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7 LONG TITLE
8 General Description:
9 This bill amends provisions related to the construction trade.
10 Highlighted Provisions:
11 This bill:
12 ▸ defines terms;
13 ▸ provides a maximum rate of interest for a lien filed against project property by a
14 person without privity of contract with the owner-builder; and
15 ▸ provides the director of the Division of Occupational and Professional Licensing
16 discretion to determine if a claimant has met certain requirements to recover from
17 the Residence Lien Recovery Fund.
18 Money Appropriated in this Bill:
19 None
20 Other Special Clauses:
21 None
22 Utah Code Sections Affected:
23 AMENDS:
24 13-8-5, as last amended by Laws of Utah 2012, Chapters 86 and 278
25 38-1a-309, as enacted by Laws of Utah 2012, Chapter 330
26 38-11-204, as last amended by Laws of Utah 2016, Chapter 238
27
28 Be it enacted by the Legislature of the state of Utah:
29 Section 1. Section 13-8-5 is amended to read:
30 13-8-5. Definitions -- Limitation on retention proceeds withheld -- Deposit in
31 interest-bearing escrow account -- Release of proceeds -- Payment to subcontractors --
32 Penalty -- No waiver.
33 (1) As used in this section:
34 (a) (i) "Construction contract" means a written agreement between the parties relative
35 to the design, construction, alteration, repair, or maintenance of a building, structure, highway,
36 appurtenance, appliance, or other improvements to real property, including moving,
37 demolition, and excavating for nonresidential commercial or industrial construction projects.
38 (ii) If the construction contract is for construction of a project that is part residential
39 and part nonresidential, this section applies only to that portion of the construction project that
40 is nonresidential as determined pro rata based on the percentage of the total square footage of
41 the project that is nonresidential.
42 (b) "Construction lender" means any person, including a bank, trust company, savings
43 bank, industrial bank, land bank, safe deposit company, private banker, savings and loan
44 association, credit union, cooperative bank, small loan company, sales finance company,
45 investment company, or any other financial institution that advances money to a borrower for
46 the purpose of making alterations or improvements to real property. A construction lender
47 does not include a person or entity who is acting in the capacity of contractor, original
48 contractor, or subcontractor.
49 (c) "Construction project" means an improvement to real property that is the subject of
50 a construction contract.
51 [
52 employee, undertakes any work in a construction trade, as defined in Section 58-55-102 and
53 includes:
54 (i) any person engaged as a maintenance person who regularly engages in activities set
55 forth in Section 58-55-102 as a construction trade; or
56 (ii) a construction manager who performs management and counseling services on a
57 construction project for a fee.
58 [
59 that term is defined in Section 38-1a-102.
60 [
61 property. Owner does not include a construction lender unless the construction lender has an
62 ownership interest in the property other than solely as a construction lender.
63 [
64 local district, special service district, or other political subdivision of the state that enters into a
65 construction contract for an improvement of public property.
66 [
67 Subsection (1)[
68 [
69 retained by the owner or public agency pursuant to the terms of a construction contract to
70 guarantee payment or performance by the contractor or subcontractor of the construction
71 contract.
72 [
73 defined in Section 38-1a-102.
74 (2) (a) This section is applicable to all construction contracts relating to construction
75 work or improvements entered into on or after July 1, 1999, between:
76 (i) an owner or public agency and an original contractor;
77 (ii) an original contractor and a subcontractor; and
78 (iii) subcontractors under a contract described in Subsection (2)(a)(i) or (ii).
79 (b) This section does not apply to a construction lender.
80 (3) (a) Notwithstanding Section 58-55-603, the retention proceeds withheld and
81 retained from any payment due under the terms of the construction contract may not exceed 5%
82 of the payment:
83 (i) by the owner or public agency to the original contractor;
84 (ii) by the original contractor to any subcontractor; or
85 (iii) by a subcontractor.
86 (b) The total retention proceeds withheld may not exceed 5% of the total construction
87 price.
