Recent Changes to the Law Of Mechanics' Liens in Pennsylvania
A mechanics’ lien is a statutory device which enables a contractor or subcontractor to obtain a lien upon a parcel of improved real property as a security for the debt due from furnishing labor or materials in and about the erection or repair of the property or improvement. In Pennsylvania, “mechanics’ lien" is plural possessive, with an “s"-apostrophe – not an apostrophe-“s"!
The Pennsylvania Mechanics’ Lien Law, codified at 49 P.S. § 1101 et seq., governs mechanics’ lien practice.
I. Recent Changes
A. The 2006 Amendments
Effective January 1, 2007, the Pennsylvania Mechanics’ Lien Law of 1963 was substantially amended for the first time since its original passage. Most practitioners in this area have since become accustomed to these amendments. For those who infrequently deal with mechanics’ liens, however, the 2007 amendments are summarized here.
First, the ability to waive mechanic’s liens was curtailed, especially in nonresidential projects. Per the 2007 amendments, waivers of mechanic’s liens with respect to nonresidential projects were declared “against public policy, unlawful and void, unless given in consideration for payment for the work, services, materials or equipment provided and only to the extent that such payment is actually received." As for residential projects, contractors and subcontractors could only waive their lien rights if the total owner-contractor contract was less than $1,000.000.00. In addition, if a contractor posted a payment bond for materials and labor, a subcontractor could permissibly waive a lien on all nonresidential projects and on residential projects which exceed $1,000,000.00.
Second, the definition of “subcontractor" was changed to provide mechanics’ lien rights to second tier sub-subcontractors. The 2007 amendments defined a subcontractor as “one who, by contract with the contractor, or pursuant to a contract with a subcontractor in direct privity of a contract with a contractor, express or implied, erects, constructs, alters or repairs an improvement or any part thereof . . . ." The new definition, however, did “not include . . . a person who contracts with a subcontractor not in direct privity of a contract with a contractor." Consequently, the 2007 amendments created mechanics’ liens rights for sub-subcontractors, but not third tier subcontractors and below.
Third, the requirement that alteration/repair subcontractors must give preliminary notice on or before the date the work is completed of their intent to file a mechanics’ lien claim was abolished.
Fourth, the statute of limitations was extended from four (4) months to six (6) months to perfect a mechanics’ lien.
Fifth, in an obvious concession to the lending industry, the 2007 amendments diminished the priority of a mechanics’ lien and made such liens subordinate to purchase money mortgages and certain open-ended mortgages.
B. The 2009 Amendments
Effective October 10, 2009, the 2009 amendments generally removed the restriction on advance waiver of mechanics’ lien rights established in the 2007 amendments for residential projects. In a nutshell, the 2009 amendments redefine “residential property" and remove any dollar-value restriction on advance waivers.
“Residential property" now broadly includes “property on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of that basement is at grade level . . . ." With no further consideration of contract prices, the 2009 amendments effectively return to the original waiver procedures established under the original 1963 Act.
The legislative effort to protect home buyers from the consequences of mechanics’ liens means that practitioners should once again expect that contractors and subcontractors will be subjected to advance waivers of mechanics’ liens.