Construction Legal Updates: Mechanics Lien Act, Administrative Hearings, and Tort Immunity Exception for Outside Safety Consultants

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July 24, 2014
Matthew Horn
SmithAmundsen Construction Alert

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Amendment to the Mechanics Lien Act

In February of 2014, Senate Bill 3023 was introduced, providing that any contractual agreement requiring a contractor or subcontractor to subordinate its mechanics lien rights was against public policy and unenforceable. Before the bill was introduced, subordination provisions in construction contracts were generally allowed between the owner and the general contractor, but were only allowed between the general contractor and downstream subcontractors and suppliers if set out in the body of the downstream contract. The bill was modified a number of times before being signed into law on July 16, 2014. Unfortunately, the law, as adopted, carves out an exception to the benefit of lenders, providing that all parties’ mechanics lien rights can be contractually subordinated to a mortgage lien on the property if the contract or subcontract is entered into after more than 50% of the construction loan at issue has been disbursed to fund improvements on the project. The law as adopted also removes the requirement that the subordination provision be included in the body of subcontractors’ and suppliers’ contracts. The law will impact all parties’ mechanics lien rights on construction projects, and lenders and owners will likely require all contractors, subcontractors, and suppliers to agree to subordinate their lien rights to construction loan mortgages when applicable. Going forward, all contractors, subcontractors, and suppliers on new construction projects should review their contracts and all upstream contracts to ensure that they have not subordinated their lien rights.

Representation at Administrative Hearings

As previously reported, the Appellate Court of Illinois, First District, ruled in Stone Street Partners, LLC v. City of Chicago, 2014 IL App (1st) 123654 that corporate parties involved in administrative hearings must be represented by legal counsel. In its ruling, the court held that an appearance by a non-attorney on behalf of a corporate entity at an administrative housing hearing was null and void because the individual was not an attorney. Initially, we were unable to report on whether administrative bodies would enforce the new requirement, but since the ruling, virtually all administrative bodies have upheld the requirement, requiring corporate entities to be represented by attorneys in all administrative hearings regardless of the type of hearing, severity, or dollar amount at issue.

Removal of Tort Immunity Exception for Outside Safety Consultants

As previously reported, in February of 2014, Senate Bill 3287 was introduced, proposing legislation seeking to remove an existing exception in the Workers' Compensation Act providing immunity to outside safety consultants and service providers for personal injury claims allegedly stemming or resulting from negligent services provided by those service providers. On June 5, 2014, that bill became law, removing the existing exception for outside safety consultants. Going forward, it is anticipated that personal injury actions will regularly filed directly against outside safety consultants, resulting, in-turn, in those safety consultants filing third-party complaints against their clients. The likely result to both the consultants and their clients will be increased insurance costs.