by Kevin J. McKeon, Partner

Effective January 1, 2007, the Pennsylvania’s Mechanics’ Lien Law (“Lien Law”) was amended, and the changes are predominantly favorable to contractors.  Any party involved in a Pennsylvania construction project, whether as an owner, contractor, lender or surety, should be aware of these changes.  This article is to summarize the changes, and to answer the basic questions about the Lien Law, as amended, in Pennsylvania.

Who Has Lien Rights?

One of the first significant changes in the Lien Law was to expand the scope of lien rights among the various “tiers” of contractors and suppliers involved in constructing a private project.  In that regard, any party having a direct contract with the owner (i.e., a general contractor) and any first tier subcontractors (those subs having a direct contract with a general contractor) have lien rights.  Pursuant to Act 52 of 2006, effective January 1, 2007, second tier subcontractors, and even second tier suppliers who have a direct contract with a first tier subcontractor, also have lien rights.  In effect, the scope of lien rights on private jobs in Pennsylvania is now co-extensive with the protections that would be afforded by a Miller Act payment bond on a federal project.  It should also be noted that on public projects, with very narrow exception for “quasi-public” projects, contractors do not have lien rights.

When Must a Lien be Filed?

Act 52 provides claimants with more time within which to exercise their lien rights.  Instead of the previous 4-month deadline to file with the Prothonotary where the project is located, claimants now have up to 6 months from completing work in order to file.

What Notice is Required?

While the notice requirements for perfecting a lien claim have always been complex and strictly enforced, Act 52 simplifies these requirements in one way.  With regard to prefiling notice, subcontractors and suppliers must still serve notice on the owner and general contractor at least 30 days before filing a lien, but the very difficult and burdensome requirement to serve preliminary notice even before completing work on “alteration or repair” projects (as opposed to new construction) has been eliminated.  General contractors are still not subject to a pre-filing notice requirement.

With regard to post-filing notice, all claimants must still serve notice upon the owner within one month and in the proper manner, in order to perfect the claim.  Additionally, all claimants are required to document service via affidavit filed with the Prothonotary within 20 days of service.

How is the Lien Claim Enforced?

The mere filing of a mechanics’ lien does not necessarily mean that a claimant will collect payment.  In order to enforce the lien and collect payment, a claimant must file a complaint within two (2) years after the lien is filed and obtain a judgment on the lien within five (5) years from the date of filing the lien.

Can Lien Rights Be Waived?

Perhaps the most important change caused by Act 52 is that it limits the circumstances in which lien rights can be waived.  Prior to Act 52, the Lien Law provided that lien rights could be waived by agreement.  Thus, many contract forms included a valid lien waiver.  The Lien Law even provided that if an owner and a general contractor entered into what was often referred to as a “No-Lien Agreement,” and properly filed it with the Prothonotary before work was commenced, such an agreement would be effective to waive not only the general contractor’s lien rights, but those of all subcontractors and suppliers, as well.  All of these concepts are changed significantly by Act 52.

First, Act 52 creates a distinction associated with residential projects for purposes of lien waivers.  Under Act 52, if the general contract for a residential project exceeds $1 million, a no-lien agreement will be deemed void.  Claimants may still agree, however, to waive lien rights on smaller residential buildings on which the general contract price is less than $1 million.  Also, regardless of the general contract price, subcontractors may waive lien rights if the general contractor has posted a payment bond for the project.  Thus, subcontractors would at least have the security of a payment bond even though they may be asked to waive lien rights on larger residential projects.  Interestingly, Act 52 fails to mandate the dollar amount of such a payment bond, and also fails to specify whether such a payment bond could include a very short statute of limitations.  Therefore, perhaps case law will determine whether, for example, a payment bond for only 10% of the general contract price with a 3- month statute of limitations would be compliant with the amended Lien Law and effective to waive all subcontractor lien rights on the project.

Second, and although not a defined term in Act 52 or in the Lien Law, “non-residential” projects will be treated much differently after January 1, 2007.  No-lien agreements for commercial and industrial work, signed by a general contractor after January 1, 2007 are unlawful and will be deemed void.  In other words, Act 52 effectively guarantees mechanics’ lien rights to general contractors on commercial and industrial-type private construction work, regardless of the terms of the general contract.

Subcontractors will also enjoy expanded security on commercial and industrial projects.  Pursuant to Act 52, a subcontractor’s waiver of lien rights on such projects will also be void unless the general contractor has posted a payment bond.  Therefore, at a minimum, subcontractors will have the security of a payment bond on private commercial and industrial projects.  Again, however, it should be noted that Act 52 fails to specify the penal sum required for the payment bond, such that it would be prudent for a subcontractors, especially those with a relatively large scope of work, to investigate and obtain a copy of the payment bond before entering into the subcontract.

One aspect relating to lien waivers is not changed: lien waivers signed in exchange for receipt of payment are still effective even after Act 52.  In other words, when a general contractor requires a subcontractor to execute a partial lien waiver in order to receive payment for work performed to a certain date, such a waiver will be effective.  Similarly, if an owner requires a general contractor to sign a partial lien waiver in exchange for payment for work completed to a certain date, such a waiver will also be effective.  Act 52 does, however, make it clear that partial waivers are only effective “to the extent that such payment is actually received.” Thus, even an unconditional waiver signed before receipt of payment is only effective if and when payment is actually received.

In conclusion, and whenever discussing mechanics’ liens, it is important to emphasize that the deadlines, procedures and requirements to perfect a mechanics’ lien vary from jurisdiction to jurisdiction.  While liens can be an effective tool to compel payment, and to provide security for payment, claimants must typically act promptly, and comply precisely with the terms of the applicable lien law.  Act 52 expands the scope of lien rights in Pennsylvania, but claimants must still take care to adhere to the precise requirements of the law; otherwise lien rights may be worthless.

The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.