88 (c) The percentage of the retention proceeds withheld and retained pursuant to a
89 construction contract between the original contractor and a subcontractor or between
90 subcontractors shall be the same retention percentage as between the owner and the original
91 contractor if:
92 (i) the retention percentage in the original construction contract between an owner and
93 the original contractor is less than 5%; or
94 (ii) after the original construction contract is executed but before completion of the
95 construction contract the retention percentage is reduced to less than 5%.
96 (4) (a) If any payment on a contract with a private contractor, firm, or corporation to do
97 work for an owner or public agency is retained or withheld by the owner or the public agency,
98 as retention proceeds, it shall be placed in an interest-bearing account and accounted for
99 separately from other amounts paid under the contract.
100 (b) The interest accrued under Subsection (4)(a) shall be:
101 (i) for the benefit of the contractor and subcontractors; and
102 (ii) paid after the project is completed and accepted by the owner or the public agency.
103 (c) The contractor shall ensure that any interest accrued on the retainage is distributed
104 by the contractor to subcontractors on a pro rata basis.
105 (d) Retention proceeds and accrued interest retained by an owner or public agency:
106 (i) are considered to be in a constructive trust for the benefit of the contractor and
107 subcontractors who have earned the proceeds; and
108 (ii) are not subject to assignment, encumbrance, attachment, garnishment, or execution
109 levy for the debt of any person holding the retention proceeds and accrued interest.
110 (5) Any retention proceeds retained or withheld pursuant to this section and any
111 accrued interest shall be released pursuant to a billing statement from the contractor within 45
112 days from the later of:
113 (a) the date the owner or public agency receives the billing statement from the
114 contractor;
115 (b) the date that a certificate of occupancy or final acceptance notice is issued to:
116 (i) the original contractor who obtained the building permit from the building inspector
117 or public agency;
118 (ii) the owner or architect; or
119 (iii) the public agency;
120 (c) the date that a public agency or building inspector [
121 issue [
122 complete occupancy [
123 project; or
124 (d) the date the contractor accepts the final pay quantities.
125 (6) If only partial occupancy of a [
126 retention proceeds withheld and retained pursuant to this section and any accrued interest shall
127 be partially released within 45 days under the same conditions as provided in Subsection (5) in
128 direct proportion to the value of the part of the [
129 used.
130 (7) The billing statement from the contractor as provided in Subsection (5)(a) shall
131 include documentation of lien releases or waivers.
132 (8) (a) Notwithstanding Subsection (3):
133 (i) if a contractor or subcontractor is in default or breach of the terms and conditions of
134 the construction contract documents, plans, or specifications governing construction of the
135 project, the owner or public agency may withhold from payment for as long as reasonably
136 necessary an amount necessary to cure the breach or default of the contractor or subcontractor;
137 or
138 (ii) if a project or a portion of the project has been substantially completed, the owner
139 or public agency may retain until completion up to twice the fair market value of the work of
140 the original contractor or of any subcontractor that has not been completed:
141 (A) in accordance with the construction contract documents, plans, and specifications;
142 or
143 (B) in the absence of plans and specifications, to generally accepted craft standards.
144 (b) An owner or public agency that refuses payment under Subsection (8)(a) shall
145 describe in writing within 45 days of withholding such amounts what portion of the work was
146 not completed according to the standards specified in Subsection (8)(a).
147 (9) (a) Except as provided in Subsection (9)(b), an original contractor or subcontractor
148 who receives retention proceeds shall pay each of its subcontractors from whom retention has
149 been withheld each subcontractor's share of the retention received within 10 days from the day
150 that all or any portion of the retention proceeds is received:
151 (i) by the original contractor from the owner or public agency; or
152 (ii) by the subcontractor from:
153 (A) the original contractor; or
154 (B) a subcontractor.
155 (b) Notwithstanding Subsection (9)(a), if a retention payment received by the original
156 contractor is specifically designated for a particular subcontractor, payment of the retention
157 shall be made to the designated subcontractor.
