Are you a residential owner of real estate? Are you looking to make improvements to your home? Perhaps you have just purchased a gorgeous new property thanks to a real estate agent like Reali? If so, you should read the following alert with respect to recent changes made to the Pennsylvania Mechanics’ Lien Law (the “Lien Law”).
On July 9, 2014, the Lien Law was amended to provide, in part, protection for residential property owners against the filing of mechanics’ liens. The amended Lien Law took effect on September 7, 2014. Section 201(14) of the Lien Law defines residential property as “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…”
Section 301(a) of the Lien Law states that every improvement and the estate of title of the owner in the improved property is subject to a lien for the payment of all debts by the owner to the contractor, or by the contractor to any of its subcontractors, for labor or materials furnished in the erection, construction, alteration or repair of the improvement, provided that the amount of the claim exceeds $500.00. However, Section 301(b) states that a subcontractor does not have the right to a lien with respect to an improvement to a residential property if (1) the owner or tenant paid the full contract price to the contractor, (2) the property is or is intended to be used as the residence of the owner or subsequent to occupation by the owner, a tenant of the owner, and (3) the residential property is a single townhouse or a building that consists of one or two dwelling units used, intended or designed to be built, used, rented or leased for living purposes.
One major difference between how work done for residential and non-residential property is distinguished in the Lien Law revolves around when a contractor or subcontractor may waive their rights to assert a mechanics’ lien. A contractor or subcontractor may waive the right to assert a mechanics’ lien against residential property, but waivers with respect to non-residential property are against public policy unless given for payment actually received, or in exchange for a bond by a contractor guaranteeing payment to subcontractors. Further, a waiver validly provided by a contractor is binding against a subcontractor only if the subcontractor has actual notice of such waiver before any labor or materials were furnished by him, or if such contract was filed in the office of the Prothonotary (1) prior to the commencement of the work upon the ground or (2) within ten days after the execution of the principal contract or (3) not less than then days prior to the contract with the subcontractor.
What happens if a contractor files a mechanics’ lien against your property? The July 9, 2014 amendment to the Lien Law provides some new and additional defenses. An owner of residential property may discharge a mechanics’ lien against such property “upon a court order issued in response to a petition or motion to the court by the owner, if “the owner or tenant has paid the full contract price to the contractor.” Further, in a situation where the owner of residential property paid an amount to the contractor that is less than the sum of the contract price, the amount of any such lien shall be reduced to the amount of the unpaid contract price owed by the owner to the contractor.