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The Committee that acted for the National Conference of Commissioners on Uniform State Laws in preparing the Uniform Construction Lien Act was as follows:

STANLEY M. JOHNSTON, Room 112, State House, Springfield, IL 62706, Chairman

CHARLES J. MURRAY, Revisor of Statutes Office, P.O. Box 629, Raleigh, NC 27602, Drafting Liaison

MARION W. BENFIELD, JR., Wake Forest University, School of Law, P.O. Box 7206,

Winston-Salem, NC 27109

FOREST J. BOWMAN, West Virginia University, College of Law, 112 Law Center,

Morgantown, WV 26506

M. MICHAEL CRAMER, 216 North Adams Street, Rockville, MD 20850

C. BEN DUTTON, 710 Century Building, 36 South Pennsylvania Street, Indianapolis,

IN 46204

EDWARD F. LOWRY, JR., Suite 1040, 6900 East Camelback Road, Scottsdale,

AZ 85251

PHILLIP CARROLL, 120 East Fourth Street, Little Rock, AR 72201, President

(Member Ex Officio)

WILLIAM J. PIERCE, University of Michigan Law School, Ann Arbor, MI 48109,

Executive Director

JOHN W. WAGSTER, 8th Floor, Third National Bank, Nashville, TN 37219,

Chairman, Division B (Member Ex Officio)

HENRY M. KITTLESON, P.O. Box 32092, 92 Lake Wire Drive, Lakeland, FL 33802,

Chairman

ARTHUR E. BONFIELD, University of Iowa, College of Law, Iowa City, IA 52242

SHAUN P. HAAS, Legislative Council, Suite 401, 1 East Main Street, Madison,

WI 53702

JAMES M. PEDOWITZ, American Bar Association

Final, approved copies of this Act and copies of all Uniform and Model Acts and other printed matter issued by the Conference may be obtained from:

Section 101. Purposes; Rules Of Construction; Scope 8

Section 102. General Definitions 9

Section 103. Notice; Knowledge; Giving Notice; Receipt Of Notice 16

Section 104. Presumption Of Agency As To Contracting Owner 18

Section 105. Supplementary Principles Applicable 18

Section 106. Short Title 19

Section 107. Severability 19

Section 201. Construction Lien In General; References To Sections On Amount, Priority

and Enforcement 19

Section 202. Governmental Exemption From Construction Lien 21

Section 203. Real Estate Subject To Construction Lien 21

Section 204. Limitation Of Construction Lien For Materials Furnished 28

Section 205. Notice To Owner 30

[Section 206. Written Contract And Disclosure Required For Construction Lien Against

Real Estate Of Protected Party] 33

(Alternative A)

[Section 207. Amount Of Construction Lien] 33

(Alternative B)

[Section 207. Amount Of Construction Lien] 38

Section 208. Attachment Of Construction Lien; Recording Required 43

Section 209. Priority Among Construction Lien Claimants 47

Section 210. Priority Of Construction Lien As Against Claims Other Than Construction

Lien Claims 49

Section 211. Duration Of Construction Lien; Statute Of Limitations 51

Section 212. Surety Bond; No Construction Lien Attaches 52

Section 213. Substitution Of Collateral; Release Of Lien 56

Section 214. Obligation Of Claimant To Furnish Information To Other Construction Lien

Claimants 57

(Alternative A)

[Section 215. Waiver Of Claimant's Rights] 58

(Alternative B)

[Section 215. Waiver Of Claimant's Rights] 59

Section 301. Notice Of Commencement; Recording 59

Section 302. Termination Of Notice Of Commencement 65

Section 303. Recording Construction Lien 68

Section 304. Amendment Or Continuation Of Construction Lien 71

Section 305. Recording Assignment Of Construction Lien 73

Section 306. Recording Notice Of Surety Bond 74

Section 307. Recording Certificate Of Clerk Of Court Showing Surety Deposit 75

Section 308. Recording Concerning Judicial Proceedings 76

Section 309. Owner's Statement Of Apportionment 76

Section 310. Discharge Of Construction Lien 77

Section 401. Proceeding To Enforce Construction Lien 78

Section 402. Recording Of Notice Of Termination Before Abandonment Or Completion 79

Section 403. Remedies For Wrongful Conduct 81

Section 501. Creation Of Trust In Connection With A Real Estate Improvement Contract 82

Section 601. Effective Date 86

Section 602. Provisions For Transition 86

Section 603. Repeals 86

This Act is based almost entirely upon Article 5 (Construction Liens) of the Uniform Simplification of Land Transfers Act. That Act was promulgated by the National Conference of Commissioners on Uniform State Laws in 1976 and amended in 1977. In 1985, the Conference appointed a drafting committee to draft a free standing construction lien act based on the 1977 Act. The decision to prepare a free standing act rested on the assumption that many states might be interested in adopting a modern uniform mechanics' lien act but would not be interested in some other aspects of the Uniform Simplification of Land Transfers Act which deals with such things as prerequisites for recording in the land records, general priorities among purchasers of land, and so on. In fact, in 1981, Nebraska had extracted the Construction Lien Article from USLTA and adopted that Article as a free standing Act. (R. Rev. Stat. Neb. Section 52-125ff. 1984).

The Construction Lien Drafting Committee, in consultation with the Joint Editorial Board of the Uniform Real Property Acts and with various other interested parties, prepared the present Act. The Joint Editorial Board is composed of members of the National Conference, the American Bar Association, and the American College of Real Estate Lawyers. It has jurisdiction over a number of Conference Acts dealing with real estate matters, including the Uniform Condominium Act, the Uniform Planned Community Act, the Uniform Common Interest Ownership Act, the Uniform Land Transfer Act, the Uniform Simplification of Land Transfers Act, and the Uniform Land Security Interest Act.

While the present Act, as noted, is essentially the same as Part 5 of the Uniform Simplification of Land Transfers Act, there are some significant changes. The most significant change is the addition in this Act of trust fund provisions which create a trust of which construction lien claimants are beneficiaries in certain funds of owners and contractors. Those provisions are contained in Section 501 of the Act and will be further discussed at the end of this prefatory note.

All states presently have mechanics' lien laws. Those laws present an extraordinarily varied approach, in substance, and in language, to the issues involved in mechanics' lien legislation. In fact, variation among the states may be greater in this area than in any other statutory area. In an era of national lenders and suppliers and of many multistate builders, the variation among the states as to mechanics' lien matters is a substantial impediment to an efficient mortgage and real estate market. Furthermore, the present priority and owner liability rules present difficult problems for contractors, owners, lenders, and courts, and add substantial expense and risk to many real estate transactions. Therefore, significant benefit could be gained from the widespread adoption of a uniform mechanics' lien act.

This Act is, it will be noted, titled "Uniform Construction Lien Act." This title, suggested by a Wisconsin modification of its mechanics' lien laws, is adopted because the title "Mechanics' Liens" improperly implies that laborers are the primary beneficiaries of mechanics' lien laws. With the payment of wages weekly or bi-weekly by contractors (as is the universal custom today) wage claimants no longer loom large in mechanics' lien situations.

The basic structure of this Act and its predecessor owes much to the Florida mechanics' lien law which was adopted in 1963. For example, the dating of the lien claimant's priority from the time of recording a "notice of commencement" covering the construction project is a feature of the Florida legislation.

While there is great diversity in mechanics' lien laws, they deal with common issues, and tend to fall into a limited number of patterns on each of the major issues involved. These major issues are listed below and will be considered in this introductory note: (1) who may secure a construction lien; (2) is the owner protected in making payments to the prime contractor if, at the time he pays, he has no notice of a construction lien claimant below the prime; and (3) from what time does the mechanics' lien take priority over third party buyers, mortgagees, or levying creditors who deal with the real estate.

Who May Secure a Lien?

Mechanics' lien statutes give liens against the real estate being improved to persons who supply services (including labor) and materials for the improvement. In about half the states, any person who supplies services or materials is allowed a lien, no matter how far removed he is from the owner. Other states limit those who can secure a lien to two tiers (prime contractor, subcontractor), three tiers (prime contractor, subcontractor, sub-subcontractor) or four tiers. A few others allow a lien to two tiers plus all materialmen and laborers, and one gives a lien to all who contract with licensed contractors. In this Act, liens are allowed to any person who furnishes services or materials pursuant to a real estate improvement contract, no matter how far removed he is from the contracting owner.

This Act follows many present mechanics' lien laws in allowing a lien to suppliers of materials only when they have in some way indicated that they sell with the belief that the materials are to be used on the particular real estate improvement project. Therefore, a supplier who delivers materials to a contractor without knowing the particular real estate on which the materials are to be used cannot later claim a lien on the real estate on which the materials were actually used. Most present acts give a lien to a materialman only if the materials are delivered to the site. This Act relaxes that requirement somewhat and allows a lien if seller's belief that the goods are to be used on a particular site is evidenced either by a notation on the sales contract, by a delivery order, or by actual delivery to the site.

However, except with respect to materials specially fabricated for the particular real estate and not salable in the ordinary course of the materialman's business, a materialman gets no lien unless the materials are actually used in the making of the improvement. A lien is given to persons who supply materials such as gasoline, which are consumed in the course of the improvement, and also to lessors of machinery and tools used in making the improvement.

Preparation of plans, surveys, and architectural or engineering plans are improvement contracts for which a lien is allowed. Therefore, surveyors, architects, engineers and others who prepare such surveys and plans are allowed liens on the real estate involved whether or not the planned improvement is actually made.

Priority Over Third Parties

Most mechanics' lien laws date the lien claimant's priority over third parties from the time of "commencement" or "visible commencement" (hereafter both statements of the rule are referred to by the use of the word "commencement") of the improvement, provided that the claimant records his lien within a limited period of time after he completes his work on the project. A commencement priority rule makes it difficult for persons who deal with real estate to determine whether it may be subject to subsequently asserted lien claims since a record title examination will not provide the necessary information. That priority rule, in effect, gives the lien claimant a secret lien. The secret lien is of limited duration since all statutes require the claimant to record a notice of lien within a fairly short period of time (2 to 18 or so months after completion) if he is to realize on the lien. Nevertheless, the title difficulties created are substantial.

