Tag Archives: design professional

The ABCs of Current NC Lien Law

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[note: this article originally published Nov 11, 2010]

What are the ABCs of current lien law in North Carolina.  Ask and ye shall receive………..

 Part 1:  Lien Law Rights for Contractors, Subcontractors, & Design Professionals

Who can file a lien?

Anyone who furnishes materials or labor to improve real property can file a lien on that property.  This includes design professionals who provide services related to improvement of real property, contractors, and subcontractors (down to the 3rd tier).

What types of liens are there in NC?

There are three types of lien claims in North Carolina.

1.  The Claim of Lien on Real Property (NC Gen. Stat. §44A-12) is for a person who contracts directly with the owner of the property.  This can be a general contractor, a separate independent contractor, or a design professional.

2.  The Notice of Claim of Lien upon Funds (NC Gen. Stat. §44A-18 and §44A-19) is available to subcontractors (down to third-tier subcontractors), and allows them to have a lien right to any funds owed to the party that contracted with them in the chain of title.  In other words, if the owner still owes money to the general contractor, and the owner receives a Notice of Claim of Lien upon Funds by a subcontractor (and the lawsuit to enforce the lien is thereafter properly filed), the owner cannot pay the general contractor until the subcontractor’s lien is extinguished.

3.  The Subrogated Claim of Lien on Real Property (NC Gen. Stat. §44A-23) also provides real property lien rights to the subcontractor, to the extent the party he contracted with has lien rights.

When and Where must a lien be filed?

Lien claims in North Carolina must be filed in the clerk of court where the property is located, within 120 days of the claimant’s last date of furnishing.

What does “perfecting a lawsuit” mean?

A lawsuit must be filed to enforce the lien.  This is called “perfecting” the lien, and it must be done within 180 days of a claimant’s last date of furnishing.  The lawsuit can be filed in any proper county so long as an appropriate Lis Pendens is also timely filed in the county where the property is located.

What special remedies are available for a lien claim?

If a lien lawsuit is perfected and a judgment rendered, the court can direct the property to be sold to satisfy the lien.  Additionally, you can recover attorney fees for the lien lawsuit.  Pretty cool, huh?

  souffle

Crafting a proper lien is like making souffle- no room for error!

In summary:

As you can imagine, liens can be very powerful tools to help ensure recovery of money owed to contractors and subcontractors on a project.  The key to exercising your lien rights is to keep watch on the running of the claim period (use of online resources can help with this)  and to ensure that the lien is (1) properly drafted; (2) timely served; (3) appropriately filed; (4) perfected with a timely lawsuit.  This is not an area where you can make a mistake—liens are subject to strict rules that must be followed to the t.  If in doubt about a lien issue, contact a knowledgeable construction law attorney in your jurisdiction.

We’ll continue our discussion with Part 2 (next Thursday), when we discuss how to handle a lien on your property if you are the Owner

Comments about your experience using liens to maximize your chances of recovery?  Post below.  [And as always, please sign up for an email subscription to the blog  if you have not already done so].

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Photo “Soufflé” by stu_spivack via Flickr/Wikimedia/Creative Commons

Contributory Negligence on the construction project (law note)

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scale of justiceI’m sometimes asked if the percentage of “fault” is something that a client can rely on to reduce the amount of money they may owe on construction project gone bad.  The short answer:  no.   As I mentioned in my post on joint & several liability, if you are even 1% liable for the damages on a project, you can be hit with 100% of the damages. 

 This is not true in many other jurisdictions, where proportional fault (called comparative negligence) is often allowed.  In those states, if you are found 20% liable, you only have to pay 20% of the damages. Not so in North Carolina.  Here, unless you are entirely passively negligent (a concept we’ll discuss next week), you may be on the hook for the full amount.

That’s not fair!

Perhaps.  But, that’s life on a North Carolina construction project.  One concept that helps to reduce the unfairness factor is the concept of contributory negligence.  In North Carolina (but few other states), if a party is negligent at all (even 1%), they cannot recover from another negligent party.  