158 (10) (a) In any action for the collection of the retained proceeds withheld and retained
159 in violation of this section, the successful party is entitled to:
160 (i) attorney fees; and
161 (ii) other allowable costs.
162 (b) (i) Any owner, public agency, original contractor, or subcontractor who knowingly
163 and wrongfully withholds a retention shall be subject to a charge of 2% per month on the
164 improperly withheld amount, in addition to any interest otherwise due.
165 (ii) The charge described in Subsection (10)(b)(i) shall be paid to the contractor or
166 subcontractor from whom the retention proceeds have been wrongfully withheld.
167 (11) A party to a construction contract may not require any other party to waive any
168 provision of this section.
169 Section 2. Section 38-1a-309 is amended to read:
170 38-1a-309. Interest rate on lien.
171 [
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174 (1) Subject to Subsection (2), the interest rate that applies to a lawful contract for
175 preconstruction service or construction work on or for a project property, or to a lien claimed
176 under this chapter against the project property, is, unless otherwise provided in the lawful
177 contract, the rate described in Subsection 15-1-1(2).
178 (2) If a person that claims a lien against project property under this chapter is not in
179 privity of contract with the owner or owner-builder, the interest rate that applies to the person's
180 lien may not exceed the rate described in Subsection 15-1-1(2).
181 Section 3. Section 38-11-204 is amended to read:
182 38-11-204. Claims against the fund -- Requirements to make a claim --
183 Qualifications to receive compensation -- Qualifications to receive a certificate of
184 compliance.
185 (1) To claim recovery from the fund a person shall:
186 (a) meet the requirements of Subsection (4) or (6);
187 (b) pay an application fee determined by the division under Section 63J-1-504; and
188 (c) file with the division a completed application on a form provided by the division
189 accompanied by supporting documents establishing:
190 (i) that the person meets the requirements of Subsection (4) or (6);
191 (ii) that the person was a qualified beneficiary or laborer during the construction on the
192 owner-occupied residence; and
193 (iii) the basis for the claim.
194 (2) To recover from the fund, the application required by Subsection (1) shall be filed
195 no later than one year:
196 (a) from the date the judgment required by Subsection (4)(d) is entered;
197 (b) from the date the nonpaying party filed bankruptcy, if the claimant is precluded
198 from obtaining a judgment or from satisfying the requirements of Subsection (4)(d) because the
199 nonpaying party filed bankruptcy within one year after the entry of judgment; or
200 (c) from the date the laborer, trying to recover from the fund, completed the laborer's
201 qualified services.
202 (3) The issuance of a certificate of compliance is governed by Section 38-11-110.
203 (4) To recover from the fund, regardless of whether the residence is occupied by the
204 owner, a subsequent owner, or the owner or subsequent owner's tenant or lessee, a qualified
205 beneficiary shall establish that:
206 (a) (i) the owner of the owner-occupied residence or the owner's agent entered into a
207 written contract with an original contractor licensed or exempt from licensure under Title 58,
208 Chapter 55, Utah Construction Trades Licensing Act:
209 (A) for the performance of qualified services;
210 (B) to obtain the performance of qualified services by others; or
211 (C) for the supervision of the performance by others of qualified services in
212 construction on that residence;
213 (ii) the owner of the owner-occupied residence or the owner's agent entered into a
214 written contract with a real estate developer for the purchase of an owner-occupied residence;
215 or
216 (iii) the owner of the owner-occupied residence or the owner's agent entered into a
217 written contract with a factory built housing retailer for the purchase of an owner-occupied
218 residence;
219 (b) the owner has paid in full the original contractor, licensed or exempt from licensure
220 under Title 58, Chapter 55, Utah Construction Trades Licensing Act, real estate developer, or
221 factory built housing retailer under Subsection (4)(a) with whom the owner has a written
222 contract in accordance with the written contract and any amendments to the contract;
223 (c) (i) the original contractor, licensed or exempt from licensure under Title 58,
224 Chapter 55, Utah Construction Trades Licensing Act, the real estate developer, or the factory
