority disputes between construction lien service claimants and lenders will be determined by the date the first preliminary notice on a project is filed with the State Construction Registry. If the first preliminary notice on a private project is filed before a construction lender records its mortgage or trust deed with the County Recorder, all claimants with valid liens will have priority over the lender, which usually results in the lender having to pay the lien claimants when a project fails. Filing a preliminary notice as early as possible will increase the likelihood that lenders will have to pay for work performed on a project when it fails or when the owner has not paid. Contractors who work early on a project will benefit most by filing preliminary notices as soon as possible, as their preliminary notices will most often predate the recording of the construction lender’s mortgage or deed of trust. Please note that preliminary notices can be filed at any time and you do not need to wait until you commence work to file a preliminary notice.
As noted, the only potentially advantageous change in the law was the creation of the preconstruction service lien for contractors providing “preconstruction services,” such as architects and engineers. To maintain a preconstruction service lien, and effective as of May 10, 2011, a potential claimant must first file a “notice of retention” with the State Construction Registry within 20 days of commencing preconstruction services. Preconstruction service liens may be particularly useful when a lender records a mortgage or trust deed on a project after preconstruction services have commenced. The preconstruction service lien will have priority over the construction lender if the notice of retention was filed before the lender’s mortgage or trust deed was recorded with the County Recorder. If this happens, it may force payment to the party providing the preconstruction service.
If you do not file a preconstruction service lien, it appears these services may be incorporated into a construction service lien if appropriate steps are taken to protect the right to file a construction service lien, including the filing of a preliminary notice. So, parties performing “preconstruction services” should consider filing both a notice of retention and preliminary notice with the State Construction Registry.
Please note that preliminary notices and notices of retention are not expensive to file. Wasatch Lien Service expects to charge $15.00 to file either a preliminary notice or notice of retention on a private project and $20.00 for a preliminary notice on a government project. Wasatch Lien Service’s contact information is as follows:
Wasatch Lien Service
3165 East Millrock Drive, Suite 500
Salt Lake City, Utah 84121
The deadline for recording a lien has remained the same for construction service liens. Construction service liens must be recorded within 180 days of final completion of the “original contract” or within 90 days of a notice of completion being filed with the State Construction Registry. For preconstruction service liens, the lien must be recorded with the County Recorder within 90 days after “completion” of preconstruction services. If construction has commenced on the project, and you are still performing services, please immediately consult with legal counsel to determine your deadline to record a preconstruction service lien. The commencement of construction on a project may, in certain circumstances, start the clock ticking on the 90 day deadline to record a preconstruction service lien.
After you have recorded your construction service lien or preconstruction service lien, if you desire to enforce your lien rights, you must then file a lien foreclosure lawsuit within 180 days of the recording of your lien, or the lien will be automatically void.
For state government projects, notices of commencement will still be filed with the State Construction Registry. You will need to file a preliminary notice on state projects in order to maintain payment bond claims. However, if a notice of commencement is not filed or is invalid, a preliminary notice will not be necessary. Please note that these state laws do not apply to federal government projects.
Should you have any questions regarding the changes to Utah’s lien laws, please feel free to contactBenjamin D. Johnson, Esq. for a consultation at no charge.