Substitute Senate Bill No. 996

Public Act No. 99-153

An Act Concerning Fairness in Financing in the Construction Industry.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) As used in sections 1 to 6, inclusive, of this act, unless the context otherwise requires:

(1) "Owner" means any individual, corporation, partnership, limited partnership, limited liability company or other business entity that is the owner or lessee of real property upon which a commercial or industrial building is to be or is being constructed, renovated or rehabilitated pursuant to a construction contract. Commercial or industrial building shall not be construed to include any building intended for residential occupancy or use.

(2) "Construction contract" or "contract" means any contract for the construction in this state on or after the effective date of this act of a commercial or industrial building, or for the renovation or rehabilitation of a commercial or industrial building for which a certificate of occupancy is required, including any improvements to real property that are associated with such construction, renovation or rehabilitation, or any subcontract for a project associated with the construction, renovation or rehabilitation of a commercial or industrial building between an owner and a contractor, or between a contractor and a subcontractor or subcontractors, or between a subcontractor and any other subcontractor, but does not include any public works or other building contract entered into with this state, the United States, any other state, and any municipality or other political subdivision of this state or any other state.

(3) "Retainage" means a sum withheld from progress payments to the contractor or subcontractor in accordance with the terms of a construction contract, but does not include any sum withheld due to the contractor's or subcontractor's failure to comply with construction plans and specifications.

Sec. 2. (NEW) (a) Unless otherwise agreed by the parties in the terms of a written construction contract, each construction contract shall contain the following provisions: (1) A requirement that the owner pay any amounts due any contractor, subcontractor or supplier in a direct contractual relationship with the owner, whether for labor performed or materials furnished, not later than fifteen days after the date any request for payment has been made by such contractor, subcontractor or supplier; (2) a requirement that the contractor pay any amounts due any subcontractor or supplier, whether for labor performed or materials furnished, not later than fifteen days after the date the contractor receives payment from the owner which encompasses labor performed or materials furnished by such subcontractor or supplier; and (3) a requirement that the contractor shall include in each of its subcontracts a provision requiring each subcontractor and supplier to pay any amounts due any of its subcontractors or suppliers, whether for labor performed or materials furnished, not later than fifteen days after the date such subcontractor or supplier receives a payment from the contractor which encompasses labor performed or materials furnished by such subcontractor or supplier.

(b) (1) If payment is not made by an owner in accordance with the requirements of subdivision (1) of subsection (a) of this section or any applicable construction contract, such contractor, subcontractor or supplier shall set forth its claim against the owner through notice by registered or certified mail.

(2) If payment is not made by a contractor in accordance with the requirements of subdivision (2) of subsection (a) of this section or any applicable construction contract, the subcontractor or supplier shall set forth its claim against the contractor through notice by registered or certified mail.

(3) If payment is not made by a subcontractor or supplier in accordance with the provisions of subdivision (3) of subsection (a) of this section, the subcontractor or supplier to whom money is owed shall set forth its claim against the subcontractor or supplier who has failed to comply with the provisions of said subdivision (3) through notice by registered or certified mail.

(4) Ten days after the receipt of any notice specified in subdivisions (1), (2) and (3) of this subsection, the owner, contractor, subcontractor or supplier, as the case may be, shall be liable for interest on the amount due and owing at the rate of one per cent per month. Such interest shall accrue beginning on the date any such notice is received. In addition, such owner, contractor, subcontractor or supplier, upon written demand from the party providing such notice, shall be required to place funds in the amount of the claim, plus such interest of one per cent per month, in an interest-bearing escrow account in a bank in this state, provided such owner, contractor, subcontractor or supplier may refuse to place the funds in escrow on the grounds that the party making such demand has not substantially performed the work or supplied the materials according to the terms of the construction contract. In the event that such owner, contractor, subcontractor or supplier refuses to place such funds in escrow and such owner, contractor, subcontractor or supplier is found to have unreasonably withheld payment due a party providing such notice, such owner, contractor, subcontractor or supplier shall be liable for reasonable attorneys' fees plus interest on the amount due and owing at the rate of one per cent per month. In addition, any owner, contractor, subcontractor or supplier who is found to have withheld payments to a party providing such notice in bad faith shall be liable for ten per cent damages.

(c) No payment may be withheld from a subcontractor or supplier for work performed or materials furnished because of a dispute between a contractor and another contractor, subcontractor or supplier.

(d) This section shall not be construed to prohibit progress payments prior to final payment of the contract and is applicable to all subcontractors and suppliers for material or labor whether they have contracted directly with the contractor or with some other subcontractor on the work.

Sec. 3. (NEW) No construction contract may provide for any retainage in an amount that exceeds seven and one-half per cent of the estimated amount of a progress payment for the life of the construction project. This section shall not be construed to require that a construction contract contain a retainage provision.

Sec. 4. (NEW) (a) Any provision in a construction contract or any periodic lien waiver issued pursuant to a construction contract that purports to waive or release the right of a contractor, subcontractor or supplier engaged to perform services, perform labor or furnish materials under the construction contract to (1) claim a mechanic's lien, or (2) make a claim against a payment bond, for services, labor or materials which have not yet been performed and paid for shall be void and of no effect.

(b) Notwithstanding any provision of subsection (a) of this section, this section shall not be construed to prohibit (1) the subordination of a mechanic's lien to the lien of a mortgage or security interest, or (2) the enforcement of an agreement to subordinate a mechanic's lien to the lien of a mortgage or security interest.

