Magazine article Business Credit

Mechanics' Liens in Pennsylvania

Magazine article Business Credit

Mechanics' Liens in Pennsylvania

Article excerpt

For 40 years, mechanics' lien issues in Pennsylvania have been adjudicated by reference to the Pennsylvania Mechanics' Lien Law of 1963 (49 P.S. [subsection] 1101 et seq.) ("Lien Law") and related statutes discussed below. The Lien Law serves to protect owners of Pennsylvania property and organize the rights of the various involved parties (e.g., general contractors, subcontractors, material suppliers, lenders, etc.) so the outcome of a lien dispute is predictable, thus encouraging stability and commerce.

Given the breadth and complexity of the Lien Law and its related litigation, of course, this article cannot comprehensively examine the area. Indeed, it should be noted that virtually every term used in the Lien Law already has been (or soon will be) subject to withering legal attacks and attempts to define those terms in ways that suit particular litigants (for example, who is and is not a contractor, a subcontractor, what is alteration and how is it different from erection, what is an improvement, when is a structure an "existing" one, and so forth). Credit professionals using such terms, even when informed by experience with projects in other states, should not assume Pennsylvania is likeminded. This article summarizes some essential parts of the Lien Law, and notes some hotly contested changes to and developments in the Lien Law that became effective January 1, 2007.

Distinctive Features Of Pennsylvania Law

The most distinctive and (presently) disputed feature of the Lien Law is probably its provision approving lien waivers, discussed in more detail below. In contrast to several other jurisdictions, notably New York State, the Lien Law makes enforceable contractual provisions whereby contractors and subcontractors waive their right to file a lien claim. New Jersey also passed a 1994 law forbidding enforcement of such waivers as contrary to public policy. Critically, the Lien Law upholds valid waivers even if they were executed before the waiving party was paid. The Lien Law will even find waiver without a contract, so long as there has been "... conduct which operates equitably to stop such contractor or subcontractor from filing a claim."

Another somewhat distinctive feature of the Lien Law is its strict statutory nature. As authorities--including the U.S. Supreme Court--have noted, mechanics' liens were developed by legislatures not to help contractors but to provide a remedy to small mechanics and tradesmen, who were frequently defrauded by owners and contractors in the early days of U.S. development. With few exceptions, Pennsylvania courts are to strictly construe the Lien Law provisions as written by the legislature, without regard to the common-law principles, stare decisis (the legal principle that prior court decisions should be followed), or "equitable" considerations that often concern courts in matters where the law has developed via litigation. Hence, if you must choose, knowing the statute "cold" and complying with it step-by-step may be more important than delving into the case law history. It also means that failures by public officials, errors in government record-keeping systems and the like are often no excuse even for arguably blameless parties--if you fail to satisfy a statutory requirement you have no lien claim.

Finally, one distinctive feature of the Lien Law is the current provision as to who can file a lien claim--only (i) a contractor that did business with the owner and (ii) a subcontractor that did business with that contractor. This excluded a myriad of suppliers and other parties involved in construction from the lien process--so-called "sub-subcontractors" could not file lien claims. However, under the amendments effective January 1, as discussed herein, "sub-subcontractors" are entitled to file lien claims. This change is significant. Why? It may significantly increase the total amount of lien claims filed in Pennsylvania. Since lien claims cloud property titles, if many more lien claims are filed, it stands to reason that real estate transactions will become slower and more complex. …

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