1. PROTECTING YOUR MONEY: Utah’s Mechanic’s Lien and Contract Laws
HBA of Utah
Contractor Pre-License Course
INTRODUCTION
Introduce the firm and myself
Ask about audience: Landscapers? Suppliers? Type of work? Residential? Commercial? Maintenance?
Purpose of presentation: explain basics of lien fund—inform you of one avenue you have to recover for unpaid work.
I want you to learn, so please stop me and ask questions, ask for clarification, etc.
WHO’S EVER WORKED ON A PROJECT THAT DIDN’T GO AS PLANNED?

14. What’s on Tap? Mechanic’s Liens Contracts What are they?
Why are they important?
How do you preserve your lien rights?
How do you claim a lien?
Utah’s Lien Recovery Fund
Contracts
Why contracts?
What are some provisions to include in my contracts?
What are some clauses to watch out for?

15. UTAH’S MECHANIC’S LIEN LAW

16. What is a Mechanic’s Lien?
An involuntary encumbrance against title to real property
Purely statutory device (so the laws differ among states)

17. How Does a Mechanic’s Lien Work?
What does a mechanic’s lien gives the lien holder?
The ability to force the property into foreclosure.
Provides a security interest in property for the benefit of those who have supplied labor, materials and/or equipment to improve the property
FORECLOSURE is a significant right
As a result, the Legislature has created rigid requirements.

18. Who can file a Lien?
General contractors, subcontractors, AND material suppliers have lien rights.
Any person who performs preconstruction services or construction work for the improvement of real property.
“Construction Work: (a) means labor, service, material, or equipment provided for the purpose and during the process of constructing, altering, or repairing an improvement; and (b) includes scheduling, estimating, staking, supervising, managing, materials testing, inspection, observation, and quality control or assurance involved in constructing, altering, or repairing an improvement.”
“Preconstruction Service: (a) means to plan or design, or to assist in the planning or design of, an improvement or a proposed improvement: (i) before construction of the improvement commences; and
(ii) for compensation separate from any compensation paid or to be paid for construction work for the improvement; and
(b) includes consulting, conducting a site investigation or assessment, programming, preconstruction cost or quantity estimating, preconstruction scheduling, performing a preconstruction construction feasibility review, procuring construction services, and preparing a study, report, rendering, model, boundary or topographic survey, plat, map, design, plan, drawing, specification, or contract document.”

19. Where am I on this Project?

20. Where am I on this Project?20

21. State Construction Notice Program
(scr.utah.gov)
Optional?
Technically, yes. But you’d lose your lien rights.

22. State Construction Notice Program
(scr.utah.gov)

23. State Construction Notice Program
(scr.utah.gov)
Applies to all projects
Public and private
Commercial and residential

24. Construction Lien

25. Construction Work Defined
“Means labor, service, material or equipment provided for the purpose and during the process of constructing, altering, or repairing an improvement, and includes scheduling, estimating, staking, supervising, managing, materials testing, inspection, observation, and quality control or assurance involved in constructing, altering, or repairing an improvement.”
Utah Code 38-1a-101(10)

26. SCR Requirements for Private Projects

27. Notice of Commencement
No longer required or even available
No longer a triggering mechanism for filing a preliminary notice

28. Preliminary Notice Everyone required to file!! Filed on the SCR
Deadline
Within 20 days after your first work
Effect of failure to timely file
You may file more than 20 days after your first work, but you can only lien for work furnished more than 5 days after the notice

29. Preliminary Notice – Contents
Claimant’s name, address, address and telephone number
Name and address of the person who contracted with claimant
Name of the record or reputed owner of the project
Name of the original contractor under which the work is performed
Project address or a description of the location of the project

30. Preliminary Notice – Contents (cont’d)
The name of the county where project is located
One of the following:
The tax parcel identification number of each parcel included in the project
The entry number of a previously filed notice of construction loan
The entry number of a previously filed preliminary notice on the same project that includes the tax parcel identification number of each parcel included in the project
The entry number of the building permit issued for the project

31. Things to Look for When Filing Preliminary Notice

32. Things to Look for When Filing Preliminary Notice
Notice of Construction Loan
After recording trust deed lender shall promptly, in conjunction with the closing of the construction loan, file a notice of construction loan
Other Preliminary Notices
Make sure the information is correct!
Building Permit
City, county or town shall file within 15 days of issuance.
Building permits issued after August 1, 2011 must have
Name and Address of owner of each parcel of property on which the project will occur
The name and address of the contractor for the project
The county in which the property on which the project is built is located
The tax parcel identification number of each parcel of the property
Notice of Preconstruction Service

33. Construction Lien Priority

34. Timeline of Events First work First Preliminary Notice filed
Trust Deed filed
Second Preliminary Notice filed
Notice of Completion filed
Notice of Construction Loan Default
File Lien within 90 days
Send Notice to Owner within 30 days
File Lawsuit within 180 days after filing Lien

