North Carolina Lien Law Update: Lien Law Study Committee Issues Report and Recommendations

Lien Law Update: Lien Law Committee Issues Its Report and Recommendations

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.

The lien law.

To understand where we are, let’s recall from whence we came.

When the economy tanked in 2008, title insurance companies experienced a double digit rise “hidden lien” claims (liens filed after property is sold that relate back to a pre-closing date). Consequently, the title insurers introduced legislation that would wipe out all liens not perfected by closing. Seeking to broker a middle ground, the Construction Law Section of the North Carolina Bar Association formed a committee to examine the issue and, if consensus existed, draft proposed changes to the lien law. That effort resulted in HB 489, introduced last year in the North Carolina General Assembly. HB 489 passed the House, and the Senate referred the bill to the study committee process. The matter was then referred to the Legislative Research Commission’s Committee on Mechanics Liens on Real Property (the “Committee”).

The Committee met on three occasions in February and March of this year. On March 27, the Committee released its report and recommendations. The Committee also submitted draft bill 2011-TGz-13A[v.10] incorporating the proposed revisions to Chapter 44A (the mechanic’s lien law) and related statutes.

The draft bill, if enacted, would make the following changes to the lien law:

  • Require service of Claim of Lien on Real Property (subs and suppliers are already obligated to serve the Notice of Claim of Lien Upon Funds);
  • Allow lien claimants to rely upon registered agent and registered office addresses on record with Secretary of State for purposes of serving lien documents;
  • Clarify that a lien on funds arises immediately upon first furnishing of labor or materials, and remove the requirement that a notice of claim of lien upon funds be attached to a subrogated claim of lien on real property, to address bankruptcy decisions barring post-petition lien claims;
  • Provide statutory forms for final and partial lien waivers;
  • Provide that a former owner of property is not a necessary party to a lien enforcement action;
  • Provide that a sub or supplier may use its own date of first and last furnishing in the claim of lien document, or the date of the general contractor through which the claim of lien on real property is being asserted, when asserting a subrogated lien on real property;
  • Require subs and suppliers not in privity with the general contractor (i.e. second-tier and below) to provide notice of their involvement in a project as a condition of making a payment bond claim;
  • Expand the definition of “improve” to include off-site fabrication; and
  • Subject those who sign false statements regarding sums due or claimed to be due to liabity under North Carolina’s Unfair or Deceptive Trade Practices Act (which permits an injured party to recover triple damages plus attorneys’ fees) and providing that signing a false statement constitutes deceit and misconduct under contractor licensing statutes.

Notably, the draft bill does not address hidden liens. The Committee explained in its Findings and Recommendations that “[in] the time alloted to it for its work . . . the Committee was not able to evaluate unresolved issues” relating to hidden liens. The Committee recommended that the issue be studied in preparation for the 2013 long session.

The Committee’s pragmatic decision to leave the hidden lien issue for next year increases the odds that the Committee’s proposed changes will become law. Additionally, a great deal of work remains in crafting a satisfactory solution to the hidden lien controversy.




NC Law

Don’t Lose Your Head By Ignoring Your Gut

"Plots have I laid . . . "

Don’t Lose Your Head by Ignoring Your Gut

By:  Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.
(704) 377-2500





Act III, SCENE 1: Hotel Project, in the unfinished but dried-in lobby.

ENTER GLOUCESTER, the general contractor, and BUCKINGHAM, the Architect.



O have we suffered such delay, for the winter hath cursed our enterprise with its monster’s breath. The hotel will not open before the convention!


And the Owner, my patron, seeks recompense by bleeding you.  But now we must silence our tongues, your slothful tradesmen approach.


‘Tis fortunate that we have conferred with them before now, all but one.  And today will be his head undone.

I am not treacherous by nature, Buckingham.  I am a slave to my fear.  Fear of $2,000 per day in liquidated damages does turn the butterfly into a poisoning grub.  Steady, for here they come.

ENTER the subcontractors, BUCKINGHAM, DERBY, HASTINGS, the BISHOP OF ELY, RATCLIFF, LOVEL, with others, and take their seats at a table


Pray thee and good welcome, gentlemen.  You interrupt our conference, and we do despair.


We have identified the cause of our slow season, and we meet today to decide his punishment.

I pray you all, what should be done to the subcontractor who has delayed this project?


The tender love I bear your grace, my lord,
Makes me most forward in this noble presence
To doom the offenders, whatsoever they be
I say, my lord, they have deserved termination.


Thou art the architect of my delay, thou art a traitor:
Off with his head! Now, by Saint Paul I swear,
I will not dine until I see the same.
Lovel and Ratcliff, look that it be done:
The rest, that love me, rise and follow me.


