It is generally recognized by New Hampshire courts that “[f]ailure to comply with the specific statutory provisions of perfecting a mechanics lien is usually fatal,” Alex Builders & Sons, Inc. v. Danley, 161 N.H. 19, 23 (2010). Yet one of those statutory provisions, RSA 447:8, is in my experience regularly ignored by subcontractors and suppliers to whom it applies. It states:
“Any person giving notice as provided in RSA 447:5-7 shall, as often as once in 30 days, furnish to the owner, or person having charge of the property on which the lien is claimed, an account in writing of the labor performed, professional design services provided, or materials furnished during the 30 days; and the owner or person in charge shall retain a sufficient sum of money to pay such claim, and shall not be liable to the agent, contractor or subcontractor therefor, unless the agent, contractor or subcontractor shall first pay it.”
The notices triggering this accounting requirement can be given to the owner before the first labor or materials get furnished (RSA 447:5 and RSA 447:7) or after (RSA 447:6) – but in either event, written monthly updates of the amount owed are required. The reason is not hard to fathom: under the statute “the owner is to hold back from the principal contractor the amount due the sub-contractor” to pay such claims, Cudworth v. Bostwick, 69 N.H. 536, 537 (1898), and owners need to know the amount of those claims in order to do so intelligently.
When the notice of intent to lien is a RSA 447:6 notice first given after work has commenced or materials are furnished, that notice typically states the amount then due. But rarely are such amounts updated in 30-day intervals. If the amount owed hasn’t changed since that first notice, an update would be “an empty formality,” and failure to provide the accounting will be excused. McGranahan v. Standard Construction Co., 101 N.H. 46, 47 (1957). But if it has changed – or if the advance notice has been given under RSA 447:5, such that the owner has never been told the amount claimed – the lack of an update frustrates the purpose of the statute.
In the absence of an accounting within the 30-day period, the owner who has received a notice of intent to lien "is entitled to understand that within that period nothing has been done for which a lien is claimed and to act accordingly.” Lawson v. Kimball, 68 N.H. 549, 550 (1896). Failure to furnish the required accounting will therefore limit the lienor’s claim to the last amount he disclosed as being owed – which will often be zero in the case of the RSA 447:5 notice given prior to commencement and never updated with any accounting.
Suppose, however, that a sub’s or supplier’s accounting is received late, beyond the 30-day statutory period – but the owner has not yet paid the general contractor’s monthly requisition. Must the owner still retain the amount of the claim and not pay it to the general? I know of no case that has ruled on the issue, but my educated guess is yes. The statutory scheme is designed to ensure that subs and suppliers are paid before general contractors by treating amounts due to the GC as a trust fund for the benefit of unpaid subs and suppliers (see Blog #121), and protecting owners from liability to GCs when owners honor that trust. This goal is served as long as the owner has not yet paid the GC, even if the 30-day period has elapsed.
The last phrase of RSA 447:8 – “unless the agent, contractor or subcontractor shall first pay it” – requires the owner to stop withholding the GC’s money once the GC has paid the sub or supplier. With the prevalence of “pay-when-paid” and “pay-if-paid” clauses in commercial subcontracts today, advance payment by GCs is uncommon. A requirement for lien waivers from notifying subs, on forms that not only waive lien rights but recite that payment has been received, will assure the owner that its trust duties for the month are at an end.
“Any person giving notice as provided in RSA 447:5-7 shall, as often as once in 30 days, furnish to the owner, or person having charge of the property on which the lien is claimed, an account in writing of the labor performed, professional design services provided, or materials furnished during the 30 days; and the owner or person in charge shall retain a sufficient sum of money to pay such claim, and shall not be liable to the agent, contractor or subcontractor therefor, unless the agent, contractor or subcontractor shall first pay it.”
The notices triggering this accounting requirement can be given to the owner before the first labor or materials get furnished (RSA 447:5 and RSA 447:7) or after (RSA 447:6) – but in either event, written monthly updates of the amount owed are required. The reason is not hard to fathom: under the statute “the owner is to hold back from the principal contractor the amount due the sub-contractor” to pay such claims, Cudworth v. Bostwick, 69 N.H. 536, 537 (1898), and owners need to know the amount of those claims in order to do so intelligently.
When the notice of intent to lien is a RSA 447:6 notice first given after work has commenced or materials are furnished, that notice typically states the amount then due. But rarely are such amounts updated in 30-day intervals. If the amount owed hasn’t changed since that first notice, an update would be “an empty formality,” and failure to provide the accounting will be excused. McGranahan v. Standard Construction Co., 101 N.H. 46, 47 (1957). But if it has changed – or if the advance notice has been given under RSA 447:5, such that the owner has never been told the amount claimed – the lack of an update frustrates the purpose of the statute.
In the absence of an accounting within the 30-day period, the owner who has received a notice of intent to lien "is entitled to understand that within that period nothing has been done for which a lien is claimed and to act accordingly.” Lawson v. Kimball, 68 N.H. 549, 550 (1896). Failure to furnish the required accounting will therefore limit the lienor’s claim to the last amount he disclosed as being owed – which will often be zero in the case of the RSA 447:5 notice given prior to commencement and never updated with any accounting.
Suppose, however, that a sub’s or supplier’s accounting is received late, beyond the 30-day statutory period – but the owner has not yet paid the general contractor’s monthly requisition. Must the owner still retain the amount of the claim and not pay it to the general? I know of no case that has ruled on the issue, but my educated guess is yes. The statutory scheme is designed to ensure that subs and suppliers are paid before general contractors by treating amounts due to the GC as a trust fund for the benefit of unpaid subs and suppliers (see Blog #121), and protecting owners from liability to GCs when owners honor that trust. This goal is served as long as the owner has not yet paid the GC, even if the 30-day period has elapsed.
The last phrase of RSA 447:8 – “unless the agent, contractor or subcontractor shall first pay it” – requires the owner to stop withholding the GC’s money once the GC has paid the sub or supplier. With the prevalence of “pay-when-paid” and “pay-if-paid” clauses in commercial subcontracts today, advance payment by GCs is uncommon. A requirement for lien waivers from notifying subs, on forms that not only waive lien rights but recite that payment has been received, will assure the owner that its trust duties for the month are at an end.
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