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North Carolina Lien Law Summary
EXECUTIVE SUMMARY OF NORTH CAROLINA LIEN LAW

Purpose: To provide contractors, subcontractors and others performing work on improvements to real property with a method of collecting payment for such work.

Persons Entitled to Lien Rights: Contractors, first-tier subcontractors, second-tier subcontractors, third-tier subcontractors, fourth-tier subcontractors and beyond (limited), architects, engineers, surveyors, and others who meet the statutory definitions.

Private Property: Liens are permitted only on private property, as public policy prohibits liens on public projects.

Types of Liens: General Contractor: lien on the property. Subcontractor/Supplier: (1) lien on the funds, (2) lien on the property due to owner's liability, and (3) subrogation lien against the property.

Filing Deadlines: The claim of lien must be filed within 120 days after the lien claimant's last furnishing of labor and/or materials. Additionally, the lien claimant must institute a lien enforcement lawsuit within 180 days after its last furnishing of labor and/or materials. A lien on the funds by a first, second, third or a more remotely-tiered subcontractor/supplier is perfected by properly serving a Notice of Claim of Lien. If a first, second or third-tiered subcontractor/supplier wants to become subrogated to the lien rights of a prime contractor against the improved real property, he must perfect and enforce the lien by: (1) properly serving all persons above him in the contractual chain with a Notice of Claim of Lien before all funds are paid by the owner to the contractor, (2) subsequently filing a copy of such Notice of Claim of Lien with a Claim of Lien at the Clerk of Court's Office in the county where the improved property is located, and (3) filing a lien enforcement lawsuit.

Note: a second and third tier subcontractor/supplier must also serve a Notice of Subcontract if a Notice of Contract was filed and posted.

Amendments: A claim of lien may not be amended. A claim of lien may be cancelled by a claimant and a new claim of lien substituted within the 120-day time limit stated above.

Protection Against Possible Double Payment: A contractor can limit its liability to second or third-tier subcontractors if, within 30 days following the date the building permit is issued, the contractor posts a Notice of Contract on the property in a visible location adjacent to the posted building permit and files the Notice of Contract in the office of the Clerk of Superior Court in each county wherein the real property to be improved is located. If the contractor properly and timely posts the Notice of Contract, second tier and lower subcontractors and suppliers must notify the contractor that they are providing labor and materials to the Project. Until the contractor receives a Notice of Subcontract from such subcontractors or suppliers, it has no obligation to advise the subcontractors or suppliers of when it makes a payment to its immediate subcontractor, and is not subject to liability for double payment.

Payment Bonds
Purpose: To provide subcontractors and suppliers with a form of security for their work on public projects, which is nearly the equivalent of lien rights on private construction projects.

Threshold: When the total amount of construction contracts awarded for any one public project exceeds $300,000, a Performance and Payment Bond is required by the contracting body from any contractor or construction manager at risk with a contract more than $50,000.00.

Notices: A subcontractor of a bonded contractor who has a direct contractual relationship with that contractor need not provide any notice to such contractor to assert a Payment Bond claim. However, a person who has no direct contractual relationship with the bonded prime contractor, but has a direct contractual relationship with a subcontractor, may bring an action on the Payment Bond only if he has properly served written notice to the prime contractor within 120 days from the date on which he last performed labor or furnished materials on or to the project.

Lawsuit: A lawsuit must be brought against a prime contractor's Payment Bond within one year from the date on which the last of the labor was performed or material was furnished by the claimant, or one year from the date on which the final settlement was made with the contractor, whichever is later. Such lawsuit cannot be initiated on a Payment Bond any sooner than 90 days after the last labor was performed or the last materials were furnished by the bond claimant.

Private Projects: If there is a Payment Bond on a private project, one must give whatever notice is required by the bond and file a lawsuit within the time specified in the bond. Terms of the bond, not the statute, control on private projects.

Performance Bonds
Purpose: To guarantee to the public owner the prime contractor's performance, or to guarantee to the contractor the subcontractor's performance.

Default: A claim under a Performance Bond can only be made after the party whose performance is guaranteed by the Performance Bond has been declared in default.

Fact Specific: Circumstances involving what is recoverable under a Performance Bond and the duties and obligations the owner, contractors and subcontractors all owe to each other are very fact specific. If a contractor has a question about a Performance Bond, he should contact an attorney, because giving advice on a Performance Bond requires additional information and there are different options and obligations depending upon the facts of each project.