Woe, woe for England! not a whit for me;
For I, too fond, might have prevented this.
Stanley did dream the boar did raze his helm;
But I disdain’d it, and did scorn to fly:
Three times to-day my foot-cloth horse did stumble,
And startled, when he look’d upon the Tower,
As loath to bear me to the slaughter-house.

This was a set up. A conspiracy joined by everyone except our recently beheaded Hastings.

I hope William Shakespeare won’t mind the liberties I took with his play, Richard III.  Look what he’s telling us here.  Hastings’ friend, Lord Stanley, warned Hastings of Gloucester’s treachery. Hastings laughed it off. Hastings ignored other more subtle signs.  The oddly cheerful disposition of the Bishop of Ely. Even Hastings’ horse tried to warn him. Hastings ignored these warnings, preferring to remain blissfully unaware of Gloucester’s plot to blame Hastings for the delay.  Earlier in the play, Stanley entreated Hastings to attend a first council (meeting) “in the North” to stop the plot that unfolded at the second meeting (in the hotel lobby).  Hastings shrugged off Stanley’s warning:

Bid him not fear the separated councils
His honour and myself are at the one,
And at the other is my servant Catesby
Where nothing can proceed that toucheth us
Whereof I shall not have intelligence.

Hastings’ trust in Catesby was misplaced.

I hardly changed a word in that last exchange between Gloucester (our general contractor) and Hastings (our unfortunate subcontractor).  Shakespeare describes Hastings’ regret so well, there is no need to tamper with it.

Use all of your senses, even your sixth sense, to protect yourself. Attend meetings. Listen to what people say, and how they say it.  If you bury your head in the sand, you just might lose it.

Government Contracts, NC Law, SC Law , ,

I’d Like to Thank the Academy, my Agent, WordPress . . .

Vote Early and Vote Often

OK, so I haven’t won anything, but ConstructionLawCarolinas has been nominated in the 2012 Best Construction Blog competition. There are a lot of great blogs in the running, so just being nominated is a win.

I’d appreciate your vote!  In the write up, its noted that I am difficult to reach through this blog.  I will be adding links and making other adjustments to address this issue.  (Just not today, because the “To Do” list is getting longer by the minute.)

Cast your vote now at the 2012 Best Construction Blog Competition.

NC Law ,

House Bill 489 Update (North Carolina Lien Law Revisions)


Bicentennial Mall, Raleigh, NC

Tracking House Bill 489: Update on North Carolina’s Proposed Lien Law Revisions

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.

Every ten years or so, North Carolina’s lien law (Chapter 44A) is put on the legislative lift and given a tune up or overhaul. The last revision, in 2005, was more of a tune up. This time around, the industry groups are looking to overhaul the lien law to address issues that arose during the Great Recession.

Early on, the hidden lien problem received most of the attention. The original version of H489 included a Florida-style Notice of Commencment, Notice to Owner system that would require subcontractors and suppliers to make themselves known to preserve their relation-back rights. I summarize the original H489 here (Part I) and here (Part II).  The House, however, substituted the original bill with a study bill, authorizing the Legislative Research Commission to study Chapter 44A and recommend ways to improve and modernize the lien and bond laws. Substitute H489 passed the House and crossed over to the Senate on June 1, 2011. The bill was then referred to the Senate Judiciary Committee (I) for study.

The Committee meets later this month (date and time pending) to hear from the Construction Law Section of the North Carolina Bar Association and from industry stakeholders on matters concerning Chapter 44A. The Committee currently is inclined to scrap the “hidden lien” portions of the bill because subcontractors and suppliers have expressed concerns over the paperwork required to protect their lien rights. Whether the title insurance industry moves to reintroduce the nuclear option (eradicating all liens not perfected prior to closing) remains to be seen.

The Committee’s focus has shifted to addressing a series of bankruptcy court rulings that have adversely impacted the ability of subcontractors and suppliers to secure their lien rights after a bankruptcy filing. The Eastern District bankruptcy court has taken the position that the subcontractor/supplier lien of funds does not arise under existing law until the Notice of Claim of Lien on Funds is served upon the obligors. The Lien and Bond Law Revision Committee (of the Construction Law Section of the North Carolina Bar Association) is working with the Committee to fix the existence date of the subcontractor’s lien as the date of first furnishing while at the same time enabling the project funds to flow freely in the normal course. This technical matter remains in flux, and thus I will address the matter in another post.

