Construction

Published on May 1st, 2013 | by UC&D Magazine

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Preconstruction Service Liens

D. Scott DeGraffenried

by D. Scott DeGraffenried

A Unique Chapter in Utah’s Mechanics’ Lien Law

 

In 2011, the Utah Legislature made sweeping changes to Utah’s mechanics’ lien laws. One key change included creating specific lien rights for preconstruction services (e.g., design, architectural, engineering, and surveying work). This article explains why preconstruction service liens were created, as well as how they are effectuated.

 

The Push for Preconstruction Service Liens

Preconstruction service providers have always had lien rights. The problem, however, was defining the priority of their liens.  A key issue with mechanics’ liens is whether they have priority over other encumbrances, such as a lender’s trust deed.  Under Utah’s pre-2011 statutes, all mechanics’ liens related back to and took effect as of the date visible construction work commenced on a project. If visible work commenced before another encumbrance was recorded, all the lien claimants had priority over the later encumbrance.

The problem for preconstruction service providers was that they were always subject to construction commencing.  For example, architects could spend months designing projects, but for priority purposes, their liens were tied to the date when work started. Consequently, preconstruction service providers were often relegated to an inferior priority position even though they performed their services early on.

Many considered this unfair. The changes in 2011 were enacted to address some of these concerns by carving out a unique priority position for preconstruction service providers. The law is relatively new, and many are still unfamiliar with how it works. So before explaining the new priority framework, we need to understand the process.

 

Process for Securing a Preconstruction Service Lien

 

Preconstruction Services Defined

Under Utah law, parties who perform preconstruction services can hold a preconstruction service lien.  Preconstruction services are expressly defined by statute, but generally include, among others, design work, consulting, estimating, and feasibility studies. The services must be provided before construction begins and for compensation that is separate from compensation to be paid for construction services.

Notice of Retention

To hold a preconstruction service lien, preconstruction service providers must file a notice of retention on the Utah State Construction Registry within 20 days of when they commence work.  They lose their lien rights if they do not meet this deadline.

 

Notice of Preconstruction Service Lien

If a preconstruction service provider filed a timely notice of retention and was not paid for its services, the next step is to file a notice of preconstruction service lien.  The lien must be recorded (1) with the county recorder of the county where the project is located and (2) within 90 days of when the claimant completed its work.  Again, if the lien is not recorded within the 90-day deadline, lien rights are extinguished.

After recording their notices of preconstruction service liens, lien claimants must send a copy of their notice to the property owner via certified mail within 30 days. This is necessary in order for lien claimants to collect attorney fees incurred in perfecting their liens.

 

Perfecting the Preconstruction Service Lien

The final step is to file a lawsuit to foreclose the lien, which must be done within 180 days of when the lien was recorded.  In conjunction with the lawsuit, a lien claimant must record a lis pendens with the same county recorder where the lien was recorded, giving public notice of the lawsuit.

Strict compliance with the foregoing steps is crucial.  Any misstep can be fatal to a lien.

 

Priority for Preconstruction Service Liens

Now that the mechanics of the law have been addressed, it is important to understand the unique priority rights for preconstruction service liens. Like the old law, which had a triggering point for priority purposes (the actual commencement of construction), preconstruction service liens now have a unique priority-triggering mechanism.  All preconstruction service liens relate back to and take effect as of the date of the first notice of retention, and are deemed superior to subsequent encumbrances.

This priority, however, is qualified. It can be bifurcated if there is an intervening, “bona fide loan.” Any preconstruction services provided after the loan are subordinate to the loan. This will likely most often apply in the context of construction loans.

While priority for preconstruction service liens is not absolute, it gives preconstruction service providers more rights than they previously had. It offers them a clear, ascertainable priority point, no longer subjecting them to an ill-defined priority scheme

 

Conclusion

This law is relatively new, and it is still subject to application in the construction industry and judicial interpretation.  Nonetheless, the efforts behind it demonstrate an active approach to cure a perceived unfairness.  Preconstruction service providers just have to make sure they satisfy all the requirements so they can take benefit from it. .

 

D. Scott DeGraffenried is an attorney at Salt Lake-based Babcock, Scott & Babcock, P.C. His practice focuses on construction litigation. He is a member of both the State Bar of Arizona and the Utah State Bar. He graduated from Arizona State University, Sandra Day O’Connor College of Law in 2007.

 


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