Recently, the Legislative Review Commission Subcommittee on Mechanics Liens on Real Property asked for PENC’s opinion on proposed changes to NC lien and bond laws set out in HB 489 and proposed during the 2011 legislative session. Title companies and lenders are seeking this legislation as a “fix” to the issue of hidden liens, which allegedly result in millions of dollars in losses to their industries, by proposing that a “Notice of Commencement” be filed for every project to serve as the general default date upon which all lien claims would relate back. Under the current law, design professionals have the strongest lien position allowing our lien rights to “relate back” to the first furnishing of labor of service. HB 489 would change this by forcing architects and engineers to file a pre-notice early in the project in order to protect priority position.
In responding to the LRC subcommittee, PENC stated its strong opposition to the requirement of a filing of a Notice of Commencement. This provision would add significantly to an engineering firm’s cost of doing business likely requiring the use of outside legal counsel to appropriately prepare and file the required documentation. Additionally, a very low percentage of liens of an engineering firm’s total number of projects are filed by engineering firms (projected at less than 5%) causing these firms to spend a disproportionate amount of money to protect their lien rights compared to the number of liens that are actually filed. Under the existing lien statute, engineering firms are only required to spend money enforcing liens on those projects where an actual lien is filed.
There are also many instances where an owner may wish to keep a project confidential while proceeding with the design phase as often the design work will determine the fesibility of the project. A Notice of Commencement requirement would either force the designer/engineer to “go public” with the project possibly against the wishes of the owner, or result in non-compliance with the filing of the Notice of Commencement thereby foregoing the designer/engineer’s priority of lien rights in favor of abiding by the wishes of the client.
The Administrative Office of the Courts would also incur significant costs at a time when they are overwhelmed with existing caseloads and insufficient budgets.
Design Professionals should hope that the legislative subcommittee studying this issue realizes that while this notice provision may mitigate some of the financial losses to the title insurers and lenders, the trade-off would be a heavy administrative and legal burden on the design and construction industry that could lead to even more job losses as our industry continues to struggle in this economy.
The LRC subcommittee will begin meeting this winter and spring to determine whether this legislation will move forward in its current form in the legislative short session which begins in May. And, PENC will continue to voice our opposition to tje Notice of Commencement provision unless alternatives are proposed that adequately address our priority rights in filing liens.