A Contractors, Subcontractor’s & Supplier's Step By Step Guide to Getting Paid - Utah - Webinar

In this blog presented by SunRay Construction Solutions and Jason Robinson, Founding Shareholder & Director, Babcock Scott & Babcock, P.C., we'll understand the intricacies of the mechanics lien, payment bond claims, and the Utah Lien Recovery Fund to help you navigate these essential aspects of construction law in Utah.

Understanding Mechanics Lien in Utah

Mechanics Lien is a payment tool that provides a way for contractors and suppliers to secure payment for their work. If you've provided services or materials for a property improvement project and haven't received payment, you have the right to file a mechanics lien.

This lien is recorded in the County Recorder's office within a specific timeframe, giving you legal recourse to pursue payment through a lawsuit to foreclose the lien against the property. Essentially, it holds the property owner accountable for unpaid debts related to the project.

Preserving Your Lien Rights in Utah

Now, let's take a closer look at the process of preserving your lien rights, from filing a preliminary notice to navigating the Utah State Construction Registry (SCR) and ensuring compliance with Utah's construction laws.

Filing a Preliminary Notice

The first step in preserving your lien rights is to file a preliminary notice. This notice serves as a formal communication to the property owner, general contractor, or other relevant parties, informing them of your involvement in the project and your intent to preserve your lien rights. In Utah, the SCR streamlines this process by providing an online platform where preliminary notices can be filed. It's essential to file your preliminary notice within 20 days of your first day of work on the project. Failure to meet this deadline may result in late notice, which takes effect five days after filing.

Navigating the Utah State Construction Registry

The SCR, commonly known as the Utah State Construction Registry, is a vital resource for contractors, subcontractors, and suppliers in Utah. It serves as an online bulletin board operated by the State of Utah, where various documents related to construction projects, including preliminary notices, are filed. Filing your preliminary notice on the SCR ensures that all relevant parties are informed of your involvement in the project and your intention to preserve your lien rights. It's important to ensure accuracy when filing on the SCR, as incorrect information may jeopardize your ability to enforce your lien.

Compliance with Utah Construction Laws

Utah's construction laws require strict adherence to procedures for preserving lien rights. Whether you're a general contractor, subcontractor, or supplier, you are required to file a preliminary notice on the SCR for every private project, regardless of size or scope. This requirement applies to both commercial and residential projects. Missing the deadline for filing a preliminary notice can have significant consequences, so it's crucial to prioritize timely compliance with Utah's lien preservation requirements.

Understanding Notice of Completion

In addition to preliminary notices, another crucial document filed on the Utah State Construction Registry (SCR) is the Notice of Completion. Let's explore the significance of this document and how it impacts the mechanics lien process.

What is a Notice of Completion?

• A Notice of Completion can be filed upon the original contract's final completion. This term, "final completion of the original contract," is defined specifically in Utah law. It typically refers to the date when a permanent certificate of occupancy is issued, if required, or the date of the final inspection by the local government entity overseeing the project. If neither of these events is necessary, final completion is determined by the absence of substantial work remaining to be done. Additionally, if the original contract is terminated, final completion is established as the last date substantial work was performed under that contract.
• When a Notice of Completion is filed on the SCR, it triggers several important changes in the mechanics lien process. Firstly, it shortens the timeframe for filing preliminary notices from 20 days to 10 days. Secondly, it reduces the time for filing mechanics lien, as we'll discuss further.
• Upon the filing of a Notice of Completion, contractors, subcontractors, and suppliers have 90 days to file their mechanics lien on the SCR. But how can you be sure if a Notice of Completion has been filed? While the SCR may send an email notification to the email address provided during preliminary notice filing, it's not a guaranteed method of notification. Therefore, it's advisable to independently track this milestone and calendar out the 90-day window for filing a mechanics lien.
• If a Notice of Completion hasn't been filed, you still have 180 days from the final completion, as defined earlier, to file your mechanics lien. However, sending a copy of the lien to the property owner via certified mail within 30 days of filing is crucial. Not only does this ensure compliance with Utah law, but it also preserves your ability to recover attorney fees and costs if you become the prevailing party in any legal action related to the lien.

• When filing a mechanics lien, certain information must be included to ensure its validity. These details typically include the name and address of the claimant, a description of the property subject to the lien, the amount owed, and other relevant project details.
• Understanding the nuances of notices of completion and mechanics lien is essential for contractors, subcontractors, and suppliers in Utah. By staying informed and adhering to the requirements outlined in state law, you can protect your lien rights and safeguard your financial interests in construction projects.