35. Construction Lien Priority (cont’d)
All mechanics’ liens are on the same footing and have the same priority (“relation back” doctrine)
Liens relate back to the time of the first preliminary notice filing, and have priority over subsequent encumbrances
Order of sale proceeds:
Laborers who have not furnished materials;
Subcontractors and Suppliers; and
Original Contractor

36. Filing and Perfecting Construction Lien

37. Lien Filing Deadlines 90 days after a Notice of Completion filed
Notice to owner 30 days after filing of Lien
180 days from Final Completion if no Notice of Completion is filed

38. Notice of Completion

39. Notice of Completion Deadline Who may file Effect of Notice
After final completion
Who may file
Original contractor, owner, lender, surety, or title company
Effect of Notice
Shortens time for Preliminary Notice to 10 days from the date the Notice of Completion is filed
Shortens time for filing mechanic’s lien

40. Final Completion Occurs At:
The issuance of a permanent certificate of occupancy, if required
The date of final inspection by the local government entity, if a permanent certificate of occupancy is not required
If neither a permanent certificate of occupancy nor final inspection are required, the date on which there remains no substantial work to be completed to finish work on the original contract
If original contract is terminated before project completed, the last day on which substantial work was performed under the original contract

41. Lien Preparation Valid Form Contents
Name, address, and phone number of claimant
Owner’s name
Debtor’s name
Amount claimed
Property description
First and last dates of work or service
Lien Recovery Fund information acknowledgement

42. Miscellaneous Lien Filing Issues
Effect of inaccuracies in lien
“Substantial compliance” is sufficient
Where to file lien
File with county recorder where property is located
Amendments to lien
Amended within original time frame for filing lien

43. Enforcement of Liens

44. Action to Enforce Liens (Lawsuit)
Lawsuit: Must be filed within 180 days from the date the mechanic’s lien was filed
Must be filed in the county where the property is located
Lis Pendens: Must be filed with the county where the property is located within the time limits for filing a foreclosure action

45. Construction Lien Filing Timeline
Commencement of Construction Work
File Preliminary Notice within 20 days
Notice of Completion filed
File Construction Lien within 90 days
(180 days if no Notice of Completion filed)
Send Notice to Owner within 30 days (Necessary to recover attorney’s fees)
File Lawsuit within 180 days after filing Construction Lien

46. Alternate Security
Must file Notice of Release of Lien (and provide alternate security) within 90 days of being served with foreclosure lawsuit
Alternate Security amount:
150% if lien is $25,000 or more
175% if lien is between $15,000 and $25,000
200% if lien is less than $15,000

47. Alternate Security (cont’d)
Serve copy of Notice of Release of Lien upon lien claimant within 30 days of filing
Lien claimant must amend lawsuit to include Alternate Security within 90 days of service
If Notice of Release of Lien is not served, the lien claimant must amend the lawsuit within 6 months of discovering the Notice of Release of Lien, but, at the latest, must amend within two years from date Notice of Release of Lien was recorded

48. Avoiding Civil and Criminal Penalties
“Abuse of lien”
Utah Code Ann. § 38-1a-308
Overstated claim
Damages: twice the amount by which the lien exceeds the amount actually due or the actual damages incurred by the owner of the property, whichever is greater
Release of liens
Release within 15 days of receipt of Certificate of Compliance
Release within 10 days of payment

49. SCR Requirements for Government Projects (i.e., Bond Claims)

50. Notice of Commencement

51. Notice of Commencement
Original contractor or owner required to file notice of commencement with SCR within 15 days after commencement of physical work (but can file earlier)
Designated agent will assign each project a unique identifying number for subsequent SCR filings

52. Notice of Commencement (cont’d)
Effect of failure to timely file
Removes requirement for subcontractors/suppliers to file Preliminary Notices
If duplicate Notices of Commencement are filed, they all relate back to the earliest filing
All duplicate Notices of Commencement will automatically link

53. Notice of Commencement - Contents
Owner’s name, address and
Original contractor’s name, address and
Payment bond surety’s name, address and or a statement that a payment bond was not required
Project’s address, if it reasonably identifies the project, or the name and general description of the location of the project if the address does not reasonably identify the project
General description of the project
Government project-identifying information

54. Preliminary Notice

55. Preliminary Notice (Cont’d)
Required for everyone except those who contract directly with owner (different on private projects)
Deadline
Within 20 days after your first work
Effect of failure to timely file
You may file more than 20 days after your first work, but you can only make a claim for work furnished more than 5 days after the notice

56. Preliminary Notice (cont’d)
May file Preliminary Notice to any Notice of Commencement
Exceptions to Preliminary Notice requirement:
No valid notice of commencement
Persons working for wages
Those who provided labor, services, materials, equipment, etc. more than 15 days prior to the filing of a Notice of Commencement.

