Louisiana recently updated its mechanics lien laws by passing House Bill 203. Most of the changes won’t take effect until January 1, 2020. We’ll explain a few exceptions, below.
Mechanics lien rules and House Bill 203
House Bill 203 brings changes to a litany of Louisiana lien laws. There were a lot of changes, most of them relatively small – so we won’t be able to cover every change in this post. Still, let’s look at some of the most impactful changes to the Louisiana Private Works Act after HB 203 was passed.
Let’s break things down into 2 overarching categories: (1) changes that immediately go into effect, and (2) changes that won’t go into effect until January 1, 2020.
1. Changes that are immediately effective
Most changes will go into effect on January 1, 2020.
To quote: “Except as otherwise provided in Sections 7 through 9, this Act shall be effective on January 1, 2020, and shall apply to all works begun on or after that date, other than those works for which notice of contract is filed in accordance with R.S. 9:4811 prior to that date. For purposes of this Section, a work is begun as provided in R.S. 9:4820(A)(2), as amended by this Act.”
To translate: Other than section 7-9 (priority, lien challenges), these changes are effective Jan. 1, 2020. However, if a notice of contract was filed prior to Jan. 1, 2020, the current rules still apply to a project that begins or continues past that date.
Sections 7 through 9 refer to the following topics: (1) lien priority, (2) challenges to filed liens, and (3) calculating lien deadlines.
*Note that the lien deadline changes aren’t really “changes” – they’re more like guidelines on exactly when the new deadline rules will go into effect.
a. Lien Priority
Lien priority can be a tricky subject, but we’ve got some helpful basics in this article: Lien Priority – What Happens When Everybody Is Trying to Grab a Piece from the Same Pie? Still, every state has different laws on the books regarding mechanics lien priority. With these changes, the Louisiana priority rules didn’t change all that much.
- Liens, privileges, and other encumbrances for the benefit of a public entity will remain superior to mechanics lien claims. So, too, will mortgages and other liens filed before mechanics lien rights arise.
- The lien priority rules between project participants remain the same, but the wording was tweaked some. Still, the following generally applies: laborers have the highest priority, regardless of who they work for; next come subcontractors, suppliers, and equipment lessors; prime contractors and design professionals (regardless of who the design pro was hired by) have lowest mechanics lien priority. Note that suppliers and equipment lessors are second-tier priority even if they were hired directly by the property owner.
- If a mechanics lien has a higher priority than a mortgage or other lien, it will also have priority over a mechanics lien that’s got lower priority than the mortgage or other lien. Previously, the language was a little unclear and led to some circular logic regarding lien priority.
- When work is done on an improvement that’s owned separately from the land underneath it (a “separate improvement”), a mechanics lien filed against the separate improvement will have higher priority than some other lien – like a UCC lien – unless the other lien was filed before the mechanics lien right arose in the separate improvement. This rule follows the rules under “1” above.
b. Challenging a filed mechanics lien
For a deeper look on this change: Removing Louisiana Mechanics Liens Just Became Much Easier.
Two changes here, now codified at 4833 of the Louisiana lien statute, make life easier for property owners challenging improper or expired mechanics liens.
For one, under 4833(A)(2), if an owner is improperly included in a mechanics lien, the lien statute makes it easier to have that owner released from the claim. Now, the owner may write a written request and the lien claimant must remove an improperly named owner within 10 days of receiving the notice. This was actually somewhat clear in the earlier form of the statute, but now it’s a little more obvious that the remainder of the filed lien won’t be negatively affected because a mistaken owner is removed from the filed lien.
The second change should be really exciting for Louisiana property owners (and, certainly, developers). When a mechanics lien is filed but not enforced, that lien might just linger in the property record forever. However, under the new 4833(E), if a mechanics lien is filed on an owner’s property and that lien expires, the owner can quickly, easily, and cheaply remove the lien on their own – without the aid of the mechanics lien claimant.