Sec. 5. (NEW) Any provision in a construction contract for the performance of work on a construction site located in this state that purports to require that any dispute arising under the construction contract be adjudicated in or under the laws of a state other than Connecticut shall be void and of no effect, regardless of whether the construction contract was executed in this state.

Sec. 6. (NEW) At or before the commencement of any work under a construction contract, the owner shall post and maintain in a conspicuous place at the construction site (1) the name and address of the owner and any agent authorized to accept service of a certificate of mechanic's lien on behalf of the owner in any action, suit or proceeding for the enforcement of any obligation of the owner arising out of the construction contract, (2) the volume and page number of the land records of the town in which such property is located, and (3) if a payment bond exists, the name and address of the surety that issued the payment bond.

Sec. 7. Section 49-33 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any building or any of its appurtenances or in the improvement of any lot or in the site development or subdivision of any plot of land, and the claim is by virtue of an agreement with or by consent of the owner of the land upon which the building is being erected or has been erected or has been moved, or by consent of the owner of the lot being improved or by consent of the owner of the plot of land being improved or subdivided, or of some person having authority from or rightfully acting for the owner in procuring the labor or materials, the building, with the land on which it stands or the lot or in the event that the materials were furnished or services were rendered in the site development or subdivision of any plot of land, then the plot of land, is subject to the payment of the claim.

(b) The claim is a lien on the land, building and appurtenances or lot or in the event that the materials were furnished or services were rendered in the site development or subdivision of any plot of land, then on the plot of land and the claim takes precedence over any other encumbrance originating after the commencement of the services, or the furnishing of any such materials, subject to apportionment as provided in section 49-36.

(c) If any such liens exist in favor of two or more persons for materials furnished or services rendered in connection with the same construction, raising, removal or repairs of any building or any of its appurtenances, or in the improvement of any lot, or in the site development or subdivision of any plot of land, no one of those persons shall have any priority over another except as hereinafter provided.

(d) If any instrument constituting a valid encumbrance upon such land other than a mechanic's lien is filed for record while the building is being constructed, raised, removed or repaired, or the lot is being improved, or the plot of land is being improved or subdivided, all such mechanic's liens originating prior to the filing of that instrument for record take precedence over that encumbrance and no such mechanic's lien shall have priority over any other such mechanic's lien. That encumbrance and all such mechanic's liens shall take precedence over any mechanic's lien which originates for materials furnished or services rendered after the filing of that instrument for record, but no one of the mechanic's liens originating after the filing of that instrument for record has precedence over another. If any lienor waives or releases his lien or claim of precedence to any such encumbrance, that lien shall be classed with and have no priority over liens originating subsequent to that encumbrance.

(e) A mechanic's lien shall not attach to any such building or its appurtenances or to the land on which the same stands or to any lot or to any plot of land, in favor of any subcontractor to a greater extent in the whole than the amount which the owner has agreed to pay to any person through whom the subcontractor claims subject to the provisions of section 49-36.

(f) Any such subcontractor shall be subrogated to the rights of the person through whom the subcontractor claims, except that the subcontractor shall have a mechanic's lien or right to claim a mechanic's lien in the event of any default by that person subject to the provisions of sections 49-34, 49-35 and 49-36, provided the total of such lien or liens shall not attach to any building or its appurtenances, or to the land on which the same stands or to any lot or to any plot of land, to a greater amount in the whole than the amount by which the contract price between the owner and the person through whom the subcontractor claims exceeds the reasonable cost, either estimated or actual, as the case may be, of satisfactory completion of the contract plus any damages resulting from such default for which that person might be held liable to the owner and all bona fide payments, as defined in section 49-36, made by the owner before receiving notice of such lien or liens.

(g) In the case of the removal of any building, no such mechanic's lien shall take precedence over any encumbrance upon the land to which such building has been removed which accrued before the building was removed upon the land.

(h) If any person has a claim for more than ten dollars for materials furnished or services rendered in the construction, raising, removal or repairs of any real property, and the claim is by virtue of an agreement with or by consent of the lessee of such real property or of some person having authority from or rightfully acting for such lessee in procuring the materials or labor, then the leasehold interest in such real property is subject to the payment of the claim. This subsection shall not be construed to limit any of the rights or remedies available to such person under subsection (a) of this section.

[(h)] (i) Any mechanic's lien may be foreclosed in the same manner as a mortgage.

Sec. 8. Subsection (a) of section 52-249 of the general statutes is repealed and the following is substituted in lieu thereof:

(a) The plaintiff in any action of foreclosure of a mortgage or lien, upon obtaining judgment of foreclosure, when there has been a hearing as to the form of judgment or the limitation of time for redemption, shall be allowed the same costs, including a reasonable attorney's fee, as if there had been a hearing on an issue of fact. The same costs and fees shall be recoverable as part of the judgment in any action upon a bond which has been substituted for a mechanic's lien.

Sec. 9. (NEW) No surety shall be obligated to include in the payment of a bond issued by such surety any interest, costs, penalties or attorneys' fees imposed on the principal of such bond under any provision of this act, unless the terms of the bond expressly reference this act and state that such surety is obligated to pay such interest, costs, penalties or attorneys' fees.

Approved June 23, 1999

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