The Committee is also considering a fix to the Pete Wall decision. In Pete Wall, an owner and developer eliminated lien rights altogether by reframing the construction contracts and subcontracts as a series of leases. Pete Wall is not a published opinion, which means it has no precedential value, the fact remains that a complex real estate scheme deprived a plumbing contractor of protection under the lien law.

The other issues discussed in my guided tour of HB 489 (links above) remain in play, including harsher penalties for false lien waivers, model partial and final lien waiver forms, and changes to North Carolina’s Little Miller Act (payment bonds for public projects).

Stay tuned . . .

NC Law , , , , , , ,

Cynthia O’Neal, Requiescat in pace

Always a Smile

On the Loss of Cynthia O’Neal

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, PA

We go about our day in a kind of race. Deadlines to meet, calls to return, letters to write, arguments to prepare.

And so it was yesterday, when I received an email from Jacquelyn Terrell of the North Carolina Bar Association advising the membership of the Construction Law Section that Cynthia O’Neal had passed away suddenly and unexpectedly.

As reality slowly settles in, and the rest of the world fades into the background, memories and images sharpen. For those who worked with her or knew her, I’m sure they picture in their mind’s eye Cynthia smiling and radiating positive energy. Cynthia was always a joy to be around.

I first met Cynthia while serving with her on the Council of the North Carolina Bar Association Construction Law Section. Cynthia was in private practice at that time. Cynthia began her legal career as a law clerk to North Carolina Supreme Court Justice Sarah Parker. She then entered private practice representing clients in construction law, securities law, and business matters. In 2009, Cynthia was appointed to serve as general counsel to North Carolina Lieutenant Governor Walter Dalton.

Over the course of her all too short career, Cynthia was a star. She received the prestigious Marshall Memorial Fellowship and the Triangle Business Journal “40 Under 40” Leadership Award. She was also recognized as a “Rising Star” by the North Carolina Super Lawyers magazine.

On behalf of the North Carolina Construction Law Section, we extend our heartfelt condolences to Cynthia’s family. We will miss her too.



NC Law , ,

South Carolina’s Notice of Project Commencement

Courtesy of Charleston Daily Photo

Just Sit Right Back and You'll Hear a Tale


South Carolina’s Notice of Project Commencement

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.


“Slick” Ray pulled up on the jobsite in a shiny new truck with a beautiful new fishing boat in tow. Ray, a first tier concrete sub, was on his way to the coast to do some fishing. His concrete supplier, Sandy, walked over.

“Nice rig!” exclaimed Sandy. “Where did you get the money to pay for these toys?”

Ray, glowing with pride, responded: “You know how your April payment is late? Well, I used that money to buy the truck and the boat.  But look, I’m running late.  I’ve gotta get out there while they’re still biting!”

And with that, Ray rolled out for a day on the water.

Sandy called me in a panic. “Sandy,” I asked, “did the general contractor file a Notice of Project Commencement?”

“The what?”

I asked Sandy to find the building permit or project bulletin board and look for a location notice. “The location notice will state, and I quote: ‘The contractor on the project has filed a notice of project commencement at the county courthouse.  Sub-subcontractors and suppliers to subcontractors shall comply with Section 29-5-20 when filing liens in connection with this project.'”

I then explained that a “Notice of Project Commencement” is a document filed by the GC, within 15 days of the start of work, which contains:

(1) the name and address of the GC;

(2) the name and address of the owner;

(3) a general description of the improvement (project); and

(4) the location of the project.

“I don’t see a location notice,” reported Sandy.

“Good,” I replied. “That means that your mechanic’s lien to recover April’s payment will not be limited to the amount owed by the GC to the first tier contractor, Ray.”

Sandy was relieved, but wondered what would have happened had the GC been on the ball. “You mean, if the GC had filed the Notice of Project Commencment and posted the location notice, I would be limited to whatever the GC owed to Ray? So if Ray had been paid in full on the job, the lien would capture nothing?”

“Yes,” I replied.  “Unless . . . ”

“You lawyers always have an unless don’t you?”

I continued. “Unless you called me when you saw the location notice and asked me what it meant. In that case, I would have helped you prepare and serve the GC with Notices of Furnishing Labor or Materials pursuant to Section 29-5-20(B) of the South Carolina Code of Laws.  These notices, which must be prepared and served in strict accordance with the mechanic’s lien statute, put the ball back in the GC’s court. After receiving such notice, no payment by the GC to Ray could lessen the amount recoverable by you. It’s kind of like a game of notice ping-pong.”

“OK, that’s good to know,” replied Sandy. “Go ahead and put the lien together.  I have to go to the coast.”

“The coast? Are you going fishing?” I asked.

“Naw, huntin’.”