A commencement priority rule also creates particular difficulties for construction lenders. Such lenders usually record their mortgage at about the time the work is beginning, and, with some regularity, a construction lender discovers that work had commenced prior to the time he recorded so that he is junior to the construction lien claimant. Under the commencement priority rule, careful construction lenders make on-site inspections prior to recording their mortgage and make efforts to preserve evidence that no work had commenced when they recorded. Such efforts involve additional expense and do not guarantee that a court will later agree that recording by the mortgagee predated commencement.

A number of states, in response to the problems created by the commencement priority rule, have fixed other mechanics lien priority dates. A few states date mechanics' lien priority from the time of recording the individual claimant's lien. This system protects the integrity of the real estate records, but prevents a contractor or materialman who furnishes services or materials late in the construction from getting priority equal with that of those who furnish services or materials early. Illinois makes the time the owner and a prime contractor enter into the improvement contract the priority date for that prime and claimants who claim through him. A few states date all claimants' priority from the time the prime contract or a notice thereof is recorded in the real estate records. That system, also, protects the integrity of the public records, but, like the Illinois system, gives claimants under different primes different priorities in cases in which the owner uses more than one prime contractor on an improvement project.

This Act adopts a notice recording device, first developed in Florida, under which the owner, prior to the beginning of work on an improvement, records a "notice of commencement" which puts third parties on notice that construction liens may be claimed against the real estate. If a lien claimant records his lien during the effective period of a notice of commencement, his priority date is the date the notice of commencement was recorded.

The notice of commencement, somewhat like a Commercial Code Article 9 financing statement, need not contain any details concerning the proposed improvement and, if not limited by its terms, protects any person who furnishes materials or services to improve the real estate described in the notice of commencement, whether or not the improvement made was within the contemplation of the owner at the time the notice of commencement was recorded.

The notice of commencement is effective for the time stated therein (but at least six months), or, if no time is stated, for three years, except that the notice is effective for only one year as against a protected party buyer of residential real estate. The owner may, however, terminate the notice of commencement before its expiration date by recording a notice of termination, publishing a copy of the notice, and notifying claimants who have requested notice of a termination. If an owner terminates a notice of commencement, except in connection with stoppage or completion of the work, he is personally liable to construction lien claimants to the extent that his termination prevents realization on a lien.

If a notice of commencement is not recorded, lien claimants take priority from visible commencement of the improvement. There are, however, two exceptions to the visible commencement rule. First, after a notice of commencement is recorded, even though recorded after visible commencement of the improvement, the priority date is the time the notice of commencement is recorded. Second, if a notice of commencement has expired, a claimant cannot get a priority date earlier than the date his lien is recorded, or 30 days after expiration of the notice of commencement, whichever is earlier. If a notice of commencement has not been recorded, a claimant, rather than relying on the rules just stated, may record a notice of commencement which fixes the priority date in the same way that an owner's notice of commencement does.

The notice of commencement system permits third parties to rely on the record and, at the same time, gives all claimants on a particular improvement equal priority no matter how many prime contractors there are and no matter when the particular claimant comes on the job. In cases where construction has taken place without recording of a notice of commencement, a prospective lender or buyer can clear up the situation by having the owner record a notice of commencement and immediately thereafter record a notice of termination. Under the notice of termination procedure, the notice of commencement can be terminated 30 days after it was recorded, but as indicated above, public advertisement is necessary. Therefore, prospective lien claimants are put on notice that they must act promptly to preserve their liens. In that case, lien claimants must come in and record their liens before termination or be deferred to the time they actually record or 30 days after the termination date, whichever is earlier.

Particularly in smaller, owner-financed improvements, it may be uneconomical to record a notice of commencement, and, in such cases, as already noted, claimants are protected by giving them a visible commencement priority date.

This Act follows practically all prior mechanics' lien laws in denying priority over prior mortgages to the construction lien. A few states give the lien priority over the prior mortgage to the extent of the value added to the real estate by the improvement and a few states provide that under the lien the improvement can be sold and removed from the real estate.

Is The Owner Protected In Making Payments To The Prime Contractor, If, At The Time He Pays, He Has No Notice That A Mechanics' Lien Claimant Claiming Under The Prime Has Not Been Paid?

In many states, under present law, an owner cannot with safety pay a prime contractor even though no claimant claiming through that prime contractor has made a demand that he be paid directly by the owner. In those states, the owner takes the risk that a prime contractor or others in the contracting chain will not apply payments received by them to the payment of suppliers of services and materials which will have a lien on the improvement. Possible owner double liability leads, in those states, to elaborate lien waiver or direct disbursement techniques where knowledgeable parties are involved. In other states, the owner is protected so long as he in good faith pays a prime contractor before any demand is made upon the owner for payment by a potential lien claimant.

This Act offers the states two alternatives which continue the two existing patterns. Under the first alternative, an owner's real estate is subject to the liens of claimants below a prime contractor only to the extent that the owner has not paid the prime contractor at the time he receives notice from the claimant of the prospective lien claim. Under the second alternative, a claimant below a prime contractor can assure himself of a lien against the owner for his full contract price by notifying the owner within 20 days after the claimant first furnishes services or materials. If the claimant so notifies the owner, the owner cannot defend that he had already paid the prime contractor at the time he received the notice. The 20-day notice requirement, patterned after the California lien law, however, does give the owner substantial protection against double payment.

If a state wishes to adopt the first alternative, it should enact Alternative A of Section 207. If it wishes to adopt the second alternative, it should enact Alternative B of that section. See the additional comments preceding Section 207, Alternative B.

As noted above, this Act imposes a trust for the benefit of prospective lien claimants in certain assets of owners and contractors. A number of states presently have trust fund provisions similar to those adopted in this Act. The effect of the trust fund provisions are to impose liability for breach of trust on an owner or contractor who fails to use trust assets to pay lien claimants. Such liability would ordinarily include criminal liability and individual liability for agents of the owner or contractor who participate in the breach of trust. The existence of a trust also means that third parties who claim an interest in the trust assets will lose to the beneficiaries unless they would prevail against beneficiaries under trust law. Therefore, for example, most takers of security interests in a contractor's accounts receivable would lose to lien claimants who are beneficiaries of the trust created by this Act in the receivables.

Trust assets in the case of an owner are money lent to him under a construction mortgage, and proceeds of sales or mortgages made during the construction or thereafter during the period during which a lien could be filed against the property. In the case of contractors, trust assets are the payments and right to be paid under the contract in question.

The Act permits the trustee of the trust to treat himself as a beneficiary of the trust and also permits the trustee to pay trust claims in any order he chooses. It further permits use of trust assets for non-trust purposes, so long as trust assets remaining are sufficient to pay all claims which arise or which are reasonably likely to arise in the future. Those provisions significantly ameliorate the impact of the trust fund rules on the trustee.

SECTION 101. PURPOSES; RULES OF CONSTRUCTION; SCOPE.

(a) This [Act] shall be liberally construed and applied to promote its underlying purposes and policies, which are:

(1) to simplify, clarify, and modernize the law governing construction liens;

(2) to provide procedures for the protection of persons furnishing services and materials for real estate improvements;

(3) to further the security and certainty of land titles; and

(4) to make uniform the law with respect to the subject of this [Act] among states enacting it.

(b) This [Act] creates, and provides for the attachment and enforceability of, a lien against real estate in favor of a person furnishing services or materials under a real estate improvement contract.

As the Prefatory Note points out, present mechanics' lien laws are so diverse that keeping abreast of them and maintaining the appropriate procedures in the various states require substantial time and expense by multistate owners, lenders, contractors, and subcontractors. A major purpose of this Act is to eliminate that complexity.

The dating of construction lien priority from the time a notice of commencement is filed is a substantial contribution to the certainty of land titles.

The intent of the Act is that a nonconsensual lien for work done on real estate arises only according to the provisions of this Act. It therefore rejects the judicial decisions in some states that "equitable" liens may arise in favor of contractors even though they have failed to comply with applicable mechanics' lien laws. See Comment 1 to Section 201.

SECTION 102. GENERAL DEFINITIONS. As used in this [Act]:

(1) "Claimant" means a person having a right to a lien upon real estate under this [Act] and includes a successor in interest.

(2) "Common interest community" means real estate described in an instrument with respect to which a person by reason of ownership of a part of the real estate is obligated to pay for real estate taxes or assessments, insurance premiums, maintenance, or improvement of another part of the real estate. The term includes real estate comprising a condominium or cooperative.

(3) "Construction lien" means a lien arising under this [Act].

(4) "Construction security agreement" means a recorded security agreement that contains a legend on the first page clearly stating that it is a "Construction Security Agreement" and that secures an obligation the debtor incurred for the purpose of making an improvement of the real estate in which the security interest is given.

(5) "Contract price" means the amount agreed upon by the contracting parties to be paid for performing services and furnishing materials covered by the contract, increased or diminished by the price of change orders or extras, amounts attributable to amended specifications, or breach of contract, including defects in workmanship or materials. Liquidation of damages between the contracting owner and a prime contractor does not diminish the contract price as to other claimants. If no price is agreed upon by the contracting parties, "contract price" means the reasonable value of all services and materials covered by the contract.

(6) "Contracting owner" means a person who owns real estate and who, personally or through an agent, enters into a contract, express or implied, for the improvement of the real estate.

(7) "Good faith" means honesty in fact and the observance of reasonable standards of fair dealing in the conduct or transaction involved.

(8) "Judicial proceeding" means action at law or suit in equity, or any other proceeding in which rights are judicially determined.

(9) "Notice of commencement" means the notice specified in Section 301, whether recorded by an owner or by a claimant.

(10) "Notice of termination" means a notice terminating a notice of commencement (Section 302).