Ensuring Accuracy and Enforcing Lien: Best Practices for Contractors

Even with careful attention to detail, mistakes can happen when filing preliminary notices or lien. However, in Utah, the principle of substantial compliance is followed, meaning that minor errors or inaccuracies may not necessarily invalidate your claim. Nevertheless, it's essential to strive for accuracy to minimize the risk of disputes and costly litigation.

How to Enforce Your Lien?

Once your lien is filed, the next step is enforcement. You are required to initiate a lawsuit to foreclose the lien within 180 days from the date the mechanics lien was filed. Simultaneously, you'll file a Lis Pendens, indicating that legal action is pending. It's advisable to seek legal counsel at this stage to ensure proper procedures are followed.

Understanding Lien Priority

In Utah, lien priority is determined differently from other states. Instead of relating back to the first visible work, all lien in Utah relate back to the first-filed Preliminary Notice on the SCR. This means that even if work commenced before the notice was filed, priority is established based on the date of the notice.

Options for Resolution

There are various options for resolving lien disputes. Lenders can purchase priority by satisfying claims filed before their loan's construction trustee is recorded. Additionally, lien can be bonded off, meaning a bond or cash deposit is provided to satisfy the claim instead of foreclosing on the property. It's crucial to understand these options and seek legal advice if faced with such situations.

Avoiding Abuse of Lien Rights

While liens are a powerful tool for securing payment, it's essential to use them responsibly. Intentionally overstaying a lien after receiving payment is considered abusive and can lead to legal repercussions. Timely release of the lien once payment is received is crucial to maintain integrity and compliance with Utah law.

Understanding Payment Bond Claims for Public Projects in Utah

When it comes to public projects in Utah, contractors and suppliers operate under different rules than private projects. Unlike private projects where mechanics lien are applicable, Utah public projects do not afford lien rights to contractors and suppliers. Instead, payment bond claims serve as the recourse for unpaid parties. In essence, the state or its political subdivisions, such as school districts or municipalities, are required to obtain a payment bond for the protection of subcontractors and suppliers.

Notice Requirements for Payment Bond Claims

Despite the absence of mechanics lien, contractors and suppliers must still adhere to notice requirements to preserve their payment bond claim rights. At the onset of a public project, a notice of commencement can be filed on the state construction registry by the general contractor, lender, surety, or title company. This notice is crucial as it initiates the timeline for notice requirements specific to public projects.

Filing a Notice of Commencement

Upon commencement of physical work on a public project, a notice of commencement must be filed within 15 days on the state construction registry. This notice essentially activates the registry for Utah public projects. However, if a notice of commencement is not timely filed, subcontractors and suppliers are relieved from the obligation to file a preliminary notice to preserve their payment bond claim rights.

The Importance of Communication

Despite the legal requirements, it's advisable for subcontractors and suppliers to file a preliminary notice regardless of the presence of a notice of commencement. Communication is key in construction, and filing a preliminary notice can facilitate dialogue and potentially expedite payment processes without resorting to legal action.

Notice of Commencement Information

When filing a preliminary notice for a public project, attaching it to the general contractor's notice of commencement on the state construction registry is recommended. This ensures proper documentation and compliance with notice requirements, setting the groundwork for potential payment bond claims down the line.

Exceptions and Additional Claims

In our overview today, we've covered the basics of payment bond claims on both public and private projects in Utah. However, there are some exceptions and additional claims that are important to understand.

Making a Claim Against the Payment Bond

If you find yourself in a situation where you haven't received payment for your work, it's essential to understand how to make a claim against the payment bond properly. Simply sending a letter isn't sufficient; you're required to file a lawsuit against the bond. Here's what you need to know:

• Wait for at least 90 days from your last day of providing services, labor, materials, or equipment.
• File a lawsuit against the bond within one year of your last day of work on the project.

Exception: Failure to Obtain a Payment Bond

In cases where the state or political subdivision fails to obtain a payment bond for a public project in Utah, you have a unique recourse. You can make a claim against the owner or the state for failing to obtain the bond. Here's what you need to do to preserve this claim:

• Provide written notice to the state or political subdivision within 90 days of your last day of work.
• Send the notice via certified mail, including essential details such as the work performed, the project, and the amount owed.