Photo courtesy of Charleston Daily Photo 





SC Law , , , , ,

2012 A.D.


Courtesy Charleston Daily Photo

2012 and beyond

Welcome to 2012 A.D.

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.

The presents have been opened, the fruitcake is gone, and we now find ourselves in 2012 A.D.   

The economy has been idle in the doldrums for nearly four years. Now more than ever, politics will play a key role in the construction world. It seems that everyone is frozen in place until they know whether the country will zig or zag in November. Companies that would otherwise be breaking ground on new facilities are holding onto cash for fear of another financial collapse. After all, liquidity is king in a bad economy.

But hold off on buying a truckload of meals-ready-to-eat and heading for the mountains just yet. There are some encouraging signs. In the last few months of 2011, I experienced a noticable surge in requests to draft and review construction contracts. The project pipeline may be filling back up. Time will tell.

On the state level, I will watch with interest as South Carolina battles the unions, and I will of course keep you updated as House Bill 489 (NC lien law bill) works its way through the General Assembly.  For a description of the bill, read Part I and Part II of my summary.

Thanks for stopping by my blog in 2011. I’ll do my best to regularly update the blog with meaningful and interesting information. So stay tuned in 2012 . . .

Photo courtesy of Charleston Daily Photo


Government Contracts, NC Law, SC Law

The Microphone Is Always On

The Microphone is Always On

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.
(704) 377-2500

We all enjoy hearing the off-the-cuff remarks politicians and celebrities make while they believe the mic is off. We believe that these comments give us insight into what somebody is truly thinking at the moment.

It is too simplistic to regard these utterances as truth. People say things to vent, to impress others, or to forward agendas. For example, the phrase “I’ll kill you” is often said in jest, in the heat of the moment, or to thwart a violent act. The words do not necessarily evidence murderous intent.

In the business world, however, supposedly private emails within a company become very difficult to explain away. The frustrated superintendent may vent in an email to the project manager that he wants to “put the sub out of business.” The superintendent, having not been invited to the seminar on project documentation, has no idea that the “confidential” internal email will be produced in discovery when the GC and sub end up in court. Can you picture the sub’s lawyer waving the email in front of the jury as he excoriates the evil-doers? And while the superintendent may have been venting because the sub installed the wrong material or abandoned the job, none of that will matter.  The lawsuit is now about a nefarious conspiracy by a large GC against a small subcontractor.

On construction projects, the “microphone” includes internal email, verbal statements made to a supposedly trustworthy person (a future disgruntled ex-employee), recorded telephone conversations, and notes made in the daily diary. And if you’re ever talking business in a restaurant, never sit next to a person dining alone.


Government Contracts, NC Law, SC Law , , , ,

Guest Post: Surety Bonding 101 for Contractors

I am often asked by new and upcoming contractors what it takes to obtain a surety bond. What better way to answer this question than to ask someone who writes bonds for a living?


Alex Levin is a writer for JW Surety Bonds, the largest surety bond agency in the country. When he’s not helping clear up the mystery of the surety bonding process, he writes on a variety of topics from eco-friendly building tips to developments in construction law. (Note: The link to Alex’s employer is for biographical purposes only and is not an endorsement or referral of same.) 

Surety Bonding 101 for Contractors

By: Alex Levin, JW Surety Bonds

Starting a construction project involves not only hiring and
training your crew, but it also requires paperwork. From obtaining licenses, permits and other legal documents, the amount of red tape necessary to get a job started can seem like a project all in itself. To add to the amount of documentation, a surety bond is typically required for construction projects to begin. Yet, much is unknown about the purpose they serve, what bonds are required prior to starting a construction project and how much they’ll cost. The following will help sort through the mystery that is contractor bonds.

1)     What’s the difference between construction bonds and contractor bonds?

The simple answer to this question is, “Nothing.” Construction bonds and contractor bonds are used interchangeably and refer to the surety bonds required for certain construction projects to begin. Often  projects cannot even start until the contracting company obtains and displays their surety bonds.

Contractor license bonds, however, refer to the bonds required by local or state governments. These bonds can vary by area. Those interested in finding out if their state requires contractor license bonds should review the laws of the area they plan to work in.

2)     So, what’s a surety bond?

Surety bonds are an agreement between three parties:

  • A principal – the contracting company who is purchasing the bond;
  • An obligee – the party requiring the bond (often a government entity); and
  • A surety – the agency who issues the bond(s) to the contractor and will serve as an most intermediary between the client (principal) and the government agency

Should the contracting company be found to be at fault in regards to the specifications of the contract which is protected by the surety bond, a claim can be made on the bond. If it is found to be valid, damages must be paid, and most likely this is the responsibility of the surety company. If the surety company pays a claim under the bond, it may seek indemnification (reimbursement) from the principal.

