Posts Tagged ‘Private Works Act’

Leasing Equipment in Louisiana? How To Protect Your Lien Claim

You are in the business of leasing heavy equipment to contractors. You are beginning to provide more and more machinery to jobsites. You just hit your first snag with payment. What do you do?

Chances are you are stuck in rough spot and have to defer to your contract for remedy. There is likely no answer for you under the lien law – unless you filed a notice of lease agreement with the owner within the appropriate time frame.

Lessors often do not learn about the dreaded notice provision until after they have been bitten by a bad customer. Both the Private Works Act and the Public Works Act each require that the Lessor of equipment to a construction project provide advance notice to the owner of the equipment’s use and existence at the jobsite.

Luckily, satisfaction of this requirement is quite simple. Under both Acts, a Lessor of movables (equipment, vehicles, etc.) must “deliver a copy of the lease to the owner not more than ten days after the movables are first placed at the site of the immovable for use in the work.” La. R.S. 38:2242(c). If the job is private and not public, you must also provide a copy of the lease to the contractor. La. R.S. 9:4802(G)(1).

The official comment for subsection G of La. R.S. 9:4802 states that the purpose of this law is to give notice to the owner and the contractor that equipment being used by a contractor is leased and thus potentially creating liability under the Private Works Act.

Though the type of delivery is not specified, it is commonplace to use hand delivery or certified mail. If hand delivery is utilized, it is important that the courier fill out a simple affidavit specifying what was delivered, when it was delivered, who it was delivered to, and where it was delivered.

Finally, the Notice of Lease Agreement does not have to be in any specific form – simply a copy of the contract should suffice. We do prefer that you use a cover sheet to inform the owner and contractor of the purpose of the delivery, reserving your rights under either La. R.S. 9:4802 (Private Works) or La. R.S. 38:2242 (Public Works).

Think Different To Send Notices of Lease Easily

So, now you know about this notice of lease requirement…but really, does your company have the time or attention to detail required to send these notices to each and every customer every time you sign a rental agreement?  It’s likely that you either don’t have the time, or if you can make the time, that it’s a waste of time for your company.

Think different about these notices…how about outsourcing them?

A company like zlien (which was started by Wolfe Law Group founder Scott Wolfe Jr) is in the business of sending notices like the Louisiana Notice of Lease. They have many equipment rental companies who simply send them a copy of each new rental agreement, and Zlien prepares and sends the preliminary notice for them, keeping evidence of its delivery and a copy of the notice for you to access within your account at anytime.  It’s a great alternative to trying to send all of these complex notices yourself, and can be done so it will actually save you money.

Posted in:     Filing Requirements, Louisiana, Mechanics Lien  /  Tags: , , , ,   /   1 Comment

Reminder: Louisiana Lien Period Starts When The Entire Project is Completed, Not Simply The Claimant’s Work

Lien periods are a funny thing. In some states, they are painfully short, and in others tremendously long. Regardless of the actual period of time available for lien filing, in order to figure out when the lien period ends….it’s important to know when it begins!

In some state (like Washington), the lien period starts when the claimant last furnishes labor and material to the project. So, if the foundation subcontractor last works on January 1st, that’s when his lien period begins. It doesn’t matter if the project as a whole continues for the next ten years.

Circumstances are different in Louisiana, where the lien period starts when the entire project is completed (or abandoned). Using the above example, if a foundation contractor last performs work on January 1st, but the project continues for another ten years, the foundation contractor can file its lien at anytime after he finishes work, all the way through the ten years of construction until a designed amount of time after the entire project is complete.

Louisiana construction lawyers were reminded of this in 2004 when the Louisiana First Circuit decided Nu-Lite Electrical Wholesalers, LLC v. Alfred Palma, Inc., et al., 2003 CA 1167. In that case, this precise issue was presented.

The court – reviewing the definition of “abandonment” and “work” in the Private Works Act and related jurisprudence – held that the clock starts to tick after the entire work is abandoned or substantially completed.

Posted in:     Mechanics Lien  /  Tags: , ,   /   Leave a comment

How To Take Advantage Of New Retainage Laws in Louisiana

Earlier this week, we wrote about the new Retainage Law in Louisiana.   It’s a remarkable change in the status quo from the perspective of general contractors, taking all retainage out the hands of the property owner and placing it into an interest earning escrow account.

However, whether the law is productive for your construction company will depend on whether you take advantage of the law.