Now, an owner can write a request to the recorder and have the lien released. This is great news for Louisiana property owners who have liens lingering on their property title. Other states should probably look at incorporating this rule.
c. Rules for when mechanics lien deadlines change
While the lien deadlines won’t actually change until January 1, 2020, some rules had to be put into place to smooth out exactly how and when the rule changes would occur.
The current Louisiana mechanics lien deadlines will apply if the project is completed prior to January 1, 2020. Meaning, if a Notice of Termination is filed before January 1, or if the project is substantially completed before January 1, 2020 – the old deadlines apply.
But, for projects that are not substantially complete or have not had a Notice of Termination filed by January 1, 2020 – the new lien deadlines will apply, which we’ll explain below.
To avoid any confusion, HB 203 goes a step further. Even if a project is completed prior to January 1, 2020 and a Notice of Termination is filed later – a general contractor’s lien can’t be filed later than July 31, 2020. The same applies for other lien claimants, bu the date is shortened to June 30, 2020. If a project ends right around January 1 and you’re unsure of which lien deadlines apply – it’s a good idea to play it safe.
For more information on the current Louisiana lien deadlines and requirements:
2. Changes in effect after January 1, 2020
The following changes become effective on January 1, 2020.
a. New mechanics lien deadlines
If a Notice of Contract is not filed, all Louisiana mechanics lien claimants must file their lien no later than 60 days after the filing of a Notice of Termination or the substantial completion or abandonment of the work (if no Notice of Termination is filed).
If a Notice of Contract is filed, the deadline to lien will depend on the claimant’s role on the project…
For an in-depth look at the new deadlines:New Louisiana Mechanics Lien Deadlines | Not Much Changes
i. Hired by the owner
When hired directly by the owner, a prime contractor must file their mechanics lien no later than 60 days after a Notice of Termination is filed. If no Notice of Termination is filed, the deadline is 7 months from the substantial completion or abandonment of the work.
ii. Hired by someone other than the owner
When hired by someone other than the owner, the lien claimant must file their mechanics lien no later than 30 days after a Notice of Termination is filed. But, if no Notice of Termination is filed, this deadline becomes 6 months after the substantial completion or abandonment of the work.
b. Major changes to preliminary notice requirements
Several notice requirements were altered or adjusted, and the formatting of the lien statute has been cleaned up a lot. Below are the most significant changes:
- The Notice of Lease requirements were loosened up a lot. The deadline to send a Notice of Lease will now be 30 days from first furnishing, rather than 10. Plus, late notice will now be partially effective. Further, a Notice of Lease won’t have to be sent to direct customers.
- Material suppliers’ 10-day (final) Notice of Nonpayment requirement is dead. Currently, a Notice of Nonpayment must be sent at least 10 days before a mechanics lien could be filed. Note that the monthly Notice of Nonpayment is still alive and well.
- Design professionals are now required to send preliminary notice in order to preserve their right to lien, if they were hired by someone other than the owner. This notice must be sent within 30 days of being hired.
- In order to file suit directly against a prime contractor for payment, or in order to pursue payment under the prime contractors payment bond, if one is present, a claimant hired by someone other than the prime contractor must give notice to the prime contractor at least 30 days before pursuing a lawsuit.
For more on the upcoming preliminary notice changes:
c. Delivery of notices
There were also some tweaks to how notices are sent in Louisiana. Most notably, under section 4845: if both parties agree, notices can be electronically sent. This could relieve a huge burden off of Louisiana construction businesses by reducing the amount of physical paperwork and better-enabling the adoption of technology to streamline back-office operations.
There are also some timing changes regarding notices sent. When a notice is mailed via USPS, that notice will be considered “delivered” whenever it is placed for mailing with the USPS. If a commercial carrier is used (like Fed Ex or UPS), notice is still considered to be given at the time it’s mailed – but only if the notice is actually received within a reasonable time.
