North Carolina law allows contractors on private projects certain lien rights. Liens are not allowed on public property.
Effective April 1, 2013 the Legislature amended the lien law.
For projects over $30,000 excluding residential projects by the homeowner, the owner must designate a Lien Agent, typically a title insurance company. The Lien Agent’s contact information must be posted on or near the permit. Although a permit is not supposed to be issued without this information, an owner is also required to provide such information upon written request.
The statute requires contractors who deal with material suppliers (ie. folks who do not show up on the job site to see the permit), within 3 days of contracting, they must provide the Lien Agent’s information. The statute says this can be accomplished by putting the information in the contract/ PO.
If a contractor or subcontractor who works on a project wants to keep his lien rights, within 15 days of starting on the project, he needs to provide the Lien Agent with his contract information. The statute provides a form to use and the form must be sent by some method where you can get a receipt including hand delivery, fax, email or certified mail. To be effective against a transfer, a contractor must also either A) give the notice OR B) record a claim of lien before a transfer deed is recorded.
After the initial notice, a contractor’s lien rights depend on whether or not it dealt with the owner of the property.
A contractor who dealt directly with the owner is entitled to a lien on the property. To receive these lien rights a contractor must: 1) file a Claim of Lien within 120 days of the date it last worked on the project or supplied materials and 2) file a lawsuit to perfect the lien within 180 days of the date it last worked on the project or supplied materials. Both the lien and the lawsuit should be filed with the clerk’s office in the county where the property is located.
The lien rights of a subcontractor, or one who did not deal directly with the owner, include a lien on funds and a subrogated lien. To receive a lien on funds, a subcontractor must prepare a Notice of Claim of Lien and send it by certified mail to anyone above him in the contract chain. Upon receipt of the notice, parties are obligated to retain funds in the amount stated. If a party fails to retain these funds, it becomes personally liable to the subcontractor. If the owner pays in violation of the notice and the subcontractor also filed a proper claim of lien at the courthouse, the subcontractor has a lien on the property to the extent of the wrongful payment.
A subcontractor also has subrogated lien rights. By filing the proper papers, a subcontractor can obtain a lien on the property through the lien of the contractor and any higher tier subcontractors. Since a subcontractor’s subrogated lien rights depend on other parties, an owner may defend a subrogated lien with the defenses of the higher tier subcontractors and the contractor. Contractors can cut off the rights of second or third tier subcontractors by posting and filing a Notice of Contract within 30 days following the issuance of the building permit. Subcontractors, however, can renew their rights by responding to the contractor with a Notice of Subcontract.
Bond claims may be available on private jobs. Bond rights are stated in the bond itself. It is essential to obtain a copy of the bond from the owner to determine your bond rights. Often private bond claim rights expire after 90 days of last working or providing materials on the job site (as opposed to the 120 days on a public project). If your job has a bond, know its terms before you have a problem or you may lose your bond rights before you know what they are.
State and federal bond rights vary. Generally speaking, public projects valued at over $300,000 must have performance and payment bonds. The purpose of a performance bond is to ensure the owner that the project gets completed and subcontractors/ suppliers paid. The purpose of the payment bond is to protect contractors and subcontractors who provide labor and materials to a public job. Upon proper request by a subcontractor, contractors are required to provide a copy of the bond within 7 days. Notices required:
- Contractors are required to give the subcontractors they deal with a notice containing various information (project name, project address, etc). Subcontractors & suppliers who receive this information are required to pass it on to their subcontractors and suppliers.
- If you deal with the general contractor (person who contracted with government agency), then notice may not be required. If you did not deal with the general contractor, then notice by certified mail is required to be sent to the general contractor (usually within 120 days of last supplying material or labor to project). It is a good idea to send a copy (certified mail) to the surety, owner/government agency and other affected parties.
- The statute also provides a form for subcontractors and suppliers to send to contractors within the first 75 days on a project.
Failure to send proper notice may result in your claim being limited to $20,000 or labor/ materials provided within 75 days service of notice.
Bond claims must be perfected by filing a lawsuit within one year of last providing labor or materials to the debtor for the job site.
For lien and bond claims, the law provides for the recovery of attorney fees if the other party unreasonably refused to resolve the dispute.
This area of the law can be very complex and you are encouraged to seek competent legal advice. The deadlines, notices and amounts are statutory and subject to change from time to time.
This article is meant as general knowledge and not meant to substitute for legal advice on specific issues. If you have a question, please call Doug McClanahan at 861-0693.