Pennsylvania Construction Lien Law
Lien Law Overview
Under the Mechanics Lien Law (“PA MLL”), there are a couple of distinctions between residential and commercial property.
Lien waivers. A contractor or subcontractor may waive the right to file a claim against a residential property by signing a lien waiver or by conduct that operates equitably to keep such contractor from filing a claim. See 49 P.S. § 1401. For nonresidential loans, lien waivers are void as against public policy.
Subcontractor lien limitations. A subcontractor does not have the right to a lien with respect to an improvement to a residential property if:
- the owner or tenant paid the full contract price to the contractor;
- the property is or is intended to be used as the residence of the owner or subsequent to occupation by the owner, a tenant of the owner; and
- the residential property is a single townhouse or a building that consists of one or two dwelling units used, intended or designed to be built, used, rented or leased for living purposes. For the purposes of this paragraph, the term “townhouse” shall mean a single-family dwelling unit constructed in a group of three or more attached units in which each unit extends from foundation to roof with a yard or public way on at least two sides. 49 P.S. § 1301.
Discharge of Lien. A lien claim for improvements on residential property can -in response to a petition or motion by the owner or other party in interest- be discharged by a court as a lien against the property when the contractor has been paid in full. The amount of a lien claim may also be reduced to its unpaid balance in response to a petition or motion by the owner or other party in interest. 49 P.S. § 1510
Under the PA MLL, residential property is defined as follows:
“RESIDENTIAL PROPERTY” means property on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of that basement is at grade level, or which is zoned or otherwise approved for residential development on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of that basement is at grade level, planned residential development or agricultural use, or for which a residential subdivision or land development plan or planned residential development plan has received preliminary, tentative or final approval on which there is or will be constructed a residential building not more than three stories in height, not including any basement level, regardless of whether any portion of that basement is at grade level, pursuant to the act of July 31, 1968 (P.L. 805, No. 247), known as the “Pennsylvania Municipalities Planning Code.”
Lien Waiver Summary
A contractor or subcontractor may waive the right to file a claim against a residential property by signing a lien waiver or by conduct that operates equitably to keep such a contractor from filing a claim. See 49 P.S. § 1401. For nonresidential loans, lien waivers are void as against public policy. Lien waiver forms are not created by statute. Use industry best practices and lien waiver forms acceptable to the lender.
Are title companies required by law to manage construction loan disbursements?
We found no law that “requires” title companies manage the draw disbursement process for construction loans. While title company underwriters have been known to require all funds be disbursed through them for a fee on some larger commercial deals, it does not appear that the same is common for residential construction loans.
Can a mechanics lien have priority over a pre-existing mortgage in Pennsylvania?
49 P.S. § 1508. A mechanics lien in Pennsylvania does not have priority over a mortgage used to pay all or part of the cost of completing the work done to the property secured by that mortgage. However, there are some specific cases in which a lien has priority over an open-ended mortgage.
The priority of mechanics liens in Pennsylvania is dependent upon the type of work performed. If the project is the first construction or erection of a building, the lien relates back to, and has priority as measured by, the first date of visible commencement of the work. When the project is the alteration or repair of a building, the lien has priority only as of the date on which the claim is filed.
Notice of Commencement (or similar like event)
Yes a Notice of Commencement is required by statute on projects greater than $1.5M – § 1501.3
It is unknown if filing a Notice of Commencement on projects$1.5M or greater will provide any additional protection to property owners.
Although Pennsylvania law does not address best practices for verifying that a NOC is properly posted, it is a good practice to monitor the state registry through its website because – while the filing of a NOC itself is optional – once it is filed, the statute requires:
- specific content to be in a NOC form,
- specific rules for posting of the NOC, and
- that the NOC is made part of contract documents provided to all subcontractors awarded work on the searchable project. 49 P.S. § 1501.3.
The owner must also conspicuously post a copy of the Notice of Commencement at the site of the project before physical work commences, including the unique identifying number assigned to the Searchable Project. The owner must also take reasonable measures to ensure that the Notice of Commencement remains posted at the Searchable Project site until completion. Both the owner and the contractor must also make reasonable efforts to ensure that the Notice of Commencement is made part of contract documents provided to all subcontractors on the project.
Who files the Notice of Commencement?
When must it be filed?
Is a Designee required?
Is it required to be posted on the Job Site
Preliminary Lien Notifications
Preliminary lien notices are required for searchable projects (projects of $1.5M or greater) that are registered, at the owner’s choice, in the State Construction Notices Directory (“Directory”). The property owner (or its agent) may file a Notice of Commencement (before any labor or work begins and any materials are furnished); may file a Notice of Furnishing (within 45 days after first performing labor or materials for the project); may file a Notice of Completion (within 45 days of the date the work is actually completed); and may file a Notice of Nonpayment if full payment of the work, service or materials has not been provided. Subcontractors may file a Notice of Lien Claim that strictly complies with 49 P.S. § 1502. If the improvement is located in more than one county, notice of the lien claim is only effective in the counties where it is properly filed.
Notice of Completion
For searchable projects (projects of $1.5M or greater), a Notice of Completion may be filed within 45 days of the date the work is actually completed. A copy of the notice is provided -via the states Directory- to all subcontractors and suppliers who filed a Notice of Furnishing.
Pennsylvania uses ALTA title commitments that allow for the Construction Loan Update Endorsement, which is used when the lender requests endorsements as additional disbursements are made. It gives coverage up to the new outstanding mortgage balance and shows whether any other instruments have been filed and recorded since the last title update. The endorsement also insures the priority of the insured mortgage over instruments that are not specifically listed in the endorsement. Since the title company has a stake in the disbursements, you may find that they exercise some due diligence relating to construction draws.
Contractor Requirement: Registration is required for home improvement contractors.
Subcontractor Requirement: Locally regulated.
Contractor Warranties: Implied warranties of habitability and workmanship. 12 year statute of limitation. May be limited by contract.
Contractor License Search (for state-registered home improvement contractors only)