Construction litigation is governed by Chapter 44A of the North Carolina General Statutes. The bond and lien laws contained therein provide certainty and protection for owners, general contractors, subcontractors, and suppliers regarding improvements to real property. Lien laws are designed to accomplish that aim for private projects while bond laws apply to all public projects and may be used in the private sphere. Trey has handled scores of commercial, residential, and public construction litigation matters throughout his career and is well versed in navigating the law particular to this industry.
North Carolina Licensing Board for General Contractors
Generally speaking, any person or company who undertakes to construct, superintend, or manage a construction project of $30,000 or more must be a licensed general contractor. Failure to satisfy the licensing requirements prior to commencement of work may void a contractor’s ability to recover any amount for unpaid work, regardless of its quality, but will not shield an unlicensed contractor from liability.
Other construction design professionals, like architects, engineers and surveyors, and electrical contractors have their own licensing requirements.
Beginning April 1, 2013, North Carolina law requires that property owners appoint lien agents for projects in which building permits are $30,000 or more. Currently, only title insurance companies serve as lien agents in North Carolina.
General contractors, subcontractors, and suppliers must furnish notice of their potential lien claims within 15 days of their first furnishing of labor or materials to the project. The Notice to Lien Agent should follow the format prescribed by the relevant statute. If the general contractor properly filed and posted a Notice of Contract at the project, second and third tier subcontractors must also file and serve a Notice of Subcontract.
According to recent changes in the lien law, failure to timely send the Notice to a Lien Agent will undermine the validity of subsequent lien claims. However, no litigation has yet given rise to the court’s interpretation and application of the new lien laws. At the very least, failure to timely serve the Notice to a Lien Agent will adversely impact the effective date of the lien.
It must be sent certified mail, return receipt requested (or via FedEx, UPS, etc.), such that there is delivery receipt. Faxes and e-mails with delivery receipts are also acceptable. Alternatively, the notice may be filed electronically via LiensNC.com.
The Notice to a Lien Agent should be sent to the owner of the property as well. General contractors and subcontractors must provide their suppliers with the lien agent’s name within three (3) days of entering the contract.
Since a general contractor may not know who all the possible second and third tier subcontractors on a project are, a Notice of Contract is a method for the general contractor to simultaneously place them on notice of its contract with the owner of a project. A Notice of Contract is not required, but it provides general contractors with an added layer of protection against double payment liability by second and third tier subcontractors. To be effective, a general contractor must file a Notice of Contract within thirty (30) days of the building permit’s issuance in the county where the project is located and post it at the project site beside the building permit. If done, it is then incumbent upon second and third tier subcontractors to determine whether a Notice of Contract has been filed/posted and, if so, to respond by providing the general contractor with a Notice of Subcontract.
The Notice of Subcontract serves to let the general contractor know who the second and third tier subcontractors are and requires they be provided notification of all payments made to first tier subcontractors. This arrangement allows the general contractor to protect against a lien against the real property (so long as it provides the required notifications to second and third tier subcontractors) and protects the second and third tier subcontractors by alerting them to payments to parties with whom they directly contracted.
Notices of Subcontract are provided by second and third tier subcontractors to the general contractor so that it knows what other parties (beyond the first tier subcontractors with which it contracts directly) are providing labor, materials, and rental equipment to the project. A Notice of Subcontract is only required if a Notice of Contract is filed and posted by the general contractor. There is no requirement as to when a lower tier subcontractor must serve the general contractor with a Notice of Subcontract, but the general contractor isn’t required to notify the subcontractor of payments until then, so it is in the subcontractor’s best interest to do it as soon as possible.
Anyone who contracts directly with the owner of a property and provides labor, materials, or rental equipment for improvement thereon is entitled to file a claim of lien on real property. As to subcontractors, the rules and requirements are more difficult to follow because their lien rights follow through subrogation rights (i.e., “in the shoes of”) of the general contractor.
Depending on whether the subcontractor properly served a Notice to Lien Agent and Notice of Subcontract (if necessary) and, more importantly, whether the general contractor has waived its lien rights, subcontractors may be able to enforce their liens through subrogation. Enforcement of lien claims via subrogation is only available to first, second, and third tier subcontractors.
A Claim of Lien on Real Property must be filed within 120 days of the last day of furnishing labor, materials, or rental equipment to the project and is said to be perfected at that point. To remain valid, a lawsuit must be filed within 180 days of last furnishing seeking to enforce the claim of lien on real property.