(11) "Organization" means a corporation, government, governmental subdivision or agency, business trust, estate, trust, partnership, association, joint venture, or any other legal or commercial entity.

(12) "Person" means an individual or an organization.

(13) "Prime contract" means any real estate improvement contract made between the contracting owner and a prime contractor.

(14) "Prime contractor" means a person who makes a real estate improvement contract with a contracting owner.

(15) "Protected party" means:

(i) an individual who contracts to give a security interest, in or to buy or have improved, residential real estate, all or a part of which the individual occupies or intends to occupy as a residence;

(ii) a person obligated primarily or secondarily on a contract to buy or to improve residential real estate or on an obligation secured by residential real estate if, when the person becomes obligated, that person is related to an individual who occupies or intends to occupy all or a part of the real estate as a residence; or

(iii) with respect to a real estate security agreement, a person who acquires residential real estate and assumes or takes subject to the obligation of a prior protected party under the security agreement.

(16) "Real estate" means an estate or interest in, on, over, or under land, including minerals, structures, fixtures, and other things that by custom, usage, or law pass with a conveyance of land though not described or mentioned in the contract of sale or instrument of conveyance; and, if appropriate to the context, the land in which the interest is claimed. The term includes rents, the interest of a landlord or tenant, and interests in a common interest community.

(17) "Real estate improvement contract" means a contract to perform services or furnish materials for the purpose of producing a physical change in the real estate, including:

(i) alteration of the surface by excavation, fill, change in grade, or change in a shore, bank, or flood plain of a stream, swamp, or body of water;

(ii) construction or installation in, on, over, or under the surface of land;

(iii) demolition, repair, remodeling, or removal of a structure previously constructed or installed;

(iv) seeding, sodding, or other landscaping; and

(v) surface or subsurface testing, boring, or analyzing, or the preparation of plans, surveys, or architectural or engineering plans or drawings for any change in the physical condition of land, whether or not used incident to producing a change in the physical condition of the real estate.

The term does not include (i) a contract to perform services in connection with the financing of a real estate improvement, or (ii) a contract for the exploration, drilling, production, mining, or transportation of oil, gas or other minerals, or removal of timber, gravel, soil, sod, or things growing on land, or other similar contracts in which the activity is primarily for the purpose of realizing upon the disposal or removal of the objects removed, or a contract for the planting, cultivation, or harvesting of crops or for the preparation of the soil for planting of crops.

(18) A person is "related" to:

(i) an individual if that person is

(A) an organization directly or indirectly controlled by the individual, the individual's spouse, or a relative by blood, marriage, or adoption who shares the same residence with the individual;

(B) the spouse of the individual;

(C) a brother, brother-in-law, sister, or sister-in-law of the individual;

(D) an ancestor, descendant, or adopted child of the individual or of the individual's spouse; or

(E) any other relative by blood, marriage, or adoption of the individual or of the individual's spouse if the relative shares the same residence with the individual.

(ii) an organization if that person is:

(A) any other organization controlling, controlled by, or under common control with the organization; or

(B) a person related to the person controlling the organization.

(19) "Residential real estate," in relation to a protected party, means real estate, improved or to be improved, containing not more than [three] acres, not more than four dwelling units, and no nonresidential uses for which the protected party is a lessor. The term includes a unit in a common interest community if the unit is otherwise "residential real estate," regardless of the size of, or the number of units in, the common interest community.

(20) "To record" means to present to the [recording officer] for the place where the land is situated a document that the officer accepts and either enters in a daily log or notes thereon an identifying number or receipt, regardless of whether under applicable law the [recording officer] is directed to file the document or otherwise to maintain a record of it. "Recorded" and "recording" have corresponding meanings.

(21) "Security agreement" means a writing that creates or provides for a security interest in real estate. The term includes a mortgage or deed of trust.

(22) "Security interest" means an interest in real estate which secures payment or performance of an obligation. If a lease is intended as security to the lessor, the lessor's interest is a security interest. If a seller's retention of legal title to real estate after the buyer enters into possession is intended as security, the seller's interest is a security interest. The inclusion in a lease of an option to purchase at a price not unreasonable under the circumstances at the time of contracting does not of itself indicate the lease is intended for security, and retention of the title to real estate by a seller under a contract right to retain title for not more than one year after the buyer enters into possession of the real estate is not a retention for security.

1. "Claimant." All persons entitled to a lien under this Act are referred to as claimants whether or not they have yet claimed a lien.

2. "Common Interest Community." This definition, adapted from that which appears in the Uniform Common Interest Ownership Act promulgated by the National Conference of Commissioners in 1982, covers condominiums, cooperatives, and other shared interest communities.

3. "Construction lien." Historically, the liens dealt with by this Article have been called "mechanics liens." The term "construction lien" is used in this Act because it is somewhat more descriptive of the situations in which the lien arises.

4. "Construction security interest." Construction security interests are given special treatment in Section 210.

5. "Contract price." Change orders are effective to either increase or diminish the contract price. This definition is particularly important under the alternative provisions of the Act under which the owner is liable to lien claimants only for the portion of the contract price not yet paid to the prime contractor at the time the owner learns of the claim.

6. "Contracting owner." Under this Article, only the interests of persons who have contracted to have their real estate improved are subjected to liens. Therefore, the term "contracting owner" is used throughout the Article to refer to the owner against whose real estate the lien arises. Section 104 states some presumptions as to agency in determining whether an owner is a contracting owner.

7. "Good faith" as used in this Act means observance of two standards: "honesty in fact" and "observance of reasonable standards of fair dealing." The definition is similar to that in Sections 2-103(1)(b) and 7-404 of the Uniform Commercial Code.

8. "Judicial proceeding" is used in this Act instead of "action." It includes proceedings initiated by a complainant and also claims of a defendant, such as matters frequently called recoupment, counterclaim, or setoff. "Proceeding" is the term more frequently used in modern court rules to eliminate any connotation of actions at law or suits in equity.

9. "Notice of commencement." In this Act, provision is made for determining priority between construction lien claimants and third parties by reference to time of recording in the land records a notice of possible liens. This notice is called a "notice of commencement." Lien claimants who record their liens while a recorded notice of commencement is effective take priority from the time it was recorded, rather than from the time of visible commencement of the improvement project. The definition is included to call attention to Section 301 so that, when the reader encounters the term in the Act, it will have immediate meaning.

10. "Notice of termination." A notice of commencement is effective for its stated period (but it cannot state a duration of less than six months) or, if no period is stated, for three years (one year as to a protected party). However, it may be terminated before its stated expiration date or the end of a year, as the case may be, by recording a notice of termination. Therefore, the term "notice of termination" is an important one and, as in the case of the companion term, notice of commencement, a definition is included to call attention to the term early in the Act.

11. "Organization" is intended to include all legally recognized persons other than individuals. It specifically includes governmental entities, trusts, and associations.

13 and 14. "Prime contract," "Prime contractor." Under these definitions there may be a number of prime contracts and prime contractors in connection with a single improvement project.

15. "Protected party." In common with many other recent Acts, this Act contains some provisions which are intended to provide special protection for home owners or home buyers in construction lien situations. The "protected party" is the person who receives that special protection.

The fact that a protected party owns the real estate concurrently with another person, either by tenancy by the entireties, joint tenancy, or tenancy in common, does not affect his protected-party status, whether or not the person with whom he owns the real estate is a protected party.

Occupies as "a" residence instead of "his principal" residence is used intentionally. An individual who has his voting residence in one state or county, a summer residence in another and a winter residence in a third may be a "protected party" in each of the three jurisdictions.

16. "Real estate." The basic definition provides that real estate is the legal relationship (interest) a person has against the world with respect to land. It includes both common law estates and easements and other incorporeal hereditaments. The term is also used, if the context warrants, to refer to the physical object (the land) in which the interest exists. Leaseholds are defined as real estate for the purposes of this Act. However, the treatment of leaseholds as "real estate" is only for the purposes of this Act and is not intended to change other law, such as the law on decedent's estates, under which leaseholds may be treated as personal property.

17. "Real estate improvement contract." Liens under this Act arise for services or materials furnished under a real estate improvement contract (See Section 201). This definition therefore specifies the contracts under which a lien will arise.

A "real estate improvement contract" is a contract for the "purpose of producing a change in the physical condition of land or a structure." However, two types of contracts which result in physical change are excluded from the definition.

The first type is a contract entered into primarily to make available for sale or use things removed from the land or structure. A mining contract would not be a real estate improvement contract, but a contract for the laying of track in a mine or the construction of a slurry line to move ore would be. Under this Act, as just noted, no lien arises for work done under a mining contract or under a contract for such things as drilling an oil well. If a state presently has a separate statute giving a lien for oil and gas extraction activities or similar work, it will probably wish to continue that statute. If a state presently gives a mechanics' lien claim for oil and gas extraction and similar activities, it may wish to amend this Act to cover such activities.

If demolition of a structure is taking place primarily to make the materials of the structure available for sale or use, the demolition contract is not a real estate improvement contract. (Note that under (iii) a contract for the demolition or removal of a structure is a real estate improvement contract unless excluded by the last paragraph of the definition.)

The second type of contract excluded from the real estate improvement contract category is a contract to perform ordinary farming operations. Contracts for such things as farm ponds or roads would be real estate improvement contracts.

Architects, engineers, and surveyors are given a lien against real estate if they prepare plans, drawings or surveys for or of that real estate in connection with an anticipated change in its physical condition. However, if the work is not in connection with an anticipated physical change, the contracting party is not entitled to a lien against the real estate.

It could be argued that certain persons who render ancillary services in connection with improvement projects, such as lenders who provide financing and lawyers who search titles and prepare contracts, are furnishing services for the purpose of producing a change in the physical condition of land. However, the last paragraph of the definition states that a contract to perform services in connection with financing of a real estate improvement is not a real estate improvement contract. No specific exclusion is made as to attorneys services, but it is not intended that attorneys or others furnishing ancillary services be given a lien.

