Michael G. Louis, Esquire

For contractors and subcontractors throughout Chester County and the Commonwealth of Pennsylvania major changes are about to take place in a law that is more than 40 years old.

The Pennsylvania Mechanics' Lien Law of 1963 had its first major overhaul this summer when Pennsylvania passed a bill which becomes effective on January 1, 2007. There are many significant changes to the law.

Before discussing the changes, the Mechanics' Lien Law, in general, permitted a contractor (defined as one who deals directly with the owner) and a subcontractor (defined as one who deals directly with a contractor) to file a mechanics' lien on the real estate where the contractor or subcontractor did work or provided materials to improve the real estate. The significance of a mechanics' lien was that it created an immediate lien upon filing and that it related back to the time that the work began.
Some of the major changes to the Act are as follows:

• The new Act permits contractors, subcontractors and subcontractors of subcontractors to file a mechanics' lien. Previously, only contractors and subcontractors were permitted to file liens.
• Subcontractors engaged in alteration and repair work, which is defined as work that does not constitute a new improvement or a substantial addition to an existing improvement, used to have to give preliminary notice of the intention to file a mechanics' lien on or before the date the work was completed. This was very problematical for a subcontractor because they did not know if the contractor going to pay them at that point in time since they had not even finished the job. If they sent a preliminary notice of intention to file a mechanics' lien to the contractor before they were even done with the work it would be an insult to the contractor who possibly had intended to pay all along. Now, this preliminary notice is no longer required.
• The time period during which a mechanics' lien can be filed has been extended. Previously claimants only had four months from the completion of the work to file a claim with the Prothonotary and thereby perfect their lien. The amendments extend the filing period to six months.
• With respect to a non-residential construction project, waivers of mechanics' liens may no longer be filed unless they are given in consideration for payment for the work, services, materials or equipment and only to the extent that such payment is actually received. If a waiver of a mechanics' lien is filed in a non-residential project, it is void if it occurs prior to the receipt of payment for the work. This is an important change because contractors, banks and subcontractors have to change their forms so that they are in compliance with the new Act.
• Contractors and subcontractors can waive their lien rights on a residential project if the total contract price between the owner and the contractor is less than one million dollars.
• For residential projects where the total contract price is one million dollars or more, subcontractors can waive their lien rights if the contractor posts a payment bond for labor and material. This same provision applies to non-residential projects for one million dollars or more.
• Mechanics' liens are subordinate to a purchase money mortgage while under the old Act they could actually take priority over a purchase money mortgage if the work began before the mortgage was recorded. They are also subordinate to an open-end mortgage proceeds of which are used to pay all or part of the cost of completing erection, construction, alteration or repair of the mortgaged premises.

Overall, the new act makes a lot of sense. The big winners appear to be subcontractors whose right to file a mechanics' lien are now much harder to waive and are non-waivable under certain circumstances and who no longer have to give a preliminary notice of an intention to file a mechanics' lien in the case of alterations or repairs.

MacElree Harvey
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