57. Preliminary Notice - Contents
Government project-identifying information
Claimant’s name, address, and telephone number
Name and address of the person who contracted for the labor, equipment, service, equipment, or materials
Name of the record or reputed owner of the project
Name of the original contract under which the work is performed
Project address or a description of the location of the project.

58. UTAH’S LIEN RECOVERY FUND

59. The Problem Sub HOMEOWNER PAID $500K $50K ($550K TOTAL)
General Contractor
HOMEOWNER
Sub
PAY TWICE
PAID
$500K
$50K ($550K TOTAL)
NOT PAID
$50K
LIEN
$50K

60. Residence Lien Restriction and
THE SOLUTION:
Residence Lien Restriction and
Lien Recovery Fund Act
Utah Code § et seq.

61. What The Fund Does
Provides qualifying homeowners with protection against mechanic’s liens; and
Creates a fund of last resort to pay contractors and suppliers who are prevented from recovering through the mechanic’s lien process.

62. What The Fund Does NOT Do
Protect homeowners who do not pay a contractor with whom they contract directly;
This could be many of you.
Assist contractors or suppliers in collecting accounts receivable from homeowners or other entities;
Must exhaust other options first.
Reimburse homeowners who pay mechanic’s liens for any reason;
Apply to multi-family residential or commercial projects.

63. 1. Protects Homeowners To be protected by the act, a homeowner must:
Written contract
Licensed contractor
“Original” contractor
Single family or duplex residence
Pay “original” contractor in full
Homeowner must occupy residence as a primary or secondary residence within 180 days of construction
“Spec” homes that are unoccupied for more than 180 days won’t qualify
NOTE: contractor may need to prove these.

64. 2. Provides a Fund of “Last Resort”
To recover from the fund, a contractor must:
Provide “qualified services”
Broad definition
Pay required fee
Required for licensure (suppliers must “opt in”)
Currently $325 (does not give you a “right” to recover – still must follow very specific requirements)
Be Currently Licensed
Fulfill requirements
e.g., notice to homeowner, certificate of compliance, civil judgment, attempt to execute on judgment, apply to fund, etc.

65. Some Details Can recover interest on unpaid balance – up to 10%.
Attorney’s fees up to 15% of “qualified services.”
Contingent vs. hourly?
If more than $75,000 was unpaid on project, then claimants share pro-rata.
Members of lien fund may be required to periodically pay a “special assessment.”

66. Lien Fund Takeaway If you’re not paid, there is recourse! Important:
Protect yourself:
Keep license current
Written contracts
Preserve lien rights by filing preliminary notices
Important:
There are deadlines
We’ve discussed the basics
Many more details
Lien fund not a cure-all.
Doesn’t apply in all situations
But should be one tool you’re utilizing to ensure you get paid.

67. SIGNING YOUR LIFE AWAY: Contracting in Utah

69. Contracts Basics Must a contract be in writing to be enforceable?
No!
Oral agreements can be contracts.
Is a written contract valid only if both parties sign?
Only the “party to be charged” must sign

70. Contracts Basics Recommendations:
Always have a written, negotiated, and signed (by BOTH parties) contract before starting work.
READ what you sign.
Detailed and negotiated scope of work.
Accurately described price for the scope (and the method of pricing, e.g., lump sum, unit price, cost-plus)
What’s included AND excluded.
Attorney’s fees and interest provision.
Limitation of liability clause.
More complex or higher dollar value agreements should be reviewed by an attorney.

71. Contracts Basics Eight Things to Consider
Who are you contracting with?
Timeframe
Price
Payment and payment penalties
Important terms (e.g., liquidated damages, flow-down clauses, warranty, retainage, contingent payment clauses)
How changes will be handled
Dispute resolution
Indemnity and Lien Waivers

72. 1. Who Are You Dealing With?

73. 1. Who Are You Dealing With?
Parties to the Contract
Is it an individual or a business entity? (e.g., corporation, partnership, limited liability company, sole proprietor)
“Shell” company?
Know the Financial Status of Entity or Person
AIA allows contractor to request financial information before work commences
Examples of financial verification: loan commitment, government appropriation, etc.
Personal Guarantee?

74. 2. TIMEFRAME Date to start work? Phased work? Date to complete?
% complete at which phase?
Date to complete?
What defines completion?
Substantial completion?
Certificate of occupancy?
Date of acceptance of work?
Provisions for delay
Often dealt with through change orders.

75. 3. PRICE How will price be determined?
Lump sum?
Unit prices?
Cost-plus?
What is included/excluded in the price?
% complete at which phase?

76. 4. Payment & Payment Penalties
When will I get paid?
Define expectations on when payment will be received:
30, 60, 90 days?
Agree on the process.