18. "Related." The definitions of this section are important in determining who is a protected party under definition 15. For example, a corporation is related to an individual if it is under the control of the individual. Under definition 15 a person obligated on an obligation secured by residential real estate occupied by an individual related to him is a protected party. Therefore, a corporation is a protected party if it is obligated on a real estate improvement contract for real property resided in by an individual controlling the corporation.

19. "Residential real estate." Owner-occupied residential real estate also includes real estate in which there are rental units if the debtor resides on the real estate, the real estate contains no more than [three] acres of land, and it contains no more than four units available for housing purposes. A debtor is protected even though there is a commercial use which the debtor operates.

20. "To record" is defined to include the situation where a document not entitled to record is nevertheless accepted by the recorder.

21. "Security agreement" is used rather than mortgage and is a broader term.

22. "Security interest." This definition is similar to the definition of security interest in 1-201(37) of the Uniform Commercial Code.

SECTION 103. NOTICE; KNOWLEDGE; GIVING NOTICE; RECEIPT OF NOTICE.

(a) A person has "notice" of a fact if:

(1) the person has actual knowledge of it;

(2) the person has received a notice or notification of it; or

(3) from all the facts and circumstances known to the person at the time in question the person has reason to know it exists.

(b) Except as provided in subsection (e), a person has "knowledge" or "learns" of a fact or "knows" or "discovers" a fact only when the person has actual knowledge of it.

(c) A person "notifies" or "gives" or "sends" notice or notification to another, whether or not the other person actually comes to know of it, by taking steps reasonably required to inform the other in ordinary course. However, particular steps specified by this [Act] to be taken to notify, or give or send notice or notification, must be taken.

(d) A person "receives" a notice or notification when it:

(1) comes to the person's attention; or

(2) is delivered at the place of business through which the person conducted the transaction with respect to which the notice or notification is given or at any other place held out by the person as the place for receipt of the communication.

(e) Notice, knowledge of a notice, or notification received by a person is effective for a particular transaction at the earlier of the time it comes to the attention of the individual conducting the transaction or the time it would have come to the individual's attention had the person maintained reasonable routines for communicating significant information to the individual conducting the transaction and had there been reasonable compliance with the routines. An individual acting for the person is not required to communicate information unless the communication is part of the individual's regular duties or the individual has reason to know of the transaction and that the transaction would be materially affected by the information.

(f) Notwithstanding agreement to the contrary, notices required or permitted to be sent to protected parties under this [Act] must contain a warning statement in [ ] and in any other language found by the [Commissioner of Banks] to be the principal language spoken by a substantial number of persons engaged in transactions covered by this [Act] as follows: "This is an important notice regarding your rights in real estate. Get it translated immediately."

1. For convenience in understanding, this section contains the provisions specifying when a person "has" notice; when a person "gives" notice; when a person "receives" notice and, in the case of an organization, when notice of an individual is imputed to the organization.

Subsection (c) provides that proper dispatch and not its receipt satisfies the obligation stated in a section as an obligation "to notify" or "to give notice." When the essential fact in the obligation concerning notice is the other party's receipt of notice the fact is stated in the appropriate section. Subsection (d) states when a notice is to be regarded as "received."

2. Under the definition of notice, a person has notice when he has received a notification of the fact in question, but by the last sentence of subsection (e) the Act leaves open the time and circumstances under which notice or notification may cease to be effective. Therefore such cases as Graham v. White-Phillips Co., 296 U.S. 27, 56 S.Ct. 21, 80 L.Ed. 20 (1935), are not overruled.

3. Subsection (e) makes clear that reason to know, knowledge, or a notification, although "received" for instance by a clerk in Department A of an organization, is effective for a transaction conducted in Department B only from the time when it was or should have been communicated to the individual conducting that transaction.

SECTION 104. PRESUMPTION OF AGENCY AS TO CONTRACTING OWNER. For the purpose of determining whether an owner is a contracting owner (Section 102(6)), agency is presumed, in the absence of clear and convincing evidence to the contrary, between employer and employee and between spouses.

Some construction lien laws provide that a lien arises against the interest of noncontracting owners unless they, within a short period of time after they learn of an improvement (several statutes specify ten days), notify the prime contractor that they have no responsibility for the work. Under this Act, no lien arises against the interest of a noncontracting owner. Under this section, however, the burden is shifted to the owner in certain situations to show that the person who made the contract was not acting as his agent.

SECTION 105. SUPPLEMENTARY PRINCIPLES APPLICABLE. The principles of law and equity, including the law relative to capacity to contract, principal and agent, laches, marshalling of assets, subrogation, estoppel, fraud, misrepresentation, duress, coercion, mistake, bankruptcy, or other validating or invalidating cause, supplement this [Act] unless displaced by particular provisions of it.

"Validating" and "invalidating" are not intended as narrow words confined to the inception of the transaction, but extend to cover any factor which at any time or in any manner renders or helps to render any transaction or right valid or invalid. Common law rights of marshalling and subrogation are retained.

The listing given in this section is merely illustrative; no listing could be exhaustive. The fact that in some sections particular circumstances have led to express reference to other fields of law is not intended at any time to suggest the negation of the general application of the principles of this section.

SECTION 106. SHORT TITLE. This [Act] may be cited as the Uniform Construction Lien Act.

SECTION 107. SEVERABILITY. If any provision of this [Act] or its application to any person or circumstance is held invalid, the invalidity does not affect other provisions or applications of the [Act] which can be given effect without the invalid provision or application, and to this end the provisions of this [Act] are severable.

This is the model severability section recommended by the National Conference of Commissioners on Uniform State Laws for inclusion in all acts of extensive scope.

SECTION 201. CONSTRUCTION LIEN IN GENERAL; REFERENCES TO SECTIONS ON AMOUNT, PRIORITY, AND ENFORCEMENT.

(a) A person who provides services or materials pursuant to a real estate improvement contract has a construction lien to secure payment of the contract price only to the extent permitted in this [Act].

(b) A construction lien may not be enforced under this [Act] unless it is recorded in accordance with Section 303 (Recording Lien) within the time specified in Section 208 (Attachment of Construction Lien; Recording Required).

(c) Real estate to which a construction lien applies is specified in Section 203 (Real Estate Subject to a Construction Lien). Limitations on the existence of a lien for materials are specified in Section 204 (Limitation of Lien for Materials Supplied).

(d) The amount of a claimant's lien is specified in Section 207 (Amount of Construction Lien). The content of the notice of lien liability to be given to the owner under Section 206 is specified in Section 205 (Notice to Owner).

(e) The priority of a claimant's lien as against other construction lien claimants is specified in Section 209 (Priority Among Construction Lien Claimants), and priority as against claimants other than construction lien claimants is specified in Section 210 (Priority of Construction Liens as Against Claims Other Than Construction Lien Claims).

(f) A judicial proceeding to foreclose a lien under this [Act] is governed by Section 401 (Proceeding to Enforce Construction Lien), and must be commenced within the time specified in Section 211 (Duration of Construction Lien; Statute of Limitations).

1. Subsection (a) is the basic operative provision of this Article. It provides that any person who furnishes materials or services under a contract for the improvement of real estate, no matter how far removed from the contracting owner, has a lien against the contracting owner to the extent provided in the Article. This Act does not, as did many prior lien laws, limit a lien to contractors in the first two, three, or four tiers below the owner. A real estate improvement contract is defined in Section 102(17). As defined there, the term is not limited to a contract made by an owner of the real estate. Therefore, a contract made, for example, by a subcontractor with a materialman for materials to be used on the job is a real estate improvement contract. However, a lien arises only against an owner who has entered into a contract to have the work done. If no owner has contracted for the work, there is no lien under this Article whether or not the owner might be liable on unjust enrichment principles for the value of the improvements. Similarly, if a prime contractor engages a subcontractor to do work beyond that contracted for by the owner, the subcontractor has no lien against the owner's real estate for the unauthorized work.

Under this Act a lien arises under a real estate improvement contract only to the extent provided in the Act. The Act, therefore, rejects the holding of cases such as Gee v. Eberle, 279 Pa. Super. 101, 430 A.2d 1050 (1980) which grant subcontractors an equitable lien against the owner even though the subcontractor has failed to comply with the provisions of the mechanics' lien laws. It rather supports the result in cases such as First Federal S & L Ass'n of Chicago v. Connelly, 107 Ill.App.3d 298, 437 N.E.2d 742 (1982), and Sesquatahie Concrete Service v. Cutter Laboratories, 616 S.W.2d 160 (Tenn. 1980) which hold that no equitable lien arises in favor of a lien claimant who fails to perfect his lien under the mechanics' lien statutes.

2. Subsections (b) through (f) catalogue those provisions of the Act which specify the amount, real estate subject to, priority of, and manner of foreclosure of, construction liens. Those references are intended to aid the reader in finding those sections of the Act. The subsections are not intended to have independent substantive meaning, nor do they reduce the effectiveness of sections not referred to.

SECTION 202. GOVERNMENTAL EXEMPTION FROM CONSTRUCTION LIEN. Real estate owned by the state, a county, a municipality, a governmental agency, or a political subdivision is exempt from a construction lien under this [Act].

1. A construction lien does not arise against real estate owned by a governmental unit or agency. However, the fact that a nongovernmental entity owns real estate jointly with a governmental entity or the fact that a governmental entity has an interest in land in which a nongovernmental entity also has an interest, does not prevent a construction lien from arising against the interest of the nongovernmental entity.

2. This Act does not provide for payment bonds or other procedures protective of subcontractors and materialmen in real estate improvement contracts made by governmental entities. If a state which adopts this Act presently has in its mechanics' lien laws bonding, stop-notice, or similar statutory provisions for public construction contract cases, it should continue those provisions in a separate act.

SECTION 203. REAL ESTATE SUBJECT TO CONSTRUCTION LIEN.

