2009 CHANGES TO ARKANSAS CONSTRUCTION LIEN LAWS
By
Patrick D. Wilson, Wright, Lindsey & Jennings, LLP
INTRODUCTION
In what is now established as an every-other-year occurrence, the Arkansas Legislature has again made significant changes to the Arkansas construction lien laws. The changes become effective Friday, July 31, 2009. In contrast to changes made in prior years, the changes made this year actually are an improvement and make the application of the lien laws more clear. Through the discussion below, I will highlight the most significant changes and note how your practices under the prior laws will need to be changed and your forms modified to conform to the new law.
However, before discussing the changes, we should first note that the basic protections of the lien laws have not changed. The new law does not change who is entitled to file a lien. The new law also does not change the priority of liens or how they relate to mortgages on the property to be liened. The laws were changed with the idea of making the existing laws much more clear, eliminating redundant provisions, and updating the lien laws to recognize modern possibilities for service of the required notices and liens themselves. By that measure, I think the changes made have been and will be very successful. It is also important to note that the bill making these changes was drafted by a group of three lawyers. Those lawyers certainly have a good deal of experience with construction liens, and they each represent a wide range of different players in the construction industry. Thus, they do not have what I consider to be biases for or against any particular group.
SIGNIFICANT CHANGES
1. Refusing to list parties on project
I will discuss the most significant changes in the order they appear in the new law. The first change is probably the most dramatic. It involves a contractor who refuses or fails to list the parties doing work or furnishing materials on a project. The 1995 amendments to the lien laws put in place the requirement that the general contractor must list parties working on a project. The problem was that the only way to enforce that requirement under the existing law was through a criminal charge, and local prosecutors almost always refuse to get involved in such situations. Thus, there was nothing subcontractors or owners for that matter could do to force the contractor to provide a list of who was working on that project.
The new law provides in Ark. Code Ann. § 18-44-108 that a party who wants that list can sue the contractor and have the Court use its contempt powers (which can be read as “throwing someone in jail”) to force the contractor to produce the list. This section also states that whoever prevails in this type of action may receive reasonable attorney’s fees. Thus, even if the party wanting the list cannot show significant damages from not getting it, the possible award of attorney’s fees can be a hammer.
2. Modernizing service
The second significant change relates to modernizing the methods for serving the various notices and the liens themselves on other parties. This change is included in a few different sections to make clear that it applies to each of the required notices and the liens. The problem to be fixed by this change is that one of the service methods is using certified mail through the U.S. Postal Service, and they rarely follow their own regulations. There is no telling when the Postal Service will deliver certified mail, and the “green cards” indicating receipt of those certified letters can take forever to be returned if you receive them back at all. Even more frustrating is the fact that postal workers will allow nearly anyone to sign for a certified letter, even when extra money is paid for the delivery of that letter to be “restricted” to a specific person.
To fix all of these problems, Ark. Code Ann. § 18-44-114 (the “ten-day notice”) and other sections provide that commercial delivery options such as Fed Ex and UPS are satisfactory, stating the notice may be served by any “means that provides written, third-party verification of delivery at any place where the owner of the building or improvement maintains an office, conducts business, or resides.” Because these commercial delivery options are now available for service, it should be easier for contractors, subcontractors, and material suppliers to give the required notices to the owners and be certain the owners have received them.
3. Failing to give pre-construction notice
What seems likely to be the most controversial of the changes, at least to contractors, comes in Ark. Code Ann. § 18-44-115. This is the section on the pre-construction notice required before work is done, otherwise known as the “important notice.” It is important to note that the pre-construction notice is only required on residential projects, which are defined as projects containing fewer than four units. The law has required general contractors to give this notice, while also permitting potential lien claimants to give the notice if the general contractor did not. The problem is that the law previously provided that the pre-construction notice must have been given before anyone began working on the project, and thus painters or others whose work was done towards the end of a project would not be able to claim a lien if the general contractor or others working on the project did not send that notice before anyone began work.