225 built housing retailer subsequently failed to pay a qualified beneficiary who is entitled to
226 payment under an agreement with that original contractor or real estate developer licensed or
227 exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, for
228 services performed or materials supplied by the qualified beneficiary;
229 (ii) a subcontractor who contracts with the original contractor, licensed or exempt from
230 licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act, the real estate
231 developer, or the factory built housing retailer failed to pay a qualified beneficiary who is
232 entitled to payment under an agreement with that subcontractor or supplier; or
233 (iii) a subcontractor who contracts with a subcontractor or supplier failed to pay a
234 qualified beneficiary who is entitled to payment under an agreement with that subcontractor or
235 supplier;
236 (d) (i) unless precluded from doing so by the nonpaying party's bankruptcy filing
237 within the applicable time, the qualified beneficiary filed an action against the nonpaying party
238 to recover money owed to the qualified beneficiary within the earlier of:
239 (A) 180 days from the date the qualified beneficiary filed a notice of claim under
240 Section 38-1a-502; or
241 (B) 270 days from the completion of the original contract pursuant to Subsection
242 38-1a-502(1);
243 (ii) the qualified beneficiary has obtained a judgment against the nonpaying party who
244 failed to pay the qualified beneficiary under an agreement to provide qualified services for
245 construction of that owner-occupied residence;
246 (iii) the qualified beneficiary has:
247 (A) obtained from a court of competent jurisdiction the issuance of an order requiring
248 the judgment debtor, or if a corporation any officer of the corporation, to appear before the
249 court at a specified time and place to answer concerning the debtor's or corporation's property;
250 (B) received return of service of the order from a person qualified to serve documents
251 under the Utah Rules of Civil Procedure, Rule 4(b);
252 (C) made reasonable efforts to obtain asset information from the supplemental
253 proceedings; and
254 (D) if assets subject to execution are discovered as a result of the order required under
255 this Subsection (4)(d)(iii) or for any other reason, obtained the issuance of a writ of execution
256 from a court of competent jurisdiction; and
257 (iv) if the nonpaying party has filed bankruptcy, the qualified beneficiary timely filed a
258 proof of claim where permitted in the bankruptcy action;
259 (e) the qualified beneficiary is not entitled to reimbursement from any other person;
260 and
261 (f) the qualified beneficiary provided qualified services to a contractor, licensed or
262 exempt from licensure under Title 58, Chapter 55, Utah Construction Trades Licensing Act.
263 (5) The requirements of Subsections (4)(d)(ii) and (iii) need not be met if the qualified
264 beneficiary is prevented from compliance because the nonpaying party files bankruptcy.
265 (6) To recover from the fund a laborer shall:
266 (a) establish that the laborer has not been paid wages due for the work performed at the
267 site of a construction on an owner-occupied residence; and
268 (b) provide any supporting documents or information required by rule by the division.
269 (7) A fee determined by the division under Section 63J-1-504 shall be deducted from
270 any recovery from the fund received by a laborer.
271 (8) The requirements of Subsections (4)(a) and (b) may be satisfied if an owner or
272 agent of the owner establishes to the satisfaction of the director that the owner of the
273 owner-occupied residence or the owner's agent entered into a written contract with an original
274 contractor who:
275 (a) was a business entity that was not licensed under Title 58, Chapter 55, Utah
276 Construction Trades Licensing Act, but was solely or partly owned by an individual who was
277 licensed under Title 58, Chapter 55, Utah Construction Trades Licensing Act; or
278 (b) was a natural person who was not licensed under Title 58, Chapter 55, Utah
279 Construction Trades Licensing Act, but who was the sole or partial owner and qualifier of a
280 business entity that was licensed under Title 58, Chapter 55, Utah Construction Trades
281 Licensing Act.
282 (9) The director shall have equitable power to determine if the requirements of
283 Subsections (4)(a) [
284 chapter shall not alter or have any effect on any other decision by the division under Title 58,
285 Occupations and Professions.