For example:  the owner of a project sues its general contractor on a project for a late project delivery which costs the owner money.  While almost all of the delay was the contractor’s fault, the owner also caused delay by failing to deliver owner-furnished equipment in time to meet the critical path of the project.  The owner’s own failure means that the owner itself is contributorily negligent and, under North Carolina law, the owner cannot recover the rest of its damages from the contractor.

But wait! There’s more.

Before you get too excited about contributory negligence, you need to understand the concept of  jury nullification.  When contributory negligence is explained to a jury, the jury may sometimes decide not to find fault where they might otherwise apportion fault, to avoid what they perceive as an unjust result. 

In the above example, the jury might decide the owner’s failure was not really contributing to the delay after all, and therefore award the owner damages.  This is called jury nullification, and it can take the sting out of contributory negligence.

Change to NC’s Contributory Negligence law?

The concept of contributory negligence (and its complete bar to any recovery) is one which many would like to change.  There has been legislation in the NC General Assembly in recent years to abolish contributory negligence in favor of a comparative-fault  negligence, as is common in most states.  So far, this has not happened.  As they say, however, the jury is still out on whether such a change will occur.  

Do you have an opinion on contributory negligence vs. comparative negligence? Think NC’s law should change to one based on percentage of fault?  Share in the comments below.

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Photo “Scale—Image”  by Matthias Kulka/Corbis via Picasa/Creative Commons License. 



Liquidated Damages: what, when, & why

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water dropWhat are Liquidated Damages?

Liquidated Damages are a sum which a party to a contract agrees to pay or a deposit he agrees to forfeit, if he breaks some promise.  In the construction realm, liquidated damages (or “LDs”) usually involve money damages for time delays on a construction project.    Typically, a contract will state that time is “of the essence” and that for every day past the scheduled completion date (as modified by change orders & directives) a set amount is due from the contractor to the owner.

When can you get liquidated damages? (or, when must you pay liquidated damages?)

Liquidated damages must be specified in the contract up front.  They should reflect the reasonable estimate of likely damages that will be incurred if the contractor fails to complete the project timely.

To be enforceable, the amount must have been arrived at by a good-faith effort to estimate in advance the actual damage that would likely ensue from the breach, and they cannot be deemed “penalties.”  Eastern Carolina Internal Medicine, P.A. v. Faidas,  149 N.C.App. 940,  564 S.E.2d 53 (2002).

Why?

The purpose of liquidated damages is to reasonably compensate the non-breaching party (typically, the owner for construction delays) which it will likely incur as a result of the breach (e.g., the extended completion date results in lost rent and increase finance charges).  Without the liquidated damages provision, the parties would be forced to argue about each alleged cost the owner incurred because of the delay.  With liquidated damages, the amount is known ahead of time which should (theoretically) lead to fewer arguments later.

When doesn’t the provision work?

Two words—concurrent delay.  If the owner is delaying the project (through, for example, failure to deliver/install owner-provided equipment), but the contractor is also behind on completion, the two delays may run at the same time—hence “concurrent delay”.  In such a situation it becomes difficult if not altogether impossible to separate delays and delay damages.  Of course, if the entire delay is owner-related, no liquidated damages can be assessed.

Take-away message

Liquidated damage provisions, if carefully and properly drafted, are enforced in North Carolina.  You should know your schedule requirements prior to signing on the dotted line and, if necessary, accelerate your work to complete on time.  If you are the owner, however, you also have responsibilities not to interfere with the schedule if you hope to have a chance at recovering liquidated damages from a contractor who delivers a project late.

Questions?  Comments?  Experience with the joys (and sorrows) of LDs?  Share in the comments below.

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Photo “Water drop bouncing off the water surface” by konradc via Picasa/Creative Commons License.

What is Indemnity, and why should you care?

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barber shop poleIf you have ever asked a lawyer to review your construction contracts (and you should have), you may have noticed that lawyers get very excited over the indemnity provisions that may or may not be in the contracts you are contemplating signing.  What are indemnity provisions, and why should you care?

What is it?

Quite simply, an indemnity provision is a statement that one of the parties agrees to pay any sums the other party might otherwise be legally required to pay to a third party.  Now that I’ve mentioned picking up someone else’s tab, I hope I have your attention.  As you might imagine, an indemnity provision can be a costly item, so you should have a thorough understanding of what such a provision means.