There were not good ways to enforce this pre-construction notice requirement against the general contractor. Thus, the new law provides a severe sanction: If a residential contractor fails to give the pre-construction notice, then that contractor cannot sue to enforce any provision of his residential contract. Let me say that again for emphasis: A residential contractor who does not give the required pre-construction notice cannot sue on any aspect of his contract with the owner. It is not at all clear to me that this severe sanction would survive a strong constitutional challenge, but I will leave discussion of that to another day.
4. When pre-construction notice is effective
The new law then makes a change that I consider to be good and fair: The same section now indicates that the requirement of the pre-construction notice being given before work begins really just means before that lien claimant’s work begins. In other words, a pre-construction notice given after work starts on the project is effective for all lien claimants whose work begins after the notice is given.
5. Changes to wording of notices
Some of the more minor, technical changes made to clarify who is covered by the lien laws have resulted in changes to the wording of the pre-construction or “important notice” on residential projects and the “75-day notice,” which is the first notice required on commercial projects. These notices, as revised, are set out in full in the appendix. Although these changes are minor, especially on the 75-day notice, all of the cases on interpretation of lien laws state repeatedly that compliance with the lien laws must be exact, so a court could certainly throw out a lien if the notice is not worded exactly as stated in the new law. Close counts in horseshoes, hand grenades, and nuclear war, but not in the wording of the required notices. You must update your forms with these notices and make absolutely, positively sure that any such notice sent on or after July 31 is worded exactly as stated in the new law.
6. Challenging a lien
Finally, the last very significant change relates to how a lien may be challenged. To challenge a lien and get it at least temporarily removed from a property, the current law requires that the challenger post a bond in double the amount of the lien claim. This is obviously very expensive and difficult to do, especially for companies with less financial resources. The new law simply eliminated the word “double” so that the bonds need only be in the amount of the lien claimed.
The most significant change to this section, and perhaps the most significant change of all in the new law, is at the end of Ark. Code Ann. § 18-44-118. This change provides for a new summary procedure for someone to protest the filing of a lien. The issues in such a protest are limited to whether the lien itself was filed in the proper form and whether the required notices were done properly. This section provides form language for a “notice of intention to discharge lien” which must be included with the protest. It later provides that such a protest “shall be heard as expeditiously as the business of the circuit court permits.” I can make no promises as to how quickly that language will get you before a judge, but I can say it should help. One of the huge problems that I have seen with lien filings and that has caused great frustrations for numerous clients over the years is the fact that simply filing a regular lawsuit to challenge a lien that is improper or even frivolous is not a cost-effective way to get it removed. It may take months or even a year or more to actually get heard by a judge. A later provision in this same section provides that the party prevailing on a protest “shall be entitled” to a reasonable attorney’s fee. The fact that the attorney’s fee is mandatory in this language is a hammer that protesters can use to attempt to persuade lien filers to quickly remove suspect liens. I believe this summary procedure is certainly the best change made to Arkansas construction lien laws.
CONCLUSION
Again, the changes discussed above become effective July 31, 2009. You work too hard on your projects to give money away, but that’s exactly what you’ll be doing if you don’t make the changes to your lien forms discussed above and otherwise take note of the changes to the construction lien laws. A little time spent now revising your forms and how you prepare and file these liens will be time well spent.
Patrick D. Wilson is a partner in the law firm of Wright, Lindsey & Jennings LLP. His primary areas of practice are construction law, commercial litigation, and the defense of personal injury lawsuits. In his construction law practice, Mr. Wilson assists owners, general contractors, subcontractors, materials suppliers, architects, engineers, and homeowners with lien issues, contract formation and disputes, alleged building defects and other negligence, securing payment on projects, and other related issues. He frequently speaks on construction liens and recently did so at the Arkansas Bar Association’s annual meeting. Mr. Wilson is a member of the American Bar Association’s Forum on the Construction Industry, the American Subcontractors Association of Central Arkansas, and the Arkansas Chapter of the Associated General Contractors of America. Mr. Wilson is a graduate of Hendrix College (B.A., cum laude, with distinction) and the University of Arkansas (J.D., magna cum laude). He served as Editor-in-Chief of the Arkansas Law Review. He may be reached at pwilson@wlj.com or (501) 212-1343.
