UPDATE: Christopher Hill informed me this morning that the bill has now been tabled until the next session, and therefore, is dead for now. Chris had testified before the legislature this morning regarding the bill. While the bill is tabled for not, it’s still worth anaylzing as it may creep back into discussions in the next session.
Hat tip to our good friend Christopher Hill and his Construction Law Musings blog for his great commentary on House Bill 1265 currently pending before the Virginia legislature and threatening to change Virginia’s mechanics lien deadlines. Chris wrote two posts over the past few weeks about the pending Virginia HB 1265, both of which I recommend:
Review these two posts, as well as James Fullerton’s “New Deadlines on Virginia Mechanic’s Lien” post, to get a good understanding of both the proposed law changes and the fiery debate surrounding the proposal. Further, after reviewing these posts and the full text of the proposed bill, we’ve prepared this summary of the changes and the issues presented.
The New Rules Will Apply To Single & Two Family Residential Projects Only
This should come as a relief to the construction industry, because the bill as first proposed would have applied to all private construction projects. However, after some pressure from construction industry lobbyist, the bill’s effectiveness has been limited, and is only applicable to construction work performed or materials furnished to single or two family residential properties.
Therefore, the new proposed regulations would only affect the projects that already have the Mechanics Lien Agent (MLA) notice requirement, and would have absolutely no effect on the mechanics lien laws applicable to commercial and industrial projects.
HB 1265 Creates A Burdensome Notice of Intent to Lien Requirement
HB 1265’s main feature is to require potential mechanics lien claimants to deliver a “pre-lien notice” 30 days before recording the memorandum of lien. The “pre-lien notice” must contain the following data:
(i) the name, mailing address, and telephone number of the person sending such notice, (ii) the building permit number on the building permit, (iii) a description of the property as shown on the building permit, (iv) a statement that the person sending such notice intends to file a lien on the property, and (v) the amount for which the person sending such notice intends to file a memorandum of lien.
HB 1265 doesn’t call this a “Notice of Intent to Lien” requirement, but it is exactly that. If passed, Virginia would join only nine other states in having a notice of intent to lien requirement, and its requirement for the notice to be filed 30 days before the mechanics lien would make Virginia tied to have the longest notice of intent period in the nation, and certainly the most burdensome.
Most states with notice of intent requirements mandate the notice get sent at least 10 days before the mechanic lien’s filing. Virginia’s notice of intent requirement mandates the notice be sent at least 30 days before recording the mechanics lien. As expressed by Chris Hill and James Fullerton in their respective articles, this would effectively shorten the mechanics lien filing period from 90 days to 60 days in Virginia.
The only other state with such a long notice of intent period is Wisconsin, which also requires a notice of intent be delivered at least 30 days before recording the mechanics lien. The difference between Wisconsin and Virginia, however, is the mechanics lien period. Wisconsin mechanics liens are due within 6 months from last furnishing labor or materials to a project, which is more than twice as long as the Virginia period. Instead of reducing the mechanics lien period by 1/6 like Wisconsin, the Virginia mechanics lien period would be shortened by a full 1/3.
Why Virginia’s Mechanics Lien Bill Is A Change For The Worse
There seem to be ten to twenty really terrific reasons why HB 1265 doesn’t make any sense. I personally like the letter sent by James Fullerton to the Virginian Senate, and copied to his online newsletter above-linked, which provides:
Virginia’ mechanic’s lien statute have held fairly steady for over two hundred (200) years and I have not heard any argument to the contrary. The apparent problem is that some innocent Virginia homeowners, and perhaps one member of the house of delegates personally, get drawn into disputes involving construction projects.
A mechanic’s lien in Virginia is only valid to the extent that the owner owes funds to the general contractor at the time that the owner receives notice of the mechanic’s lien. The owner is only required to pay for the project once. Once the owner has paid, the owner has a complete defense to any mechanic’s lien.
In addition to this payment defense available to homeowners, there are other problems with this bill.
In my mind, one of the biggest problems is that the bill may result in more mechanics lien claims against Virginia homeowners. The original mechanics lien filing period is 90 days in Virginia, with retainage withholdings, pay-when-paid provisions and credit terms sometimes greater than 45 or 60 days, this 90 day period is a small window for a lot of contractors and suppliers. A lot of mechanic liens already get filed by claimants who will eventually get paid, but just aren’t yet. Shortening the mechanics lien period by 30 days (by requiring the notice of intent) is just going to increase these types of filings.
Stay tuned to the ConstructionLienBlog for updates on this bill. And if it does become law, rest assured that the new pre-lien notice form and deadline will be added to our software.