(a) Real estate to which a recorded construction lien applies is:

(1) if a notice of commencement was recorded before the recording of the construction lien, the real estate described in the notice of commencement; or

(2) if a notice of commencement was not recorded before the recording of the construction lien, the real estate of the contracting owner being improved or directly benefitted, except as provided in subsection (b).

(b) If a claimant who recorded a lien while there was no recorded notice of commencement covering the real estate later records a notice of commencement, the lien is on the contracting owner's real estate described in the notice of commencement.

(c) A claimant's lien on a contracting owner's real estate includes the value of services and materials provided under a real estate improvement contract with that owner for improvements directly benefiting, but not located on, that owner's real estate.

(d) If a recorded notice of commencement covers more than one lot in a platted subdivision of record, a claimant may apportion the claimant's construction lien to the various lots covered by the notice of commencement in any proportion the claimant chooses and states in the claimant's recorded construction lien and may assign all of the lien to a particular lot.

(e) If a recorded construction lien does not contain an apportionment as provided in subsection (d), the owner may demand the claimant to make an apportionment. If the claimant does not make an apportionment within 30 days after the demand, by recording an amendment of the recorded lien, the owner may make a good faith apportionment by recording an owner's statement of apportionment (Section 309). The apportionment is conclusive in favor of a person acquiring an interest in the real estate after the statement of apportionment is recorded, even if the owner did not give the notice to apportion referred to in this subsection or for any other reason was not entitled to record a statement of apportionment, or did not make a good faith apportionment.

(f) Except as expressly provided in [cite reference to state statutes governing condominiums and other common interest communities], a construction lien arising under this [Act] by reason of an improvement to real estate that is part of a common interest community does not attach to the common elements, but attaches to the units as follows:

(1) if the improvement was contracted for by the association of unit owners, however denominated, the lien attaches to all the units in the common interest community for which the association acts, unless the association notifies the claimant, when the contract is made, that the lien may attach only to the units on or for the benefit of which the improvement is being made; and

(2) if the improvement was contracted for by a unit owner, the lien attaches only to that owner's unit.

(g) Except as provided in subsection (d), if a construction lien attaches to two or more units in a common interest community, the unit owner of an affected unit may pay to the claimant the amount of the lien liability attributable to the owner's unit, and the claimant, upon receipt of payment, promptly shall deliver a release of the lien covering that unit. The amount of the payment must be in the proportion the unit owner's common-expense liability bears to the common-expense liabilities of all unit owners whose units are subject to the lien. After payment, the association may not assess or have a lien against that unit owner's unit for any portion of the common expenses incurred in connection with the lien.

1. This section deals with the geographic or spatial extent of a construction lien. If a notice of commencement is effective as to the improvement when the lien is recorded, the lien is on the real estate described in the notice of commencement. Therefore, an owner making improvements on a tract which he owns may, in his notice of commencement, limit the real estate against which a lien will arise to that particular real estate on which the improvement is being made. If, for example, a 100,000 square feet building is being built on a portion of a 40-acre tract, the notice of commencement could limit the lienable real estate to the 100,000 square feet on which the building sets and the surrounding land on which related work will be done. If, however, in a case in which there is a recorded notice of commencement describing a limited part of a single tract and improvement work outside the described part takes place, that work is not covered by the notice of commencement since the notice of commencement can apply only to the real estate described therein. If, in the case of the 100,000 square feet building, the notice of commencement described 200,000 feet square with the building in the center and, as a part of the construction, an access road and sidewalks were built on owner's real estate outside the described 200,000 square feet, the lien arising for the road and sidewalks would not be covered by the notice of commencement. In that case, under subsection (b), the lien for the work on the roads and sidewalks would be "on the contracting owner's real estate being improved or directly benefitted." Under that language, a court might decide that all the owner's 40-acre tract was being "directly benefitted" and allow a lien for the sidewalk and road improvements to be claimed against the entire tract. Therefore, the owner recording or notice of commencement should be sure that it does cover all the real estate on which work will actually be done.

2. As just indicated, if no notice of commencement covers a particular improvement at the time that a lien is recorded, the lien arises against the "contracting owner's real estate being improved or directly benefitted." Under that test, if a 100,000 feet building is being built on a 40-acre tract, the finder of fact must determine what part of the 40-acre tract is being improved or directly benefitted. In such a determination, the relationship of the land on which the building is located to the rest of the tract, including use, status of title, and relative values would be relevant. If, for example, a peanut storage warehouse is built on a tract which otherwise contains an automobile service station and a dwelling house, it might be appropriate to conclude that the portions of the tract on which the service station and house are located are not being improved or directly benefitted by the erection of the storage warehouse. On the other hand, if the entire tract is devoted to various peanut storage and processing activities, it might be appropriate to conclude that the entire tract is being improved or directly benefitted.

The uncertainties of the "real estate being improved or directly benefitted" test can easily be avoided by recording a notice of commencement which does describe all the real estate on which actual physical change will occur. Because of the ease with which owners can avoid the problem of identifying the real estate being improved or benefitted, it may be appropriate to resolve doubts on the issue in favor of lien claimants.

A claimant's recorded lien must describe the real estate against which a lien is claimed (Section 303), and, if a claimant claims less than that which he would be entitled to claim under this section, he may be precluded from asserting a larger claim as against persons who have relied on the more limited claim made in his recorded lien.

3. Under Section 301, if the owner has not recorded a notice of commencement, any claimant may record one, and, in that case, the notice of commencement may include as the real estate subject to liens "all or part of the owner's real estate being improved or directly benefitted." (Section 301(j)). Under that language, the claimant might describe all the tract on which the improvement is being made or a part of it. However, in either case, there is some risk that he will be held to have included within the description some real estate which is not being improved or directly benefitted. Since the claimant recording is for the benefit also of other claimants, the other claimants should be able to rely on the real estate described in the notice, and that is the rule stated in subsection (1). However, the claimant who recorded the notice of commencement may lose his lien and be liable to the owner for any damages caused if he in bad faith overstated the real estate being improved or benefitted. (See Section 403(b).) If the amount of real estate being improved or benefitted is overstated but without bad faith, the notice is effective as to all the real estate described.

4. The owner may reduce the real estate covered by a notice of commencement by recording a notice of termination as to the real estate which he wishes to remove from the notice of commencement. In that case, the owner must comply with all the requirements set out in Section 302 for an effective notice of termination. If the owner complies with Section 302, the reduction in real estate covered is fully effective as to all lien claimants who failed to record a lien prior to the effective date of the notice of the termination.

5. A claimant may record a lien at any time after he enters into the contract under which the lien arises, and, also, as already indicated, if a notice of commencement covering the improvement has not previously been recorded by the owner or another claimant, he may record a notice of commencement. If the claimant first records a lien and then records a notice of commencement, the real estate against which his lien arises is, according to subsection (c), controlled by the notice of commencement. If, after a claimant records a lien, the owner or another claimant records a notice of commencement, the notice of commencement has no effect on the real estate subject to the already recorded lien.

6. Under subsection (d), a lien arises against an owner's real estate for improvements made on land not owned by him if the work is part of an improvement on his real estate or directly benefits it. For example, work on streets in a subdivision contracted for by the developer after the streets had been dedicated to public use would create liens against the developer's land being benefitted by the improvements. Similarly, the construction of a drainage ditch or water line across neighboring privately owned property would result in a lien against the contracting owner's real estate being improved or directly benefitted. If a notice of commencement had been recorded describing the general improvement as a part of which the off-site work is done, the notice of commencement applies to the off-site work so that the priority of the lien and the extent of real estate covered by the lien is determined by the notice of commencement. If no work on the owner's real estate is being done in connection with the off-site improvement, the owner may record a notice of commencement and should describe therein his real estate being benefitted by the improvement.

7. A subdivision developer, in recording a notice or notices of commencement, may group the lots in the notice or notices any way he chooses. For example, he might record a notice of commencement for each lot or for each block. If he records more than one notice of commencement for the subdivision, claimants will have to establish which of the notices of commencement covers their work. To do that, claimants would have to show how much of their materials or services went into the particular real estate covered by each separate notice of commencement. Because of the difficulties which that could involve, claimants may wish to determine precisely what the notice of commencement situation is before they enter into improvement contracts in a subdivision.

If a notice of commencement covers more than one lot in a platted subdivision, claimants may apportion their lien among the lots covered by the notice in any proportion they choose. If, for example, a developer has recorded a separate notice of commencement for a six-lot block and subcontractor Y has contracts totaling $15,000 in connection with construction on those six lots, he could either apportion all his claim to a single lot or allocate among some or all of the lots in any way he chooses. He may, for example, apportion his entire claim to the lot he believes is most likely to sell first, or to the one he believes to be most valuable, etc. The fact that assertion of the lien against the lot first to sell may cause financial difficulty for the project may, of course, lead the claimant to exercise caution in trying to advance his interests at the expense of the owner. If a claimant does not apportion, his lien is on all the lots just as if they had not been platted. However, under marshalling concepts, third parties may be able to force the claimant to go against lots still owned by the contracting owner or first against lots last sold. See G. Osborne, Mortgages, § 286 (1970).

If the claimant does not apportion, the owner, under subsection (e), may demand that the claimant apportion, and, if he does not not, the owner may do so. If the owner apportions, he must do so in good faith. Good faith apportionment should not require that the owner apportion some of the claim to every lot, or that he attempt to approximate the percentage of work done by the claimant on each lot, but it would require that he not apportion in such a way that the real estate apportioned to the claim provides inadequate security for it unless the inadequacy would have existed in the absence of apportionment. Even an unauthorized or bad faith apportionment by an owner is conclusive in favor of purchasers who acquire interests after the apportionment.

Subsections (d) and (e) apply only if a notice of commencement has been recorded. If liens are recorded against a subdivision development before a notice of commencement has been recorded, the lien arises against all the owner's real estate being improved or directly benefitted, and there is no right in either the owner or the claimant to apportion the lien among the various lots.