77. When Do I Get Paid (Cont’d)
Utah’s Private Prompt Payment Act
Contractors must pay subcontractors within 30 days of receiving payment
If contractor “unreasonably” fails to make payment, contractor must pay INTEREST at 12% per annum and attorney fees and costs
Utah’s Public Prompt Payment Act
State must pay by date specified or within 60 days after receipt of invoice.
Contractors must pay subcontractors within 30 days of receiving payment from State

78. 4. Payment & Payment Penalties
Attorney’s Fees
“American Rule”: each party is responsible for paying ITS OWN attorney’s fees.
Two Exceptions to the Rule:
If a statute allows for attorney’s fees
Example: Mechanic’s lien statute gives attorney’s fees to prevailing party.
If the CONTRACT provides for attorney’s fees.
Example: “The prevailing party in any lawsuit arising from this Agreement will be entitled to an award of attorney’s fees and costs incurred in that lawsuit.”

79. 4. Payment & Payment Penalties
Interest
An interest and attorney’s fees provision shown on an invoice, but not in the contract, is enforceable?
FALSE.
The interest rate (and attorney’s fees) must be agreed upon up front.
By statute the amount of interest can be ANY agreed upon percentage (but is probably bound by what is reasonable).
Typically 18%.
If not specified, then statute defines it at 10% on a written contract.

80. 5. Important Terms Liquidated Damages What are they?
Predetermined damages (e.g., money) that must be paid if a party fails to perform as promised.
Some details:
Must be a reasonable forecast of damages (difficult or impossible to calculate at time of contracting)
Cannot be a penalty (BUT, recent Utah case)
Cuts off actual damages
Should cease upon substantial completion, not final completion

81. 5. Important Terms Flow-Down Clause
Is a provision in a subcontract that incorporates the terms of the general contractor’s contract with the owner.
Typical example: “Subcontractor is bound to the General Contractor to the same extent that the General Contractor is bound to the Owner under the General Contractor’s agreement with the Owner.”
Can take many forms, but you should “know-it-when-you-see-it”.
Ideally:
You will know what’s in the general contractor’s agreement. (Common sense!)
You will limit the clause’s application.

82. 5. Important Terms Warranty
Utah law requires a one-year warranty for construction.
FALSE!
You must define in the contract what, if any, warranty that you will provide.
Typically is ONE YEAR.

83. 5. Important Terms RETAINAGE What is it?
Is a percentage of an agreed upon contract price that is withheld until the work is complete to assure that the subcontractor will satisfy its obligations.
Limited to maximum of 5% by law!
Must be held in an interest bearing account and subcontractor is entitled to the interest.
Penalties for wrongful retention
Interest at 2% per month in addition to any interest otherwise due
Attorney fees and costs for prevailing party

84. 5. Important Terms
CONTINGENT PAYMENT CLAUSES

85. 5. Important Terms CONTINGENT PAYMENT CLAUSES Are they enforceable?
Yes! (well, probably)
Paid-When-Paid
No shift of the risk of payment
Sample Provision: “Prime contractor will pay subcontractor within 10 days of receipt of payment from owner.”
No Utah law
Paid-If-Paid
Payment risk shifts if there is clear and unambiguous language
Sample Provision: “General Contractor will pay subcontractor only if Owner pays General Contractor.”
No Utah law in contract actions
Not enforceable in many states

86. 6. Change Orders

87. 6. Change Orders Must they be agreed in writing?
No. Only if contract says so.
Define the process in the contract.
Follow change order procedure in contract (regardless, make sure everything is documented)
What if not in writing?
Constructive Change Orders
Prolonged failure to make changes in writing
If owner requested the work
If contractor performed the work and expected payment for the work
If the owner knew the contractor expected to be paid for the work
Time and money component

88. 7. Dispute Resolution

89. 7. Dispute Resolution What is best way to avoid and resolve disputes?
COMMUNICATION! (my opinion)
Options:
Litigation
To a judge
To a jury
Arbitration
Mediation
Negotiation
(Note importance of attorney’s fees clause!)

90. 8. Indemnity & Lien Waivers
One party is required to pay for the damages and legal expenses incurred by another party for claims related to the construction project
In Utah, indemnification clauses are unenforceable if required to indemnify for someone else’s fault (exception for owners in concurrent negligence).
Utah statute trumps contract language
“To the extent allowed by law.”

91. 8. Indemnity & Lien Waivers
Typically owners and general contractors ask subcontractors to waive their lien rights for the portions of work that subcontractors have been paid for.
Do not sign these waivers unless you’ve been paid!
Waivers must be in a specific form provided for by statute (or very similar form), otherwise the waiver may be invalid.

92. Babcock Scott & Babcock
THE END!
Babcock Scott & Babcock