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THERE’S A NEW LAW IN TOWN H.B. 136: ARE YOUR LIEN RIGHTS PROTECTED???
BY JIM BARBER, CP

On March 22, 2004, a progressive step for all Utahans was taken when former Governor Olene Walker signed into law H.B. 136, more commonly referred to as the “Electronic Filing of Preliminary Lien Documents bill.” Effective May 1, 2005, H.B. 136 modifies several sections of Utah Code Ann. §38-1-1 et. seq. involving Mechanic’s Liens, Utah Code Ann. §14-1-20 and §14-2-5 concerning Contractors’ Bonds, Utah Code Ann. §63-56-38.1 of the Utah Procurement Code, and Utah Code Ann. §38-11-204 of the Residence Lien Restriction and Lien Recovery Act.

This article provides an overview of H.B. 136 with illustrative diagrams while incorporating the amendments of H.B. 105, commonly referred to as the “Construction Filing Amendments” signed into law by Governor Jon Huntsman, Jr. on March 11, 2005.

The Law – H.B. 136
H.B. 136 is a piece of progressive legislation designed to protect all parties involved with a construction project including, but not limited to, real property owners, contractors, subcontractors, suppliers, lenders, sureties and the general public. Sharing project knowledge among interested parties affords protections for all involved. Which protections are virtually unheard of within the construction industry.

Significantly, H.B. 136 mandates new requirements for filing preliminary lien notices which will profoundly affect the administration of lien rights. Under this new law, after May 1, 2005, all preliminary lien notices must be filed through the newly developed online system called the “State Construction Registry.”

State Construction Registry (§38-1-27)
Effective May 1, 2005, H.B. 136 mandates the development of a standardized, online system for filing and managing notices of commencement, preliminary notices and notices of completion, thus facilitating compliance with the new law. Non-compliance, of course is fatal to the assertion of lien rights. Key features of the State Construction Registry are its ease of use, password protection, standardized process and automatic notification system that sends e-mail notices to all interested parties. The following diagram illustrates how the State Construction Registry works. (See Diagram 1).

Detailed information concerning the State Construction Registry, including information regarding registration, may be found at http://www.ConstructionRegistry.utah.gov Please see Diagram 2 for additional information contained in a recently released State Construction Registry handout. More assistance concerning the State Construction Registry is available by contacting Utah Interactive at (801) 983-0275 or by contacting the Department of Professional Licensing (DOPL) at (801) 530-6628. DOPL is the administrative agency charged with the administration of the State Construction Registry.

Local Government Entities Must Transmit Building Permit Information
One of the most demanding requirements of the new law involves the tracking and reporting of building permits issued by hundreds of local government entities within fifteen days after the issuance of such permits. At the onset this task appeared to be a logistical nightmare. However through perseverance, combined with hours upon hours of hard work, patience and understanding this enormous task was accomplished. When building permit information is transmitted by the local government entity to the State Construction Registry the new law mandates such information shall form the basis of a notice of commencement.

Commencement Notice Requirement (§38-1-31)
The intent of the new law (§38-1-31(1)(b)) is clear and unambiguous: within fifteen days after commencement of physical construction work the original contractor shall file a notice of commencement with the State Construction Registry, when no building permit has been issued. A notice of commencement is effective as to all labor, service, equipment and material furnished to the construction project after the filing of the notice of commencement (§38-1-31(1)(e)).

Preliminary Notice Requirement (§38-1-32)
Under the new law subcontractors and suppliers are required to file a preliminary lien notice with the State Construction Registry within twenty days after commencement of their work or the commencement of furnishing labor, service, equipment and material to a construction project or twenty days after the filing of a notice of commencement.

However, when subcontractors or suppliers fail to meet the twenty day requirement they must first, comply with it, after which they are precluded from seeking any claim for compensation earned for performance of labor or service or supply of materials or equipment furnished to the construction project before the expiration of five days after the filing of the preliminary notice; provided however they may pursue the person with whom the subcontractor or supplier contracted.

Completion Notice Requirement (§38-1-33)
Upon final completion of a construction project, an owner of a construction project, an original contractor, a lender that has provided financing for the construction project, or surety that has provided bonding for the construction project, may file a notice of completion with the State Construction Registry.

Filing a notice of completion modifies the time periods in §38-1-27, so that all preliminary notices shall be filed subsequent to the notice of completion and shall be filed within ten days from the date the notice of completion is filed.

Filing a Lien with the County Recorder is Prohibited Prior to Preliminary Lien Notice (§38-1-32(d))
The new law specifically prohibits the filing of a lien with the County Recorder prior to a preliminary notice being filed pursuant to §38-1-7. Failure to comply with the preliminary notice requirements of §38-1-7 may defeat the assertion of lien rights.

Lien Recovery Fund (§38-11-204(4)(b))
At times parties involved with a project feel compelled to file a claim under the Residence Lien Restriction and Lien Recovery Fund Act. One of the conditions precedent to filing a claim is assurance that the owner possesses a written contract with the original contractor, real estate developer, or factory built housing retailer and has paid in full the original contractor, real estate developer or factory built housing retailer which the owner contracted.

Reliance on the Residence Lien Restriction and Lien Recovery Fund Act shall diminish as the new law is implemented; with the expectations that the need for the Residence Lien Restriction and Lien Recovery Fund Act will ultimately disappear.

Conclusion
One of the many benefits of this new law should be revealed in the near future when contractors, subcontractors and suppliers see an increase in timely payments, while lenders, sureties and the general public enjoy protection from and a reduction of unjustifiable liens and fraud. However, benefits of this new law do not stop here. Future benefits may include enhancements to the State Construction Registry such that it will become a useful tool in preventing “unlicensed or uninsured” contractors from obtaining building permits. Thus, reducing; “poor construction practices and construction fraud.” This new law is only the first step of better things to come.

The author wishes to thank Utah Interactive for their support and for providing both diagrams used in this article.

Disclaimer
Notably, each construction project is unique and specific and should be considered with those factors in mind. It should be noted that federal and state laws regarding construction projects are highly detailed and complex, containing several exceptions and caveats that cannot be fully addressed in this article. This article is not intended nor should it be considered legal advice. The author encourages all real property owners, contractors, subcontractors, suppliers, lenders, sureties and the general public to seek guidance from legal counsel regarding any construction project where they may be either a direct or indirect party of interest.

Jim Barber is an accomplished author with articles published in various legal publications and journals. .


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