This week, I published a Legal Guide on Avvo.com offering step-by-step instructions to general contractors on how to take advantage of the the new retainage requirements in Louisiana.    Read the step-by-step guide here.    And, for a teaser, here is the introduction:

Effective August 15, 2010, retainage withheld by property owners on qualifying projects must be placed in an interest bearing escrow account. This Legal Guide explain how to take advantage of this new requirement to help secure your payment.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

Posted in:     Federal, Payment Requirements  /  Tags: , , , , ,   /   Leave a comment

New Retainage Rules in Louisiana Protect General Contractors

As pointed out last month by our friends at the Louisiana Construction Law Blog (Blogspot), Louisiana just passed new retainage rules that became law on August 15, 2010.    The act (SB 218) amends the Private Works Act to add §9:4815, requiring property owners to place “retainage” in escrow accounts.

It’s a remarkable change of the status quo in Louisiana, and from my perspective, good news for general contractors (and really anyone else furnishing labor and/or materials).

What The New Rule Requires

So, what exactly changes with this new rule?

We’re all familiar with the concept of retainage:   money withheld from a prime contractor by the property owner until the completion of work.   Before this law, property owners were responsible for holding the money and disbursing it when contractually required.   As every contractor knows, this leads to the owner dragging its feet in releasing the retainage and motivates the owner to figure out ways to hold onto the cash.

The new law changes these circumstances significantly, by requiring the property owner to deposit the retainage amounts withheld into an interest bearing escrow account, and into the control of an independent escrowing agent.

Earned interest accrues in favor of the contractor, and the money is released by the escrowing agent pursuant to requirements of the statute.  If there’s a dispute between the owner and general contractor, the money is preserved as security pending the outcome of litigation.

When The New Rule Applies (and Doesn’t Apply)

The retainage requirement applies to all projects over $50,000.00 that are not:  (i) a single or double family residence; or (ii) classified under a list of specific industries (see list of industries in quote of legislation below).

This means the retainage law will apply to nearly all commercial projects, and all multi-unit (3+) residential construction.   The law applies to private projects only, and not State or Federal projects (which are governed by separate laws).

Who is Protected?

Well, the law itself only positively affects the property owner and the prime contractor.   Largely, therefore, the law is designed to protect general contractors by ensuring the retainage money is available when due.   Just as the construction lien will act as security, so too will the escrowed retainage.

But, does this protect the subcontractors and suppliers on a project?    The short answer is “no.”   The long answer is closer to a “yes.”

While the retainage money is not held in escrow for the direct benefit of the subcontractor, the general contractor has a duty to pay subcontractor and supplier accounts once the money is made available (and there are misappropriation laws to this effect).   There’s an additional practical benefit.  Since many sub and general disputes are rooted in a dispute with the property owner, this new law may reduce the owner/GC disputes, and thus reduce the GC/sub disputes.

Interesting Questions

Finally, I’ll leave you with some interesting questions that may arise in the coming years about this new retainage law:

(1)  What is the enforcement mechanism? As written, the law requires escrowing of retainage funds, but there is no penalty if a property owner doesn’t do it.   In all likelihood, this means the general contractor will be required to insist on compliance.  When competing with other general contractors for business, it may be tough to make this a staunch requirement.

(2)  Will Subcontracts Intervene to Claim the Money? Subs/Suppliers do not directly benefit from the new retainage rules.  However, if the subs / suppliers know that money is there, and they have a claim on it, can they intervene in any dispute between the owner and prime contractor to make a claim on the money?   Can they get an attachment or sequestration on the funds pending the dispute between them and the general contractor?

(3)  Interest Accrues to the Subcontractor? And perhaps the most interesting question concerns the interest on retainage.   Previously, the property owner benefited from the retention of funds.  Now, the general contractor benefits from fund retention.   Are subcontractors or suppliers entitled to their proportionate share in the accrued interest?

The Law Text

Here is the new law’s text, in full.   Enjoy.

§4815. Escrow of funds due under contract; procedures

A. When, under the provisions of this Part, a contract in the amount of fifty thousand dollars or more is entered into between an owner and a contractor and if in accordance with the terms of such contract funds earned by the contractor are withheld as retainage by the owner from periodic payments due to the contractor then such funds shall be deposited by the owner into an interest bearing escrow account. The provisions of this Section shall not apply to a contract for a single family residence or double family residence. The provisions of this Section also shall not apply to a contract for the construction or improvement of the following types of industrial facilities that are, or will be, engaged in activities defined or classified under one or more of the following subsectors, industry groups, or industries of the 1997 North American Industry Classifications System (NAICS):

(1) 22111 electric power generation; (2) 321 wood products manufacturing; (3) 322 paper manufacturing;(4) 324 petroleum and coal products manufacturing; (5) 325 chemical manufacturing; (6) 326 plastics and rubber products manufacturing; (7) 331 primary metals manufacturing; (8) 562211/562212 hazardous and solid waste landfills; (9) 422710 bulk stations and materials; (10) 486110 crude oil pipelines; (11) 486910 refined petroleum products pipelines; (12) 486210 natural gas pipelines; (13) 486990 other pipelines; (14) 211112 natural gas processing plants.