The statutes specify precisely what information must be contained in a Claim of Lien on Real Property and a Notice of Claim of Lien Upon Funds. Special care should be taken to make sure all information is properly included prior to filing/service. If a Claim of Lien on Real Property or Notice of Claim of Lien Upon Funds fail to include required information, they may be deemed void and unenforceable. In extreme cases, a woefully deficient claim of lien on real property may be deemed a cloud on title and could render the filer liable to the property owner.
A Claim of Lien on Real Property attaches to the title of the real property (or project) that is the subject of the dispute. A Notice of Claim of Lien Upon Funds attaches to money in the hands of the owner and general contractor for the purpose of paying for improvements to the real property. For example, should the owner of a project issue payment to the general contractor after receiving a valid notice of claim of lien upon funds by a first tier subcontractor, the owner would then become directly liable to the first tier subcontractor for any amounts paid after the notice was served and even though the owner may have already paid the general contractor for the full value of labor/materials supplied by the first tier subcontractor.
A claim of lien on real property is perfected by filing a Claim of Lien on Real Property in the county where the property is located and served on the owner of the property and any contractors or subcontractors through whom the lien is asserted by subrogation.
To remain valid, a lawsuit must be filed within 180 days of last furnishing to enforce the Claim of Lien on Real Property. Unless the lien claimant also files a Notice of Lis Pendens in the county where the property is located within 180 days, the lien enforcement lawsuit must be filed in the county where the property is located.
To be clear, this means a lien claimant will only have 60 days to file a lien enforcement lawsuit if the claim of lien on real property is filed on the last possible day (120 + 60 = 180).
A lien upon funds is effective the moment of first furnishing labor, materials, or rental equipment at the project. The lien is perfected by serving notice of claim of lien upon funds as required by the statutes.
Unlike a claim of lien on real property, there is no specific deadline for filing a lawsuit to enforce a lien against contract funds (assuming no claim of lien on real property was also filed). Instead, that lien will remain valid as long as the underlying claim is viable. In North Carolina, the statute of limitations for breach of contract is three (3) years from the date of breach. Therefore, a lien on contract funds could be viable for as long as three years.
Subrogation is a legal construct in which subcontractors essentially “stand in the shoes” of the general contractor and are allowed to enforce their rights against the owner to the same extent as the general contractor otherwise could enforce its own rights. Since the owner of a project (unless it is a multi-prime project) only contracts with one general contractor, there is no binding contract between the owner and the various subcontractors. Instead, the general contractor engages various subcontractors (who may in turn also contract with other subcontractors) to complete the work and furnish the necessary materials. To ensure subcontractors are paid for their provision of labor, materials, or rental equipment, various lien statutes were enacted so that subcontractors could enforce their lien rights through subrogation.
A valid lien claim is one for the unpaid labor, material, and/or rental equipment furnished for the project. A proper lien does not include incidental damages such as lost profits, interest, the costs of trying to collect the outstanding debt, or the legal fees associated with drafting and filing the Claim of Lien on Real Property.
Yes. If a lien claimant recovers at least half of the outstanding lien claim and can show the losing party unreasonably refused to resolve the matter, it is within the judge’s discretion to also award attorneys’ fees and costs. The judge may also order the lien claimant pay the opposing party’s attorneys’ fees if the lien claimant doesn’t recover at least half of the claim and unreasonably refused to resolve the claim.
A payment bond is furnished by the general contractor and its surety to ensure payment to those furnishing labor, materials, or rental equipment to the project and hired by the general contractor.
A performance bond is furnished by the general contractor and its surety guaranteeing that the work specified in the contract will be completed if, for some reason, the general contractor does not complete performance of the work.
Payment bond claims may be made by parties who directly contract with the general contractor, subcontractors, and sub-subcontractors. A bond claim must be served on the general contractor via registered or certified mail, return receipt requested (including FedEx or UPS) or by personal service within 120 days from the last date of furnishing of labor, materials, or rental equipment to the project site. If known, the bond claim should also be sent to the surety that issued the bond.
A bond claim must include (1) the amount claimed and (2) the name of the person for whom the work was performed or the materials furnished.
A bond claim must be made within 120 days from the last date of furnishing of labor, materials, or rental equipment to the project site. Additionally, a suit to enforce a bond claim must be initiated no sooner than 90 days and no later than one (1) year after the last date of furnishing of labor, materials, or rental equipment to the project site or one year from the day final settlement was made with the general contractor, whichever is later.
An action on a payment bond must be brought in the county where the project, or some part of it, is located.
Yes. If a bond claimant recovers at least half of the outstanding bond claim and can show the losing party unreasonably refused to resolve the matter, it is within the judge’s discretion to also award attorneys’ fees.
The judge may also order the bond claimant pay the opposing party’s attorneys’ fees if the bond claimant doesn’t recover at least half of the claim and unreasonably refused to resolve the claim.