8. Subsection (f) strikes a balance between the interests of unit owners and construction lien claimants when the lien arises for work done on real estate which is part of a condominium or other common interest community. The first rule of the subsection is that the lien does not attach to the common elements. If, for example, the association contracts for work to be done on a swimming pool or parking lot which is a common element, the lien claimant has no power to assert a lien on the swimming pool or parking lot and have it sold to satisfy the lien. Rather the lien attaches to all the units in the common interest community. It, therefore, becomes a fractionalized lien against each unit for that unit's proportional share of the cost. While the result is cumbersome for the lien claimant on the one hand, on the other hand it gives the claimant a lien against the real estate with real value. If a lien were to arise only against the swimming pool or parking lot, in many cases, they would have no value to anyone but the common interest community and could not produce a sales price sufficient to pay the lien claim.

The rule stated in subsection (f) as to the real estate subject to a construction lien takes precedence over the otherwise applicable rule that the property subject to the lien is that described in the notice of commencement or that being improved or directly benefitted. Therefore, if a notice of commencement covering work contracted for by an association describes only the common elements, the lien would, nevertheless arise against all the units. However, the notice of commencement would control the priority date of the construction lien claimants as against third parties. Associations which intend for the lien to arise against all units should describe the entire common interest community in the notice of commencement, though the notice of commencement could also be limiting by stating that, for example, it applies only to work on the swimming pool.

If the association intends to limit the lien claimant to units being improved or directly benefitted by the work, the notice of commencement should be appropriately limited.

Under Section 301 the notice of commencement is required to state the name of the "fee simple title holder" if other than the contracting party. In the case of common interest communities other than cooperatives that will require attaching a list of unit owners to the notice of commencement. In the large condominium, that may be such a burden as to make it unwise to attempt to file a notice of commencement for all but the largest improvement projects.

Similarly, under Section 303, a construction lien claimant, when recording a lien, must name the owners against whom a lien is claimed. In many cases, securing a lien against the individual unit owner under this Act will be so small a benefit to the prospective claimant that it will not be worth its while to gather the necessary information to make the recording. Many condominium acts make any judgment against the Association a lien against the units and dischargeable by unit owners according to rules similar to those stated in subsection (f). Since the lien attaches to all units as of the time of judgment is entered, it is very unlikely that the lien claimant would be harmed by having its priority date from time of judgment rather than from visible commencement or from time of recording a notice of commencement. That is, under the scheme of common interest acts, a third party who has contracted with the unit owners association in a common interest community is not subject to the risk that a subsequent buyer of a unit will cut off the right to assert to lien against the unit - the judgment attaches to the unit whoever is owner at the time the judgment is entered. Also, the relevant common interest ownership act may permit lien claimants, including mechanics' lien claimants, to effectively record against units by naming only the association. This Act should not be viewed as repealing any such provisions.

If an individual unit owner contracts for an improvement either on his own unit or elsewhere, the lien is only on his unit. In that case, the notice of commencement and recording of lien rules would apply as if the unit were any other individually owned parcel.

SECTION 204. LIMITATION OF CONSTRUCTION LIEN FOR MATERIALS FURNISHED.

(a) A construction lien for furnishing materials, including tools, appliances, and machinery, arises only if:

(1) they are furnished with the intent, shown by the contract of sale, the delivery order, delivery to the site by the claimant or at the claimant's direction, or by other evidence, that they be used in the course of construction of, or incorporated into, the improvement in connection with which the lien arises; and

(2) they are:

(i) incorporated in the improvement or consumed as normal wastage in construction operations;

(ii) specifically fabricated for incorporation in the improvements and not readily resalable in the ordinary course of the fabricator's business even though not actually incorporated in the improvement;

(iii) used for the construction or for the operation of machinery or equipment used in the course of construction and not remaining in the improvement, subject to diminution by the salvage value of those materials; or

(iv) tools, appliances, or machinery used on the particular improvement, but a lien for furnishing tools, appliances, or machinery used on the improvement is limited by subsection (c).

(b) The delivery of materials to the site of the improvement, whether or not by the claimant, creates a presumption that they were used in the course of construction or were incorporated into the improvement.

(c) A construction lien arising for furnishing tools, appliances, or machinery under subsection (a)(2)(iv) is limited as follows:

(1) if they are rented, the lien is for the reasonable rental value for the period of actual use and any reasonable periods of nonuse taken into account in the rental contract; and

(2) if they are purchased, the lien is for the price but arises only if they were purchased for use in the course of the particular improvement and have no substantial value to the purchaser after the completion of the improvement on which they were used.

Liens arise for materials only if they are supplied with the intention that they be used in the course of a particular improvement project. For example, a lumber dealer who sells lumber to a contractor without knowing which of several jobs the contractor is purchasing the lumber for has no lien, even though he may be able to establish that the lumber was in fact, used on a particular project. Also, even though the seller expects that the materials are to be used on a particular job and made the sale on that assumption, he has no lien unless his materials were in fact used in that improvement. The one exception to the requirement that the materials be used in the particular improvement is for things specially fabricated for the improvement and not readily resalable by the fabricator in the ordinary course of his business. Under subsection (b), the seller's burden of proof as to use in connection with a particular improvement is eased by a presumption that materials delivered to a site were used in connection with the improvement at that site.

Under subsection (a)(2)(iii) a lien arises in favor of suppliers of oil, gasoline, electricity, water, etc., used in connection with an improvement project if the seller supplied them with the intention that they be used in the particular improvement project.

Under subsection (a)(2)(iv) and subsection (c) a lien arises in favor of a person renting or selling tools, machinery, or appliances used on the project. Of course, as in the case of other suppliers, the lien arises only if the tools, etc., are supplied with the intention that they be used on the particular improvement project. In the case of rentals, the lien is for the reasonable rental value of periods of actual use and reasonable periods of nonuse. Under that test, a lessor will not be able to assert a lien for his full contract price if it includes a charge for unreasonably long nonuse periods.

A lien arises in favor of a seller of tools, machinery, or appliances only if they have no substantial value to the claimant after the completion of the improvement. The idea is of the "consumable tool" or machine which is used up on the job in the same way as lumber or gasoline. A tool or machine may have no substantial value to the claimant at the end of the project either because it is impracticable to move it to another job, or because the claimant reasonably makes no effort to see that the tool or machine is returned to him at the end of the project. For example, in the case of small hand tools, a contractor may have a supply on the job and make no effort to see that tools still usable at the end of the job are returned to him. If, in such a case, the costs of recovery would approach or exceed the value of the tools, it may be appropriate to conclude that they have no substantial value to the purchaser.

SECTION 205. NOTICE TO OWNER.

(a) At any time after entering into a real estate improvement contract, a claimant may give a notice of lien liability to the contracting owner. The notice of lien liability must be in writing, state that it is a notice of a right to assert a construction lien against real estate for services or materials provided or to be provided in connection with improvement of the real estate, and contain:

(1) the name of the claimant and the address to which the owner or others may send communications to the claimant;

(2) the name and address of the person with whom the claimant contracted;

(3) the name of the owner against whom a lien is, or may be, claimed;

(4) a general description of the services and materials provided or to be provided;

(5) a description sufficient to identify the real estate against which the lien is, or may be, claimed;

(6) a statement that the claimant has recorded a lien and the date of recording or, if the lien has not been recorded, a statement that the claimant is entitled to record a lien;

(7) the amount unpaid to the claimant for services or materials, whether or not due, and if no amount is fixed by the contract, a good faith estimate of the amount designated as an estimate; and

(8) the following statement in type no smaller than that used in conveying the information required by paragraphs (1) through (7):

Warning. If you did not contract with the person giving this notice, any future payments you make in connection with this project may subject you to double liability.

(b) A claimant may notify the contracting owner, either in the notice of lien liability or separately, that the claimant must be notified of the recording of any termination of the notice of commencement. The notice to the owner must be in writing and, if not part of the notice of lien liability, must contain the information specified in paragraphs (1) through (5) of subsection (a). The notice must also state that a written notice of the recording of a notice of termination must be given to the claimant at least 21 days before the effective date of the notice of termination.

(c) If the contracting owner has held out another person as contracting owner by naming that person in the notice of commencement or otherwise, a notice directed to and received by that person is effective against the contracting owner.

(d) If the contracting owner has held out a fictitious or nonexisting person as contracting owner by naming that person in the notice of commencement or otherwise, a notice to that fictitious or nonexisting person delivered at an address held out by the contracting owner as the address of the fictitious or nonexisting person is effective against the contracting owner.

1. Under both alternatives of Section 207 (which states the amount of an owner's lien liability), a delay by a claimant in giving notice to the contracting owner may result in total or partial loss of his lien. Therefore, under this section, a claimant is entitled to give a notice of liability to the owner as soon as the claimant enters into the contract under which the lien may arise.

2. Under Section 207, the notice of lien liability is not effective against the owner until received by him. Since receipt is the critical event, the Act does not specify any particular method of sending. The claimant is free to use whatever method is most likely to result in prompt receipt by the owner.

3. The notice, to be effective as against the owner, must contain the information specified in subsection (a)(1) through (8). Under the Act, a lien arises in favor of persons who furnish services or materials, no matter how far removed they are from the owner. Remote claimants need only state the name of the person with whom they contracted: they do not have to supply the names of the contracting parties in the contracting chain going back to the owner.

Only a general description of the services or materials furnished need be provided. For example, a statement by a plumbing subcontractor that his services are "installation of plumbing fixtures, pipes, and connections" or even "plumbing contractor" should be sufficient.

The real estate description need not be a metes and bounds or "deed" description. It merely need be sufficient to enable the owner to identify the real estate against which a lien is claimed.

If the claimant has entered into a fixed price contract which covers only the improvement in connection with which he asserts the lien, he should state the contract price less payments already made to him as the amount unpaid. If the contract is not a fixed price contract, the claimant need only make a good faith estimate of the amount which will be due to him on completion. If the contract is fixed price, but covers several different jobs which are not separately priced in the contract, the claimant must make a good faith apportionment to the particular job in connection with which he is giving the notice. Such an apportionment would be an estimate and should be designated as such.