B. An escrow account under the provisions of this Section shall be located at a qualified financial institution and shall be under the control of an escrow agent. The escrow account and escrow agent shall be selected by mutual agreement between the owner and the contractor.

C. Upon completion of the work that is the subject of the contract, the funds, including any interest located in the escrow account shall be released from escrow under the following conditions:

(1) If there are no existing claims by the owner, the whole amount shall be paid to the contractor within three business days upon receipt by the escrow agent of a written release signed by the contractor and the owner.

(2) If there is a dispute between the owner and contractor and the contract does not provide for binding arbitration of such dispute:

(a) Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor.

(b) Disputed amounts that are the subject of a judicial proceeding shall be released by the escrow agent within three business days of the receipt of a final order by the court. Upon receipt of the order of the court, the escrow agent shall pay the contractor or owner such amounts as are determined by the court.

(3) If there is a dispute between the owner and contractor and the contract provides for binding arbitration of such dispute, the following shall occur:

(a) Undisputed amounts shall be released by the escrow agent within three business days of receipt of a notarized request of the contractor.

(b) Disputed amounts that are the subject of binding arbitration under the contract shall be released by the escrow agent within three business days of the receipt of a final order by the arbitrator who has been selected by mutual agreement between the owner and the contractor. Upon receipt of the order of the arbitrator, the escrow agent shall pay the contractor or owner such amounts as are determined by the arbitrator under the rules as defined in the contract between the owner and the contractor.

D. Receipt by the escrow agent or the qualified financial institution in which the escrow account is maintained of what purports to be a written release signed by the contractor and owner, or an order by a court or arbitrator, shall be a full release and discharge of the escrow agent for transfer of funds to the contractor. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained shall be held liable to any party based on any claim that the written release is unauthorized, forged, or otherwise fraudulent.

E. Neither the escrow agent nor the qualified financial institution in which the escrow account is maintained pursuant to the provisions of this Section shall have any liability to the owner, contractor, or any other person when complying with the provisions of this Section.

Posted in:     Louisiana, Payment Requirements  /  Tags: , , ,   /   2 Comments

General Contractor Has Some Lien Rights When Contract Not Recorded

La R.S. 9:4811 of the Louisiana Private Works Act requires general contractors to record its contract whenever a project amount is in excess of $25,000.   The contract must be recorded before any work begins on the project, and must reference a legal property description.

If the general contractor does not timely record the contract, the general contractor forfeits any rights to lien the project.

In 2003, however, the Louisiana 1st Circuit Court of Appeals made a tiny exception to this statutory requirement.   In Burdette v. Drushell, 837 So.2d 54 (La App 1st Cir 2003), the court allowed a general contractor who did not timely file the contract to file a mechanics lien under limited conditions.

The condition?  The GC could only lien for work it or its employees actually performed.

In the Burdette case, for example, the general contractor was allowed to lien for carpentry services he actually performed (and did not sub out), but not for services or materials that were furnished by subcontractors.

The work performed by the GC itself was fashioned by the court as creating an ordinary labor lien, which did not require the contract’s filing.

This case was cited and distinguished just last week by the Louisiana 3rd Circuit in Tee It Up Golf Inc v. Bayou State Construction LLC.   We wrote about this case in more detail at the Louisiana Construction Law blog here:  Details Matter When Filing Liens.

Insofar as the Burdette exception is concerned, however, the Tee It Up Golf case is important because it indicated a requirement for general contractors to displine themselves when filing liens on projects wehre it did not record a contract.

For example – If a GC is owed a total of $200,000 on a project, but only $25,000 of that amount relates to services or materials it actually provided, it must only file the lien for $25,000 to take advantage of the Burdette exception.    In the Tee It Up Golf case, the general contractor could not take advantage of the Burdette exception because it lien included labor performed by the GC itself, along with a host of other charges.

It takes a lot of discipline for a general contractor to roll back the amount due and lien for only the labor it actually furnished.   However, if the GC didn’t file the notice of contract and wants to lien the project, it is the only way to successfully do so.

This article was originally posted on Wolfe Law Group’s topic-specific Louisiana Construction Law Blog.

Posted in:     Filing Requirements, Louisiana  /  Tags: , , , , ,   /   Leave a comment