Legislation of Interest to Construction Lawyers - Articles

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Posted by: Lynn Pointer on Apr 25, 2013

From the Chair:   Jerry M. Martin

When the Tennessee General Assembly recessed for the year two Bills were pending that garnered the attention of many within the construction industry. It is most likely that these Bills will again be under consideration once the legislature reconvenes in January of 2014. If enacted, these Bills would significantly change Tennessee’s Mechanics' and Materialmen’s Lien Law found at T.C.A. § 66-11-101, et seq.

Senate Bill 602 sponsored by John Stevens/House Bill 1070 sponsored by Barrett Rich proposes to delete § 66-11-108 in its entirety and replace it with language that gives the mortgages of lenders a super priority status over all other construction liens.  The Bill provides that the lien created by a deed of trust, including any modifications and/or amendments to the deed of trust shall have priority over all other construction liens if the deed of trust is recorded within 20 days of its execution. A deed of trust, so recorded will have priority over construction liens regardless of whether the construction liens have already attached to the real property.

Proponents of this Bill contend that such additional protections for lenders are necessary in order for the lenders to be able to obtain title insurance.  Opponents of the Bill argue that designers, contractors, subcontractors and suppliers would lose their priority to a deed of trust, modification and/or amendment, which may not be recorded for months or even years after the property had been improved by the furnishing of services, labor and materials. 

Concerns about this Bill are not restricted to just the construction industry. There is a general uneasiness that this Bill would carve out an exception to the well-settled rule that priority of recorded instruments are determined by the chronological order in which they are recorded.

The second Bill of note proposes to make a sweeping change to all liens (except judgment liens) provided for in Title 66.  These include not only mechanics’ and materialmen’s liens, but also vendor’s liens, crop liens, employees’ liens, artisan’s liens, manufacturer’s and processor’s liens, launderers, cleaners and storage liens, innkeeper’s liens, molder’s liens, liens on vehicles and conveyances and liens on animals.  House Bill 452 sponsored by Steve Hall/ Senate Bill 241 sponsored by Stacey Campfield would create a new § 66-38-101, which would require that any lien under Title 66 in an amount in excess of $10,000, be “. . . based upon a written contract or agreement.”  The Bill does not define, nor specify, what would suffice as a “written contract or agreement”.  This Bill is of great concern to contractors, subcontractors and suppliers within the construction industry, who regularly perform services and/or provide labor or materials well in excess of $10,000 based only on an oral contract or agreement.  While we as attorneys constantly admonish our clients “to get it in writing”, there are still a significant number of construction projects in this state that proceed on only a handshake. Think of change orders.

The Executive Council of the TBA Construction Law Section has discussed the relevant merits of this legislation.  If you have ideas or comments, we would love to hear from you.  Members of the Construction Law Section represent the whole spectrum of the construction industry. So, if you wish to weigh in, please contact me at: jerrymartinlaw@aol.com or 865-777-2700.