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Mechanic's Lien & Statute of Repose Bills Signed Into Law - April 18, 2017

Statute of Repose Bill (SF413)

What Does the New Statute of Repose Law Mean for Me?

On April 13, 2017, the Governor signed SF413 into law, which is a law reducing the Statute of Repose applicable to construction claims. This is great news for the Iowa construction industry.

 

As noted in a prior alert, this law will reduce Iowa's current 15-year Statute of Repose for all claims arising out of a defective or unsafe condition of an improvement to real property to 8 years for commercial construction and 10 years for residential construction. Please note that the law has the following exceptions:

  1. claims regarding nuclear power plants, interstate pipelines, and fraud/intentional misconduct claims will maintain a 15-year repose period, and
  2. if the unsafe or defective condition was discovered within one year of the expiration of the new statute of repose period, then the repose period would be extended for one additional year.

When Does the New Statute of Repose Law Take Effect?

The new statute of repose law will take effect on July 1, 2017. The law does not have any retroactive effect. In addition, the law contains an express provision regarding applicability:

 

Sec. 2. APPLICABILITY. This Act does not apply to an improvement to real property in existence prior to the effective date of this Act or to an improvement to real property, whether construction has begun or not, that is the subject of a binding agreement as of the effective date of this Act.

 

This means that, if the construction project has not begun as of July 1, 2017 and if your company's construction or design agreement has not yet been executed as of July 1, 2017, then the new, shorter statute of repose will apply to your company.

 

Conversely, the old 15-year statute of repose applies if either the "improvement to real property" is already "in existence" as of July 1, 2017, or your company has already signed "a binding agreement" regarding the construction project as of July 1, 2017 regardless of whether construction on the project has begun.



Law RE: Commencement of Work Notices for Residential Projects (HF586)

What Does the New Pre-Lien Notice Law Mean For My Company?

On April 7, 2017, the Governor signed House File 586 into law. The law takes effect on July 1, 2017. The law expands the category of residential contractors who are required to file the pre-lien notice termed the "Commencement of Work" Notice (or C.O.W. Notice) in order to preserve their mechanic's lien rights on a residential construction project.

 

As noted in a previous client alert, prior law only required general contractors (i.e., companies directly supplying materials or labor to the homeowner) with subcontractors to file a C.O.W. Notice on the MNLR online registry no later than 10 days from the start of every residential construction project in order to preserve their lien rights. This interpretation of the law was affirmed by the Iowa Court of Appeals in 2016 in the mechanic's lien case of Standard Water v. Jones in which Jodie McDougal represented a residential contractor.

 

The new law requires all general contractors (that is, all contractors who directly work for a homeowner) to timely file a C.O.W. Notice at the outset of each residential project to preserve their lien rights, regardless of whether subcontractors will be used on the project. Thus, even contractors who self perform all work without any "subcontractors," as well as suppliers who supply directly to homeowners, will now have to timely file this C.O.W. Notice within 10 days of the start of their residential projects to preserve their lien rights.

 

While this law, which was introduced and supported by those in the lending and closing industries, negatively impacts certain residential contractors by now requiring them to file C.O.W. Notices, the law positively affects those in the lending and closing industries and will streamline their loan closing practices. In particular, by late 2017, lenders and closing agents will likely no longer ask for all lien waivers; instead, they will check the MNLR registry and only be concerned with general contractors and subcontractors who have properly preserved their lien rights through their timely filing of their pre-lien notices.

 

Bottom Line

As of July 1, 2017, all general contractors, subcontractors, and suppliers on residential projects who want to preserve their mechanic's lien rights on residential projects must timely file their C.O.W. Notice (for general contractors and others working directly for an owner) or Preliminary Notice (for subcontractors) at the outset of such projects. Otherwise, all lien rights are lost.

 

Please contact attorney Jodie McDougal should you have any questions regarding these bills.