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
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
Local Government Entities Must Transmit Building Permit
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
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.
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
The author wishes to thank Utah Interactive for their support and
for providing both diagrams used in this article.
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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