PLEASE NOTE: This article only applies to North Carolina. This article is designed for general information only. The information presented in this article should not be construed to be formal legal advice nor the formation of an attorney/client relationship. This article addresses only one aspect of the statutes of limitations with regards to construction liens. Please contact your attorney if you need further information.
Most contractors are aware that, if the Owner or General Contractor on a private project fails to pay for labor or materials, the person supplying the labor or materials may file a mechanics’ lien. Most contractors are also aware of the two strict time limits contained in Chapter 44A of the North Carolina statutes - 120 consecutive calendar days for filing a lien and 180 consecutive calendar days for perfecting that lien by filing a lawsuit. As some contractors have found out the hard way, the lien statutes are interpreted very strictly. As the expression goes, “close” only counts in hand grenades and nuclear bombs. This means that, if you are even one day late in filing your lien or your lawsuit, you lose your lien and, as a result, a secured interest in the property to help secure payment. What is not entirely clear is what triggers these periods to start running? Both NCGS 44A-12 and 44A-13 state that both the 120 and 180 day periods start to run on the date of “last furnishing of labor or materials at the site of the improvement by the person claiming the lien.” Since a contractor will usually negotiate with the owner for payment as long as possible before taking legal action, it is very important to know exactly what “last furnishing” means. This article attempts to explain what the phrase “last furnishing” means and how you can determine when these deadlines will pass.
Typically, the date of last furnishing is going to be the last day that material or labor arising from your contractual obligation is supplied to the site. There is no hard and fast rule in North Carolina to determine this date. Sometimes, because of the nature of the project, this date is clear-cut - the contractor goes to the job, performs his work properly, leaves the project, and does not return. Unfortunately, most situations are not so clear-cut. Many times, the job will wind down over a period of time, with the ups and downs in labor and materials supplied. The contractor may also be performing punch list work and warranty work while finishing the work required by the contract. To help with these situations, the courts have crafted a four-factor test to help make the determination. These factors are:
- The work performed and materials furnished must be required by the contract;
- The last work performed or materials furnished at different times must have been furnished under one continuous contract;
- The last work performed or materials furnished must have been furnished for the purpose of fully performing the obligations of the contract, and not for the mere purpose of extending the time for filing a lien and filing a lawsuit, and
- When the time for filing has already begun to run, the claimant cannot thereafter extend the time for filing the lien and lawsuit by returning and furnishing additional items for that purpose.
All four factors must be satisfied, and the failure of any one of the factors will invalidate the claimed date of last furnishing. Taking these factors one at a time, we find that the first factor is self-explanatory. If the contract requires you to do something or furnish something, it is generally covered, subject to the other factors discussed here. Please note that the contract referred to by this factor is the construction contract for the project. Therefore, as a general rule, this does not include warranty work. While your contract may require you to provide a warranty or you may voluntarily furnish a warranty to the owner, those are considered to be separate and apart from the construction contract. Also, warranties issued by the contractor generally do not take effect until the work is substantially completed or the owner takes possession. Therefore, by definition, most warranty work cannot be completed pursuant to the construction contract.
The second factor requires that the work be furnished under one continuous contract. This is likely to be an issue where there is a work stoppage or where there is continuity of work, but multiple contracts. One example of the former would involve a contractor that enters into a contract with an owner to construct two different condominium buildings. In this example, the two buildings are on the same site, are the same design, and construction on the second building will start when the first is substantially complete. However, the buildings are to be constructed under two separate contracts. Therefore, the deadline for filing a lien for work performed on the first building starts when the contractor last furnishes labor or materials on the first building. Another example of a situation where the second factor may be applicable would be when there is a substantial delay or stoppage in construction. For example, situations sometimes arise when the owner runs out of money during construction and work is halted as a result. In the usual case where the contractor is owed money, he should file a lien before 120 days has passed from the stoppage and file a lawsuit within 180 days. However, if the owner is current in his payments at the time of the stoppage, and work is later restarted, the time for filing a lien on work performed after work is restarted will not begin to run until 120 days from the last work performed after the restart.
The third factor to be used in evaluating the date of “last furnishing”states that you cannot do work merely to extend the time for filing a lien and that any work done must be done in good faith. To extend the time for filing, the work performed must be required for full performance under the contract - i.e., if the contract, general conditions, supplemental conditions, or specifications do not require the work, it is not covered. One question that arises is whether punch list work falls under this category. Unfortunately, there is no clear answer at this time. The appeals courts have not answered this particular question yet, and an evaluation using the factors outlined in this article is still necessary. However, it is clear that the more significant and the more involved that the punch list work is, the more likely that a trial court will count the dates of the punch list work as last furnishing. Work performed to repair major punch list items is more likely to keep the clock running that minor, cosmetic items. Because each situation is different, you should consult your attorney if you have any doubts as to when your lien deadlines expire.
The fourth and last factor used to determine the date of last furnishing also frequently involves punch list items by stating that the deadlines cannot be extended by doing minor work or furnishing small items. For example, an electrical contractor cannot extend the deadline by replacing a few outlet face plates. The courts have stated that it is against public policy and against the purpose of the deadlines in the lien statutes to allow a contractor to restart the clock by doing such minor work. Therefore, if your time has run, you are unlikely to be able to restart the lien time clock by performing minor punch list items. However, it is advisable to consult your attorney in such situations.
Materials suppliers can also face problems in trying to determine when these limits begin to run. The clearest example involving supplying materials is for a single shipment provided to the project. The date of last furnishing in that case is the date that the materials were delivered. Another situation would be where there is only one order, but several deliveries. In that case, the date of the last delivery starts the clock running. On the other hand, if there is a series of separate orders, the time runs on each order from the last delivery made on each order.
The determination of when your time runs for filing a lien or filing a lawsuit is not always clear-cut. As this article has explained, certain factors must be applied to determine when the deadline has passed. Because of the serious consequences involved (loss of lien), you should keep accurate records to prove when labor was performed or materials supplied. Also, because of the serious consequences involved, if you believe that your lien rights are about to expire, you should not hesitate to file a lien or file a lawsuit. Once your lien rights are gone, they cannot be retrieved. It is advisable to file your lien or file your lawsuit well before your rights expire so that the question never arises. If you have any doubts about when your lien rights expire, you should promptly consult your attorney. You do not get a second chance to protect your lien if you miss either of the deadlines explained in this article.