In general, indemnity provisions are contractual, and contract rules concerning them apply.  What that means is, if the contract says you will pay for the owner/builder/developer/designer’s legal liabilities to others, you may have to open the checkbook.

Common Indemnity Provision

An example of one type of indemnity provision is AIA A201 3.18.1, which states:

To the fullest extent permitted by law the Contractor shall indemnify and hold harmless the Owner, Architect, Architect’s consultants, and agents and employees of any of them from and against claims, damages, losses and expenses, including but not limited to attorneys’ fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other than the Work itself), but only to the extent caused by the negligent acts or omissions of the Contractor, a Subcontractor, anyone directly or indirectly employed by them or anyone for whose acts they may be liable, regardless of whether or not such claim, damage, loss or expense is caused in part by a party indemnified hereunder. . . .

When is it not legal?

There are some exceptions to the general applicability of indemnity provisions in North Carolina—most noticeably: you cannot be indemnified against your own negligence.  If an indemnity provision purports to indemnify one party against that person’s own negligence, public policy and state law prohibit such an indemnification in North Carolina  The applicable statute N.C. Gen. Stat. §22B-1, which reads:

§ 22B-1. Construction indemnity agreements invalid

Any promise or agreement in, or in connection with, a contract or agreement relative to the design, planning, construction, alteration, repair or maintenance of a building, structure, highway, road, appurtenance or appliance, including moving, demolition and excavating connected therewith, purporting to indemnify or hold harmless the promisee, the promisee’s independent contractors, agents, employees, or indemnitees against liability for damages arising out of bodily injury to persons or damage to property proximately caused by or resulting from the negligence, in whole or in part, of the promisee, its independent contractors, agents, employees, or indemnitees, is against public policy and is void and unenforceable. Nothing contained in this section shall prevent or prohibit a contract, promise or agreement whereby a promisor shall indemnify or hold harmless any promisee or the promisee’s independent contractors, agents, employees or indemnitees against liability for damages resulting from the sole negligence of the promisor, its agents or employees.
[Emphasis added].

However, construction indemnity clauses indemnifying a party for its own negligence can be valid and enforceable so long as the offending portion of the indemnity clause can be redacted (that is, stricken from the paragraph).  Vecellio & Grogan, Inc. v. Piedmont Drilling & Blasting, Inc., 183 N.C.App. 66, 644 S.E.2d 16 (2007).  In the example of the AIA A207 provision above, the phrase “To the fullest extent permitted by law” acts to keep the phrase within the permissible parameters of North Carolina law.  Therefore, if you signed a contract with such a provision, you may be on the hook.

Be Careful with Indemnity Provisions

Not all indemnity provisions are equal.  Some, such as in the above example, make attorney fees part of the expense which is passed along.  Others expressly exclude attorney fees.  Some provisions include a “duty to defend” on behalf of the other party, while others are silent on that issue.  What is most important is that you recognize that such language is extremely important and should be discussed in detail with your knowledgeable construction lawyer.

As with getting your hair cut, you could do it yourself, but should you?

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Photo “Barber Shop Pole” by MyEyeSees via Flickr/Creative Commons License.

What is “green design” ?

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What is included in “gPlatinum LEED signreen design”? Green design (also known as sustainable design or environmental design) is the concept of construction built with principles of economic, social, and ecological sustainability.  The most well-known green design, by far, is the LEED green building certification process of the US Green Building Council.

Yesterday, I had a chance to attend Phil Kabza (“SpecGuy”)’s presentation “Specifying LEED Requirements: The Best of Green from Masterspec” at the GreenNC trade show.

According to Phil, there are 4  general LEED credit requirements for construction, including:

1.  Refrigerant & clean agent removal

2.  Construction waste management

3.  Construction indoor air quality management

4.  Measurement & verification (post construction)

As Phil emphasized, LEED specs must be project specific, and should not simply be cut and pasted from previous projects.

Want to see a LEED specification in action?  Check out an example of a LEED Spec on Sustainable Design Requirements (01 81 13) here.

Interested in learning more about LEED and its requirements?  Check out the mother of LEED, the USGBC .

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Photo “Platinum LEED” by Seth Anderson via Flickr/Creative Commons License.