Private Commercial Projects: Payment Bond Requirement

In Utah, private commercial projects with a contract price exceeding $50,000 require the owner to obtain a payment bond for the protection of subcontractors and suppliers. This is a lesser-known claim that many aren't aware of, even some construction attorneys. Here's what you need to know:

• To make a claim against the payment bond, file the same preliminary notice discussed earlier.
• Wait for 90 days from your last date of work.
• File a lawsuit against the payment bond within one year of your last date of work.

Recovery of Attorney Fees

In both the failure to obtain a payment bond claim and a successful payment bond claim, you may be entitled to recover attorney fees as the prevailing party. However, it's crucial to ensure that all requirements are met accurately and promptly to strengthen your case.

Understanding Utah's Lien Recovery Fund

While the Lien Recovery Fund in Utah has effectively been dissolved, it's important to note that it will remain in effect until the state exhausts its allocated funds. Let's take a closer look at how this fund operated and what it meant for homeowners and lien claimants.

How the Fund Operated?

In essence, the Lien Recovery Fund provided a mechanism for homeowners to seek relief from mechanics lien placed on their properties. Here's how it worked:

• Homeowner Eligibility: Homeowners could apply to the state of Utah for a certificate of compliance from the Lien Recovery Fund if they could demonstrate that they had a written contract with a licensed contractor and had paid in full. Additionally, the property in question had to be the homeowner's primary or secondary residence.
• Certificate of Compliance: Upon obtaining a certificate of compliance from the Lien Recovery Fund, the homeowner could then provide a copy to the lien claimant. The lien claimant was then required to release their lien from the property within 15 days.
• Claiming Payment: While the homeowner was relieved of the lien, the lien claimant could apply to the Lien Recovery Fund for payment. This process, however, involved navigating through certain red tape and adhering to specific dates and deadlines.

The Impact on Contractors and Suppliers

• For contractors, subcontractors, and suppliers, the Lien Recovery Fund served as a potential source of payment for outstanding dues. Many have successfully collected funds from the fund, but the process often involved careful attention to the various dates and deadlines involved.
• While the Lien Recovery Fund may no longer be operational, its legacy underscores the importance of prompt payment and dispute resolution in construction projects. Contractors, subcontractors, and suppliers must continue to be vigilant in protecting their rights and seeking timely compensation for their work.
• When it comes to collecting money owed to you in the construction industry, it's essential to remember that mechanics lien claims and payment bond claims are not your only options. In fact, you have a whole toolbox at your disposal, each offering unique strategies for pursuing payment.
• Diversifying the Approach

Here are some additional avenues to consider:

• Contractual Agreements: Having a written contract in place gives you a strong foundation for pursuing payment. In Utah, there are no usury laws, meaning you can charge interest on overdue payments, sometimes at rates as high as 18% to 24%.
• Attorney Fees: If your contract includes a provision for attorney fees or if there's a relevant statute allowing for the recovery of attorney fees, you may be able to recover these costs if you prevail in a legal dispute.
• Personal Guarantees: Securing personal guarantees from involved parties can provide an additional layer of protection and incentive for timely payment.
• Prompt Payment Act: Utah has a prompt payment act in place, which can offer recourse in situations where payments are not made promptly according to contract terms.
• Retainage Statute: Utah's retainage statute provides mechanisms for dealing with retainage, ensuring that you receive the full payment you're entitled to in a timely manner.

Key Takeaway

It's understandable if navigating these legal complexities feels overwhelming at times. However, staying informed about your rights and the tools available to you is crucial. When you encounter situations where payment is delayed or withheld, let it serve as a red flag to explore your options.

If you find yourself facing payment issues, don't hesitate to reach out for guidance and support. SunRay can provide valuable assistance and expertise to help you navigate the complexities of construction payment disputes. Call 800-403-7660 today and get paid what you deserve.

Other Questions Contractors had about Mechanics Lien and Contract Requirements in Utah

1. Do I need to be a licensed contractor in Utah to have lien rights?

In Utah, you can file a mechanics lien as an unlicensed contractor. However, under Utah law, you cannot maintain an action to collect money owed for which a contractor license is required. While there are exceptions to this rule, it's advisable to obtain proper licensing to ensure full access to legal remedies for payment recovery.

2. Do I need a written contract to file a mechanics lien or make a payment bond claim in Utah?

No, you do not necessarily need a written contract to file a mechanics lien or make a payment bond claim in Utah. Oral contracts are legally binding in the state, but they can lead to disputes over the scope of work, contract price, and completion deadlines. Having a written contract is strongly recommended as it provides clarity and strengthens your legal position in case of disputes or litigation.