3)     What are the most commonly required surety bonds of construction projects?

In regards to construction projects, the most commonly required surety bond types are:

  • Bid Bonds – these are submitted alongside a bid on a construction project and guarantee the contractor will hold to their original bid if they are awarded the contract
  • Performance Bonds – these guarantee the faithful performance of the contract
  • Payment Bonds– these ensure subcontractors, laborers and material expenses will be paid for in the event of contract default

The term “performance and payment bond” is also commonly used. Although combined into one phrase, they are two separate and unique bonds.

4)     How much do they cost?

As pricing can change from one company to another, not one set premium stands for how much surety bonds cost. There are a several factors which influence the amount of a bond, such as: the financial strength of the contracting company applying for the bond, the industry in which the bond is required, the type of bond, and the amount of the contract.

In general, financially strong companies applying for bonds can expect to pay between 1 to 3 percent of the contract for their bond. Those with weaker credit may pay anywhere from 5 to 20 percent.

5)     How do I get bonded?

As surety bond costs are largely determined due to an applicant’s financial strength, applying for a surety bond relies heavily on financial documentation. Many reputable surety agencies offer online
applications to their perspective clients, making the process much quicker and convenient. Those applying for a bond can expect to supply information on the following areas:

  • Company background: the year the company was founded, previous bond claims and whether the organization has ever been denied a bond;
  • Surety bond information: the type of bond required, the entity that is requiring the purchase of a bond; and
  • Personal financial information: the monetary amount in bank accounts, salary information, amount of property owned and its value, insurance policies and amount invested, liability details such as loans, line of credit, etc.

Surety agencies also offer high risk programs for applicants with lesser than strong credit history. If applicants have enough assets to cover the bond should a claim be filed against them, typically bonds are approved within two days.

Government Contracts, NC Law, SC Law , , , , , , , , ,

South Carolina’s Prompt Payment Act

Making You Work for It: A Dollar Bill Encased in Varnish on a Charleston Sidewalk

South Carolina’s Prompt Payment Act

By: Gregory L. Shelton
Horack, Talley, Pharr & Lowndes, P.A.

We continue to explore South Carolina laws enacted to help contractors, subs, and suppliers get paid for their work.  Today, I present South Carolina’s take on the so-called “prompt payment” laws. South Carolina’s legislature did not bestow the name “Prompt Payment Act” on its law, but I’m going to call it what it is.

The Prompt Payment Act is premised on the idea that a contractor or sub who who improves real property in accordance with the provisions of his contract should be paid for that work in a timely manner. Notably, the Act does not apply to most residential construction projects.  Specifically excluded are: (1) residential homebuilders; (2) improvements for real property intended for residential purposes which consist of 16 or fewer residential units; or (3) “private persons or entities owning improvements to real property when the specific improvements are not financed by a nonowner.” (If you read that last one enough times, it actually starts to makes sense.)

Assuming the contractor or sub performs his contractual obligations, the Act requires the owner to pay the contractor by mailing or delivering the undisputed amount of the contractor’s pay request within 21 days of receipt by the owner of the contractor’s pay request. The Act requires the contractor to pay his subcontractors and suppliers within seven days of receipt by the contractor of payment from the owner.  This seven day payment requirement applies to subcontractors and suppliers of any tier. Thus, the second-tier sub must pay his third-tier sub within seven days of receiving payment from the first-tier sub.

Payment may be withheld for portions of the work due to unsatisfactory job progress, defects, disputed work, third-party claims, payment issues, and the other usual suspects usually found in the vicinity of a contract dispute. Also, the Act does not require an owner to make payments to the contractor any more frequently than as set forth in the contract documents.

If the owner, contractor, or subcontractor fails to comply with the applicable time requirements, the Act entitles the claimant to receive interest beginning on the due date at the rate of one percent a month, or a pro-rata fraction thereof on the unpaid balance as may be due. However, no interest is due unless the person required to make payment has been properly notified of the Act “at the time the request for payment is made.”

On private projects, the parties may agree to rates of interest and payment periods that differ from the rates and payment periods in the Act “provided the requirements of Section 29-6-30 and 29-6-50 are specifically waived, by section number, in conspicuous bold-faced or underlined type.” In the case of a “wilful breach,” the interest and time provisions of the Act will apply.

As with most things legal, there are trap doors, loopholes, and strict procedural rules found in the Act. If you are thinking about invoking your rights under the Act, you would be wise to work with a South Carolina licensed attorney until you are comfortable with the process.

Photo Courtesy of Charleston Daily Photo

SC Law , , ,