Wasatch Lien Service, LLC assists contractors, subcontractors, and suppliers in preserving their lien and bond rights. If you provide materials or services in connection with the construction or improvement of real property in Utah, you are granted certain rights by statute.

By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Phone:  801-438-2000

A common misconception is that a mechanic’s lien must be filed within 90 days of a contractor or supplier’s last labor, material or services.  In fact, the time frame to file a lien will likely be much longer.  If a notice of completion has not been filed with the State Construction Registry, a lien claimant has 180 days from completion of the entire project.  When a project is deemed complete is defined by state law.  If a certificate of occupancy is required for the project, completion occurs when the jurisdiction issuing the building permit issues a permanent certificate of occupancy.  If a certificate of occupancy is not required for the project, but a final inspection is required for the project, completion occurs when the project passes a final inspection.  If neither a certificate of occupancy nor final inspection are required for a project, a lien must be filed within 180 days of substantial completion of the project.  Determining when a project is completed oftentimes requires information from the local building department.  Because the lien filing deadlines are often based on completion of the entire project, some contractors and suppliers may have months or even years from their last date of work before their lien rights expire.  For example, if an excavator digs the foundation for a residential home and isn’t paid, and if the home is completed (i.e., the certificate of occupancy is issued) two years later, the excavator has 180 days from the completion of the home to file his lien, even though his own work was finished long ago.  The window of opportunity to file a lien changes if a notice of completion is filed with the State Construction Registry.  If a notice of completion is filed with the State Construction Registry, the time frame to file a lien is shortened and the lien must be filed within 90 days of the date that the notice of completion is filed.

By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Phone: 801-438-2025

Under state law, owners of commercial construction projects are often required to obtain a payment bond from the project’s general contractor.

Specifically, Utah Code Ann. § 14-2-1(2) states: “[b]efore any original commercial contract exceeding $50,000 in amount for the construction, alteration, or repair of any building, structure, or improvement upon land is awarded to any contractor, the owner shall obtain from the contractor a payment bond . . . that becomes binding upon the award of the original commercial contract to the contractor.” For purposes of these statutes, commercial projects are defined as any project which is not single family detached housing or multifamily attached housing up to and including a fourplex.

If the owner complies with the statute and requires the general contractor to obtain the payment bond, unpaid suppliers and subcontractors can make a claim on the payment bond, which is similar to making a claim on an insurance policy.  If the owner obtains this payment bond, it will avoid risk of having to pay twice for work performed on the project.

However, if the owner does not require the general contractor to obtain a payment bond, Utah Code Ann.  §14-2-2(1) provides that “[a]n owner who fails to obtain a payment bond required under Section 14-2-1 is liable to each person who performed labor or service or supplied equipment or materials under the commercial contract for the reasonable value of the labor or service performed or the equipment or materials furnished up to but not exceeding the commercial contract price.”  Notably, under these statutes, the unpaid subcontractors or suppliers will also be entitled to an award of their attorney’s fees and costs.

Subcontractors and suppliers who have unpaid invoices on commercial projects should carefully evaluate whether claims exist against the owner for its failure to require the general contractor to obtain a payment bond.  Notably, under these statutes, claims against the owner should be commenced quickly as they are barred unless brought within one year of the subcontractor or supplier’s last day of work.

By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Phone:  801-438-200

A recurring dispute between lien claimants, banks and owners has finally been put to rest by the legislature.  For perhaps as long as the lien statutes have been in place, stake holders have been arguing whether interest was secured by a lien, along with the value of the work performed, attorney’s fees and court costs. The legislature has finally settled that dispute, “clarifying” that lien claimants are indeed entitled to interest as part of their claims.

As set forth in Utah Code Ann. section 38-1a-309, “Unless otherwise specified in a lawful contract between the owner-builder and the person claiming a lien under this chapter, the interest rate applicable to the lien is the rate described in Subsection 15-1-1(2).” In other words, unless you have a contract with an owner-builder and that contract specifies a different interest rate, the interest rate on lien claims will be 10%.

The provision of interest for liens is substantial given the sometimes lengthy process it takes to resolve lien claims. Large lien claims can accrue substantial amounts of interest over the time period it takes to resolve disputes, and the ability to claim interest has the effect of preserving the real value of work performed and the cost of non-payment to the lien claimant. If you have a contract with an owner-builder, there is no limitation on interest rates in Utah, although interest rates are typically between 18% and 24%. This “clarification” in the law is very welcome after the unfavorable changes in the lien laws passed by the insurance and banking lobbies in 2011.

 

By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Phone:  801-438-2000

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:

Jamie Crnich

Wasatch Lien Service

(801) 278-5436

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.

By Benjamin D. Johnson, Esq.
Bennett Tueller Johnson & Deere
Phone:  801-438-2000

For contractors and suppliers entitled to file construction liens, one of the most significant changes to the lien laws in 2011 was the implementation of stricter requirements for filing preliminary notices.  For all private projects commencing on or after August 1, 2011, to maintain construction lien rights, payment bond rights and bond related claims against project owners, a contractor or supplier must file a preliminary notice with the State Construction Registry within 20 days of commencing its own work on a project. Note, however, that this time period is shortened if a notice of completion is filed on a project.  If a notice of completion is filed on a project, all preliminary notices must be filed within 10 days of the notice of completion.

A contractor that does not file a preliminary notice with the State Construction Registry will lose the right to: (1) file a construction lien, (2) make a claim on a payment bond, and (3) make a claim against an owner for failing to obtain a payment bond.

Note, however, that late preliminary notices can 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 lien or make a claim on a payment bond but only for work performed five days after the late preliminary notice was filed.

Lastly, although the requirements for public projects are slightly different, and a few loopholes and exceptions remain, generally you will lose your bond rights on public projects if a preliminary notice is not filed.