Pennsylvania law provides a powerful tool to contractors and subcontractors, assisting them in obtaining payment for their work. If a property owner stiffs your company for labor or services, you can file what's called a mechanic’s lien. A mechanic’s lien is a statutory device that essentially functions as a cloud on the owner’s title to the land. Often, the mere filing of a lien is enough to convince an owner to pay. As a contractor in Pennsylvania, you should be aware of some basic information on mechanic’s liens.
Before jumping into a discussion of mechanic’s liens in Pennsylvania, let's remember that liens should never be your first step. Most disputes between contractors and owners can instead be resolved through negotiation. You will usually save time and money by dealing directly with the property owner, rather than initiating a legal action.
So how should you go about getting paid? Imagine that your company performed tiling work in a home and the owner has “forgotten” to pay the last $1,000 of her bill. First, you should mail copies of the final invoice and/or statements to the homeowner’s home and business addresses. If that receives no response, telephone the owner. Send an email, even if it's repetitive, in order to create a paper trail. And then try writing a formal demand letter on your company’s letterhead.
If your communications are still being ignored, you might consider investing in a few hours of a lawyer's time to write a demand letter, on law firm letterhead. Sometimes, property owners may take you more seriously if they believe that you are willing to get an attorney involved. While attorney’s rates differ (rates in metropolitan areas like Philadelphia will generally be higher), having a lawyer write a simple demand letter will probably cost no more than a few hundred dollars.
More often than not, some combination of these steps will be enough to push the property owner to pay the balance owed, or at least come to the negotiating table to pay some substantial portion of that amount. These steps can also help you avoid the time and expense of liens and lawsuits.
Negotiation and demand letters might not always suffice. You will not be surprised to learn that Pennsylvania law allows you to sue a homeowner who has not paid you, on grounds of simple breach of contract, or based on other related causes of action (such as quantum meruit). The same theories apply if you are a subcontractor or supplier suing a general contractor.
But mechanic’s liens are another important tool in your arsenal. Liens offer a way to pressure an owner to pay by clouding the title to the property. Liens are the result of a specific statute. They are governed by the Pennsylvania Mechanics’ Lien Law of 1963, codified as 49 P.S. §§ 1101-1902.
Under the law, several different types of entities can file liens: (i) general contractors with direct contracts with owners; (ii) subcontractors in contract with general contractors; (iii) third-tier subcontractors to subcontractors; and (iv) material suppliers with contracts with either the general contractor or a subcontractor.
Note that Pennsylvania limits the contractual “distance” within which you are allowed to file a lien. For example, a company that is a subcontractor to a subcontractor to a subcontractor would be too far removed from the owner to file a lien on the property. (That entity would need to file a normal breach of contract action to recover monies).
In most cases, an entity seeking to file a lien must do so within six months of the date that work was last performed or that materials were last supplied to the property. For example, if your roofing company last performed work on a house on January 1, you would have until July 1 to file your lien.
A general contractor need not provide any formal warnings to the property owner before filing a lien. However, the contractor must be very careful regarding the deadline, as Pennsylvania courts will strictly construe the six-month limitation. (Courts view it as an important public policy to give owners certainty as to their title).
Subcontractors generally cannot file a lien without notice. Under the Pennsylvania Mechanic’s Lien Law, a subcontractor must give 30 days written notice to the owner of its intent to file a lien. The public policy goal is to give the owner time to negotiate or pressure the general contractor regarding payments to subcontractors. (Often, the owner has no direct dealings with subcontractors, and might not know if the general contractor is paying its subcontractors and suppliers).
Once a lien is filed with the county clerk (of the county where the property is located), your job is not done. You must serve a copy of the lien on the owner within 30 days through a formal process server, just as you would with a lawsuit. If you are a subcontractor, you must serve the lien on the owner and the general contractor for whom you worked directly. After service, you must file a copy of the affidavit of service within 20 days. Failure to perform this service in a timely manner – and file the required affidavit confirming the service – could invalidate your lien.
Liens are intended to be fairly simply forms. Here is a model example of the Notice form.
The form must include, among other pieces of information, your company’s name, the homeowner’s name, the location of the property, and the amount of money still due. You must also describe the labor or material you provided to or on the property. In Pennsylvania, liens are filed in the county where the property is located in the “office of the prothonotary” (a formalistic name for the clerk’s office, usually located within the local Court of Common Pleas).
You will see that your signature needs to be notarized, meaning that this form is a sworn statement—the legal equivalent of swearing to the veracity of the contents in court.
Note that you cannot usually file a lien on a public project in Pennsylvania. Public projects are those involving the state or local government (for instance, a public school, road, or government building). In these cases, the “owner” will typically issue bonds covering the value of the work, and your company can make claims against those bonds to the extent that you do not receive payment.
Pennsylvania is somewhat unusual in that its statute allows for contractors and subcontractors to waive their rights to file liens on residential construction projects. 49 P.S. § 1401 provides: “A contractor or subcontractor may waive his right to file a claim against residential property by a written instrument signed by him or by any conduct which operates equitably to estop such contractor from filing a claim.” (The statute generally does not allow waivers of mechanic’s lien rights with respect to non-residential properties).
Thus, as a contractor, you should be cautious when entering into contracts with homeowners. Avoid signing onto any provisions that waive your ability to file a lien if the owner fails to pay. These provisions are likely to be upheld by the courts.
For contractors and subcontractors in Pennsylvania, liens are an important tool. But they are not necessarily the first or best means of achieving payment for construction projects.
Remember that merely filing a lien will not force the property owner to pay you (nor will it force the general contractor to pay you if you are a subcontractor). The owner will receive notice of the lien, but unless you file a further lawsuit—within two years of the date of the lien filing—to foreclose on the lien, then it will merely sit on the property docket. In other words, you will likely need to spend some amount of money on legal fees in order to “force” payment.
However, filing a lien will send an aggressive message. If you take this step, it might put the homeowner on the defensive, and encourage the homeowner to get lawyers involved, or to retaliate by publicly claiming that you did shoddy work. Perhaps this is the direction that you need to take, unfortunately, if the homeowner is refusing to pay. But be aware that you may quickly escalate the dispute by filing a lien.
Finally, remember that the lien laws in Pennsylvania are highly complex, and they are also changing, with various amendments enacted in 2014. If you are owed a substantial sum of money, it might be worth your investment in a consultation meeting with an experienced construction attorney who can advise you of your rights.