8C — May 16 - 29, 2014 — Pennsylvania — M id A tlantic
Real Estate Journal
www.marejournal.com
PA’ s P rojects & B uilding S ervices By Scott Cessar, Eckert Seamans Cherin & Mellott Pennsylvania Supreme Court limits who may file a mechanics’ lien
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entitlement to payment or escrow monies and require the seller to litigate entitle- ment to obtain the monies in escrow. Conversely, the lien filer may also record the lien and seek to foreclose on the lien by filing a Complaint and litigating its entitlement to payment and, if successful, foreclose on the judgment on the lien and have the property sold in order to procure pay- ment of the judgment for the costs of its improvements to the property. Mechanics’ liens, thus, are designed to protect persons
who, before being paid, pro- vide labor or material to im- prove a property. Mechanics’ liens are intended to provide a remedy to a unique class of creditors, namely contractors, subcontractors and suppliers, whose unpaid investment has resulted in an improvement to real property. During construction, pru- dent owners require that contractors provide lien re- leases with every payment request by which the contrac- tor certifies, in exchange for contingent payment, that all lower tier contractors and
suppliers have been paid, or will be paid. Owners may also require lower tier sub- contractors and suppliers to provide comparable lien re- leases contingent on payment. In this manner, unsuspecting owners may be protected from later lien claimants asserting their legal rights for payment by way of a lien filing which clouds title to the property. The concept of a mechan- ics’ lien was not recognized in the common law, the body of law which arose from court decisions and practice. To the contrary, mechanics’ liens
were derived by legislation and are commonly referred to as a “creature of statute” en- acted by the state legislature. As such, when disputes arise over whether a lien is proper, the focus is squarely on the intent of the legislature. In Bricklayers of West- ern Pennsylvania Combined Funds, Inc. v. Scott’s Develop- ment Company, the trustee of a union pension fund filed liens for over $42,000 against a project located in Erie Coun- ty for unpaid employee benefit contributions for its members who worked on the project. The issue was whether the union pension fund, repre- senting brick layers and la- borers whose work improved the property, constituted “contractors” or “subcontrac- tors” under the lien statute such that the liens they filed were legally valid and subject to foreclosure and payment by the owner of the property. The trial court said no, but the Pennsylvania Superior Court said yes, holding that the pension funds held valid liens. This issue of legal first impression was then brought to the Pennsylvania Supreme Court where it was the subject of considerable attention with various industry groups filing friend of the court briefs to the Supreme Court advocating their positions. In a decision issued on April 17, 2014, all Justices of the Pennsylvania Supreme Court agreed in holding that union pension funds do not, under the language of Pennsylva- nia’s mechanics’ lien statute, qualify as “contractors” or “subcontractors” entitled to the protection of the lien law. In reaching this decision, the Supreme Court focused on the pension fund’s primary contention that, by virtue of their status as parties to collective bargaining agree- ments with contractors, the pension funds had contracts “implied in fact” with the contractors such that they were subcontractors entitled to lien claimant status. The Supreme Court found that the allegations of this relation- ship were “too attenuated to withstand scrutiny.” Since the pension funds were not subcontractors, they were not entitled to file liens under Pennsylvania’s lien statute. The decision is critical to continued on page 14C
mechanics’ lien is a court paper filed to place on the public
court record that a party has not been paid for the cost of its i m p r o v e - ments made to a prop- erty. When the property
Scott Cessar
is sold or otherwise conveyed, the buyer takes subject to the mechanics’ lien and must either pay the lien to clear title or litigate the claimant’s
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