The warning language set out in subparagraph (8) must appear on all notices of lien liability.

4. If a claimant wishes to be notified individually if the owner records a notice of termination, he may give the owner the notice referred to in subsection (b).

5. Sometimes corporate groups may use fairly indiscriminately the names of the various corporate entities. A case in which a claimant has been misled as to the particular corporate entity which is the contracting owner is one of the cases covered by subsection (c). Similarly, a corporation may contract under a name which is not its registered name, or an individual may contract as a corporation. These situations are among those covered by subsection (d).

[SECTION 206. WRITTEN CONTRACT AND DISCLOSURE REQUIRED FOR CONSTRUCTION LIEN AGAINST REAL ESTATE OF PROTECTED PARTY. No construction lien arises under this [Act] as to real estate owned by a protected party unless the real estate improvement contract is in writing, is signed by the contracting owner, and includes the following notice conspicuously on its first page:

Notice. By signing this contract you are subjecting your real estate to the provisions of the [Enacting State's] Uniform Construction Lien Act and to the risk of a forced sale to enforce payment for services or materials.]

It is reasonable to assume that many homeowners do not realize that contractors who make repairs or improvements to their home automatically receive a lien against the home for the price. This section provides some protection to homeowners by denying a lien unless the owner has been given the warning notice specified.

[SECTION 207. AMOUNT OF CONSTRUCTION LIEN.

(a) Subject to subsections (b) and (c):

(1) the construction lien of a prime contractor is for the unpaid part of the contract price; and

(2) the lien of a claimant other than a prime contractor is for the lesser of:

(i) the amount unpaid under the claimant's contract; or

(ii) the amount unpaid under the prime contract through which the claimant claims when the contracting owner receives the claimant's notice of lien liability (Section 205).

(b) The construction lien of a claimant is reduced by the sum of the liens of claimants who claim through the claimant.

(c) If a contracting owner's construction lien liability under a particular prime contract (subsection (d)) is less than the sum of claims of all claimants claiming through that particular prime contractor:

(1) claimants whose liens attached at different times have liens in the order of attachment until the owner's lien liability is exhausted; and

(2) among claimants whose liens attached, or may attach, at the same time, each lien is for the claimant's proportional amount of the contracting owner's lien liability to those claimants.

(d) A contracting owner's construction lien liability under a prime contract is the prime-contract price less payments properly made on the prime contract. A payment is properly made on a prime contract to the extent that the payment:

(1) is made in good faith before the receipt by the contracting owner of a notice of lien liability (Section 205); or

(2) if made after receipt by the contracting owner of a notice of lien liability, is made in good faith and leaves unpaid a part of the prime-contract price sufficient to satisfy the unpaid claims of all claimants who have given notice of lien liability and whose claims are not being satisfied by the payment.]

1. Following are some examples which indicate the operation of the rules stated in this section.

Example 1. Owner has contracted with prime contractor for construction at a price of $100,000. After the owner has paid the prime $80,000 under the contract, the owner receives notice from subcontractor A that A is owed $10,000. Owner pays prime another $10,000 but reserves $10,000 to pay A. Before owner actually pays A, he receives notice from subcontractor B that he, too, is owed $10,000 by prime. A notice of commencement is effective as to the improvement so that A and B's liens attach at the same time. Subcontractors A and B each have a lien for $5,000.

The applicable sections are (c) and (d). Since the owner's payments were either made before notice from a lien claimant, or were made afterward but withholding enough to pay all claimants who had notified, he had properly paid $90,000. Therefore, under (c) the lien of each claimant is for his pro rata portion of the owner's total lien liability.

Under the system adopted in the statute, a subcontractor cannot assure itself that it will be paid merely by giving notice to the owner since the owner need only withhold from the prime contractor sufficient funds to pay claims he has been notified of and since, if other claimants then notify the owner after further payments have been made to the prime, they share in the withheld funds. The subcontractor can try to get the owner to pay immediately to the subcontractor, or it can ask that other subcontractors also give notice to the owner so that additional funds will be withheld from the contractor. (The trust fund provisions of this Act (Section 501) makes it likely that the prime will in fact pay over to subcontractors the amounts due them out of contract receipts.)

Example 2. Same as Example 1, except that owner pays $15,000 to prime after having been notified of subcontractor A's claim. A and B still have a lien of $5,000 each. Owner's payment to prime was not properly made to the extent that it reduced the remaining contract price due below the claim of subcontractor A.

Example 3. Same as Example 1, except that owner in addition to the payment to the prime contractor pays $5,000 to subcontractor A before receiving notice of subcontractor B's claim. Owner has, therefore, properly paid $95,000 and has a total lien liability of only $5,000. Subcontractor A has a lien of $5,000 (one-half of his $10,000 claim having been paid) and subcontractor B has a lien claim of $10,000, but, since this is greater than the owner's lien liability, subsection (c) comes into play, and subcontractor A receives one-third of $5,000 (the owner's lien liability) and subcontractor B receives two-thirds.

(Note that in all of the above examples, the prime contractor has no lien because of subsection (b).)

Example 4. Owner has contracted with prime for construction at a price of $100,000. When the owner has paid the prime $80,000 under the contract, the owner receives notice from subcontractor A that A is owed $10,000. He then receives notice from sub-subcontractors one and two that subcontractor A owes them $3,000 and $2,000 respectively, a notice from subcontractor B that he is owed $10,000, and from sub-subcontractor three, who contracted with subcontractor C (who has been paid in full) that he has a claim for $10,000. Owner does not pay out any additional money to prime. A notice of commencement was recorded as to the improvement so that all claimants have equal priority. A has a lien of $5,000 ($10,000 reduced by the total of the liens of those who claim through him), B has a lien for $10,000, one has a lien for $3,000, two for $2,000, and three for $10,000. Therefore, the total of the lien claims is $30,000, but, since that is greater than the owner's total lien liability of $20,000, each claimant's lien is reduced by one-third (each receives his pro rata part of the owner's total liability).

Example 5. Owner has contracted with prime for construction at a price of $100,000. When owner has paid the prime $90,000, owner receives a notice of lien liability from supplier claiming that subcontractor D has not paid $10,000 for which supplier asserts a lien. Prime has paid subcontractor D in full. Supplier has a $10,000 lien, and owner should pay supplier rather than prime. Prime will have to undertake to recover $10,000 from D and, if he is unable to do so, will suffer a loss of $10,000.

In all of the above examples, it has been assumed that owner will pay the amount of the construction liens to protect his real estate. If the owner does not pay, the claimant's remedy is to foreclose against the real estate. In that event, if there are prior encumbrances against the real estate, there may be no recovery for the lien claimants. If the sale produces some money for the lien claimants but not enough to pay all claims, the money received is distributed to claimants according to the priority rules of Section 208.

2. The owner's liability to a prime contractor is reduced by the amounts the owner pays to claimants claiming through that contractor. While the statute does not explicitly state that payments made by an owner to discharge liens of claimants other than the prime contractor go toward reducing the owner's contractual liability to the prime, it does state that the lien of the prime is reduced by the sum of the liens of claimants who claim through him. The clear implication of that rule is that the owner's personal liability to the prime is also discharged. Similarly, if the owner pays to the prime sums which do not reduce the owner's lien liability to claimants through that prime, the payments could be recovered back from the prime.

As noted in Example 4 above, if a prime contractor pays a subcontractor who in turn fails to pay a sub-subcontractor or materialman, the risk of that nonpayment is on the prime. If the owner pays the sub-subcontractor or materialman to discharge a lien or to prevent a lien from arising, these payments reduce his liability to the prime. Therefore, some prime contractors may wish to engage in policing activities to assure themselves that all participants in the project below them are paid.

3. Section 209 states that, as among lien claimants, all liens attaching at the same time have equal priority, but that liens which attach at different times have priority among themselves in the order of attachment. Under Section 208, liens recorded while there is no effective notice of commencement covering a project take priority as of the earlier of recording or visible commencement, while liens recorded after recording of a notice of commencement take priority as of the time the notice of commencement was recorded. Therefore, in cases where a lien claimant records and subsequently a notice of commencement is recorded as to the project, that claimant will have priority over claimants who record after the notice of commencement is recorded. The following example indicates how the rules of those sections apply in relation to the rules as to owner liability stated by this section.

Example. Owner undertakes an improvement project without recording a notice of commencement. Before a notice of commencement is recorded but after visible commencement, subcontractor A records a notice of lien. His priority date is, therefore, time of visible commencement (Section 209). Thereafter, a notice of commencement is recorded covering the improvement. Then subcontractor B records a notice of lien. Subcontractor B's lien has priority as of the date of recording the notice of commencement. Subcontractor B then gives owner a notice of lien liability claiming $10,000. Owner pays subcontractor B before subcontractor A notifies owner that he has a $10,000 lien claim.

Subcontractor A's lien attached first, and, in that case, subcontractor B's lien is subordinate to that of subcontractor A because, under subsection (c)(i), "lien claimants whose liens attach at different times have liens in the order of attachment until the owner's lien liability is exhausted." The owner's lien liability is only $10,000, and payment to subcontractor B exhausts that liability. Therefore, even though A recorded first, he would, in effect, lose his lien claim because owner properly paid B. If, however, before owner paid B, owner also received a notice from A that A was owed $10,000 owner is put on notice of the claims of both A and B and would be obligated to pay them according to their priority position. If, for example, owner paid $5,000 to each, owner would nevertheless be liable to A for the additional $5,000 due to A because of A's priority over B.

As the last example indicates, an owner who has received notice from several lien claimants cannot always assume that they are entitled to pro rata distribution of money still due the prime. That will be true only if all who have notified have equal priority. If none of those who have notified have recorded, the owner may make pro rata distribution without any risk since, by making the payment, he will have entirely discharged his lien liability and any subsequent recording will not affect his liability. If some claimants who have notified the owner have recorded and some have not, the owner should be able to pay all claimants pro rata and discharge his liability if those claimants who have not recorded could, by recording, gain equal priority with those who have previously recorded. If those claimants who have not recorded could not gain equal priority, the owner could discharge his lien liability by paying, to the extent of his liability, those claimants with priority.