Plus, when a document is considered “received” was clarified. Under new section §4843, “A communication or document is received when it comes into the possession of the person to whom it is sent or of a person authorized by him to receive it.”
d. Notice of Contract requirement adjusted
Currently, a Notice of Contract is required for all projects exceeding $25,000. In January, this threshold is raised to $100,000. Further, a Notice of Contract no longer requires a legal property description. Rather, it requires a “complete property description”, which is defined as “any description that, if contained in a mortgage of the immovable properly filed for registry, would be sufficient for the mortgage to be effective as to third persons.”
Lastly, HB 201 reiterates that contractors who fail to file a Notice of Contract when it’s required will not be entitled to file a mechanics lien.
e. Voluntary Final Notice of Nonpayment for residential projects
Louisiana also adopted a new document that’s sort of like a cross between a Notice of Intent to Lien and a mechanics lien extension. It’s a voluntary Notice of Nonpayment (which we’re calling a “Final Notice of Nonpayment”) sent before filing a mechanics lien, and sub-tier lien claimants will benefit from their use.
Specifically, the Final Notice of Nonpayment is only available for subcontractors, suppliers, equipment renters, or design professionals hired by someone other than the owner on residential projects where no Notice of Contract has been filed. Note that it’s also available to suppliers and equipment renters who were hired directly by the property owner.
i. What does a Final Notice of Nonpayment do?
If a Notice of Nonpayment is properly sent, the mechanics lien deadline changes. In this scenario, the lien deadline will become 70 days after a Notice of Termination is filed, or 70 days after substantial completion or abandonment of the work if no Notice of Termination is filed.
ii. Deadline for sending a Final Notice of Nonpayment
A Notice of Nonpayment must be sent at least 10 days before filing their lien claim, and it must be sent prior to the lien deadline. Effectively, it sounds like it should be treated like the Colorado Notice of Intent to Lien – a Louisiana Notice of Nonpayment will be given at least 10 days before the mechanics lien deadline.
f. GC’s can force owners to file a Notice of Termination
First, a small change: Notice of Termination will now contain a complete property description of the property where work was performed, which should be helpful for potential lien claimants. Considering how hard it can be to research property info, this should be a welcome relief.
Much more importantly: A general contractor can force the property owner to file a Notice of Termination once the project has been substantially completed. If the general contractor requests a Notice of Termination be filed, and if the project has been substantially completed, the owner must file a Notice of Termination no later than 10 days after receiving the request.
g. Request for Notice of Termination rules change, too
In Louisiana, a lien claimant hired by someone other than the owner is entitled to send a request to be notified if a Notice of Termination is filed. If an owner receives this request, they must notify the sender when the project has been completed or terminated. This can be immensely helpful since sub-tier claimants often aren’t aware of when project completion occurs, and it can be hard to know whether a Notice of Termination has been filed for the project.
Previously, there wasn’t much penalty for when owners failed to uphold their end of the bargain. Going forward, if an owner fails to notify the sender that a Notice of Termination was filed, the claimant will still be entitled to file suit against the owner to try and recover payment directly from them. However, the right to lien will be lost.
h. Language in the Notice of Lien Rights completely overhauled
Before commencing work on owner-occupied residential projects, prime contractors must deliver a Notice of Lien Rights in order to preserve their right to lien. The language of this notice is set out by statute. The language on this notice has been drastically overhauled to be easier to read and friendlier to property owners.
i. Miscellaneous changes
Finally, here are some changes that are fairly significant, but don’t neatly fit into a larger category.
- Some guidance was given for determining when work begins, which is important when determining priority. Services rendered by a design professional, placing of materials costing less than $100 at the job site, and clearing, grading, or leveling land will not be considered the beginning of work.
- When a Notice of Contract is filed, then canceled, then another Notice of Contract is filed – the later-filed Notice of Contract will be the date from which lien rights will run.
- If a contractor directly pays the debt of their subcontractor in order to relieve a lien claim against the property, the contractor can step into the shoes of the unpaid party and assert contractual rights to get repaid (likely via lawsuit). However, they can’t file a lien via a lower-tiered party’s rights.
- If a payment bond is filed to relieve the owner from lien liability, and if the project exceeds $100,000, the surety must be licensed by the state of Louisiana. Plus, the bond must now equal the price of the project.