Alternative B of Section 207

Alternative B of Section 207 is offered for states which wish to impose liability on owners greater than that imposed by Alternative A.

The National Conference of Commissioners on Uniform State Laws takes the position that an owner should not be liable to a lien claimant other than the prime contractor except to the extent that he still has in his hands money owing to the prime contractor at the time he receives notification of the lien claimant's interest. That is the position taken in Alternative A of Section 207.

However, recognizing that some states impose somewhat greater liability presently and may wish to continue to do so under a modern, uniform statute, the following section has been prepared. It may be substituted for Alternative A of Section 207 without requiring changes in other sections.

Alternative B gives subcontractors a lien against an owner, other than a protected party owner, for their full contract price provided that they notify the owner within 20 days after they first furnish goods or services. If they give notice more than 20 days after the first furnishing of goods or services, their lien claim relates back to secure the price of all goods or services furnished within 20 days of the time they did notify. Protected parties have lien liability only to the extent that money due the prime contractor has not yet been paid at the time they receive notice of the claimant's lien.

[SECTION 207. AMOUNT OF CONSTRUCTION LIEN.

(a) Subject to subsection (f), the lien of a prime contractor is for the unpaid part of the prime-contract price.

(b) Except as against a protected party contracting owner and subject to subsection (f), the lien of a claimant other than a prime contractor is for the unpaid price of services and materials provided within 20 days before, or at any time after, the owner receives from the claimant a notice of lien liability (Section 205).

(c) Except as provided by subsections (d) and (e), as against a protected party contracting owner, the lien of a claimant other than a prime contractor is for the lesser of:

(1) the amount unpaid under the claimant's contract; or

(2) the amount unpaid under the prime contract through which the claimant claims at the time the contracting owner receives the claimant's notice of lien liability (Section 205).

(d) If a contracting owner is a protected party and the contracting owner's lien liability under a prime contract (subsection (e)) is less than the total amount of claims of all claimants claiming through the prime contractor:

(1) lien claimants whose liens attach at different times have liens in the order of attachment until the owner's lien liability is exhausted; and

(2) among claimants whose liens attach at the same time, each claimant's lien is for that claimant's proportional amount of the contracting owner's lien liability to those claimants.

(e) If a contracting owner is a protected party, the construction lien liability of the owner under a particular prime contract is the prime-contract price less payments thereon properly made. A payment on a prime-contract price is properly made to the extent the payment:

(1) is made in good faith before receipt by the contracting owner of a notice of lien liability (Section 205); or

(2) if made after receipt by the contracting owner of a notice of lien liability, is made in good faith and leaves unpaid a part of the prime contract price sufficient to satisfy the unpaid claims of all claimants who have given notice of lien liability and whose claims are not being satisfied by the payment.

(f) The construction lien of a claimant is reduced by the sum of the construction liens of other claimants who claim through that claimant.]

1. Except as against a protected-party owner, a claimant other than a prime contractor may assert a lien against the owner for the claimant's full contract price if the owner receives from the particular claimant a notice of lien liability within 20 days after the first furnishing of services or materials by the claimant under his contract. If, for example, an owner paid a prime contractor in full in advance for a particular project and the prime contractor then employed several subcontractors who were not paid, the subcontractors, if they notified the owner within the 20-day period, could assert a lien against the owner's real estate for their full contract price. In such a case the owner might find it necessary to pay substantially more than the contract price for the improvement to protect his real estate against liens. The same rule as to double liability would apply to lien claimants more remote than the subcontractor tier. If a lien claimant's notice of lien liability is received by the owner more than 20 days after the first furnishing of services or materials by the claimant, the rules described above continue to apply with the exception that the claimant's lien does not extend to the price of goods or services furnished more than 20 days prior to the time the notice is received by the owner.

2. A protected-party contracting owner has no lien liability to claimants except to the extent that he has not yet paid the contract price to the prime contractor at the time he receives notice of the claimant's right to assert a lien (Section 205). Following are some examples which indicate the operation of the rules as to protected-party owners.

Example 1. Owner has contracted with prime contractor for construction of a home at a price of $100,000. When the owner has paid the prime $80,000 under the contract, the owner receives notice from subcontractor A that A is owed $10,000. Owner pays prime another $10,000 but reserves $10,000 to pay A. Before Owner actually pays A, he receives notice from subcontractor B that he, too, is owed $10,000 by prime. A notice of commencement is effective as to the improvement so that A and B's liens attach at the same time. Subcontractors A and B each have a lien for $5,000. The applicable sections are (d) and (e). Since the owner's payments were either made before notice from a lien claimant, or were made afterward but withholding enough to pay all claimants who had notified, he had properly paid $90,000. Therefore, under (d), the lien of each claimant is for his pro rata portion of the owner's total lien liability.

Example 2. Same as Example 1, except that Owner pays $15,000 to prime after having been notified of subcontractor A's claim. A and B still have a lien of $5,000 each. Owner's payment to prime was not properly made to the extent that it reduced the remaining contract price due below the claim of subcontractor A.

Example 3. Same as Example 1, except that Owner, in addition to the payment to the prime contractor, pays $5,000 to subcontractor A before receiving notice of subcontractor B's claim. Owner has, therefore, properly paid $95,000 and has a total lien liability of only $5,000. Subcontractor A has a lien claim of $5,000 (one-half of his $10,000 claim having been paid) and subcontractor B has a lien claim of $10,000, but since this is greater than the owner's lien liability, subsection (d) comes into play, and subcontractor A receives one-third of $5,000 (the owner's lien liability), and subcontractor B receives two-thirds.

(Note that in all of the above examples, the prime contractor has no lien because of subsection (f).)

Example 4. Owner has contracted with prime for construction of a home at a price of $100,000. When the owner has paid the prime $80,000 under the contract, the owner receives notice from subcontractor A that A is owed $10,000. He then receives notice from sub-sub-subcontractors one and two that subcontractor A owes them $3,000 and $2,000 respectively, a notice from subcontractor B that he is owed $10,000, and from sub-subcontractor three, who contracted with subcontractor C (who has been paid in full) that he has a claim for $10,000. Owner does not pay out any additional money to prime. A has a lien of $5,000 ($10,000 reduced by the total of the liens of those who claim through him), B has a lien for $10,000, one has a lien for $3,000, two for $2,000 and three for $10,000. Therefore, the total of the lien claims is $30,000 but, since that is greater than the owner's total lien liability of $20,000, each claimant's lien is reduced by one-third (each receives his pro rata part of the owner's total lien liability).

Example 5. Owner has contracted with prime for construction of a home at a price of $100,000. When Owner has paid the prime $90,000, Owner receives a notice of lien liability from Supplier claiming that subcontractor D has not paid a $10,000 amount for which supplier asserts a lien. Prime has paid subcontractor D in full. Supplier has a $10,000 lien and Owner should pay Supplier rather than prime. Prime will have to undertake to recover $10,000 from D and, if he is unable to do so, will suffer a loss of $10,000.

In all of the above examples, it has been assumed that Owner will pay the amount of the construction liens to protect his real estate. If the owner does not pay, the claimants' remedy is to foreclose against the real estate. In that event, if there are prior encumbrances against the real estate, there may be no recovery for the lien claimants. If the sale produces some money for the lien claimants, but not enough to pay all claims, the money received is distributed to claimants according to the priority rules of Section 208.

3. Whether or not he is a protected party, an owner's liability to a prime contractor is reduced by the amounts the owner pays to claimants claiming through that contractor. While the statute does not explicitly state that payments made by an owner to discharge liens of claimants other than the prime contractor go toward reducing the owner's contractual liability to the prime, it does state that the lien of the prime is reduced by the sum of the liens of claimants who claim through him. The clear implication of that rule is that the owner's personal liability to the prime is also discharged. Therefore, if a prime contractor pays a subcontractor who in turn fails to pay a sub-subcontractor or materialman, the risk of that nonpayment is on the prime. Because of this risk, some prime contractors may wish to engage in policing activities to assure themselves that all participants in the project below them are paid. If a protected-party contracting owner pays the prime contractor sums which do not reduce the owner's liability to lien claimants claiming through the contractor, the owner can recover back those payments from the prime. Similarly, as between an owner who is not a protected party and the prime contractor, the risk that liens will be asserted by claimants claiming through that prime is on the prime and, if an owner has already made payments to the prime, which, together with his lien liability to claimants under that prime, exceed the contract price, the owner can recover the excess from the prime.

4. Section 209 states that, as among construction lien claimants, all liens attaching at the same time have equal priority, but that liens which attach at different times have priority among themselves in the order of attachment. Under Section 208, liens recorded while there is no effective notice of commencement covering a project take priority as of the earlier of recording or visible commencement, while liens recorded after recording of a notice of commencement take priority as of the time the notice of commencement was recorded. Therefore, in cases where a lien claimant records and subsequently a notice of commencement is recorded as to the project, that claimant will have priority over claimants who record after the notice of commencement is recorded.

The following example indicates how the rules of those sections apply in relation to the rules as to protected-party owner liability stated by this section.

Example. Protected-party owner undertakes an improvement project without recording a notice of commencement. Before a notice of commencement is recorded, but after visible commencement, subcontractor A records a notice of lien. His priority date is, therefore, time of visible commencement (Section 208). Thereafter, a notice of commencement is recorded covering the improvement. Then subcontractor B records a notice of lien. Subcontractor B's lien has priority as of the date of recording the notice of commencement. Subcontractor B then gives Owner a notice of lien liability claiming $10,000. Owner pays subcontractor B before subcontractor A notifies Owner that he has a $10,000 lien claim.

Subcontractor A's lien attached first, and in that case, subcontractor B's lien is subordinate to tha